Alex Carlucci The Mortgage Expert,
Publish On: February 20, 2022
In this blog, we will discuss and cover mortgage charge-offs lending guidelines. We will offer advice on how to qualify for a home loan after mortgage charge-off. Losing everything you’ve worked for your whole life can happen at any time. One minute you are enjoying your new home and life is good. Then all of a sudden there is a knock on the door. Someone with a summons which is a notice of foreclosure.
Loss of Employment
If you lose your job, you will not able to keep up with your payments. In most cases, the payment arrangement to the mortgage lender is over your budget. After everything is over the lender can charge off the remaining debt you owe. While this may seem hopeless but we will be discussing what happens. We will cover qualifying for a home loan after mortgage charge offs. In this article, we will discuss and cover Mortgage Charge Offs Lending Guidelines And Requirements.
What Are Mortgage Charge Offs
When a lender writes off the unpaid debt for tax purposes it is called a mortgage charge offs. Not all home foreclosures result in mortgage charge-offs. In the event the value of the property exceeds the amount you owe the proceeds from the sale may pay off outstanding debt and the lender will be paid in full so there will be no deficit. However, in most foreclosures, the lender will be taking a hit. There will be a deficit after the foreclosure of the home is finalized. If not and you owe more than what the home is sold for you may be legally responsible for the deficient balance. If you can’t pay the mortgage balance deficit, the lender may charge the remaining mortgage loan balance off and claim the debt as a loss for tax purposes and zero out their book This is what is called mortgage charge-offs.
Charged-Off Second Mortgages
Per Mortgage Charge Offs Lending Guidelines, if the charge off is a second mortgage and the home was lost to foreclosure, there is no waiting period for homebuyers to qualify for an FHA loan. However, per Mortgage Charge Offs Lending Guidelines, if a second mortgage was charged off and the homeowner still owns the property, the second mortgage is still has a lien behind the first mortgage and needs to be paid off even though the second mortgage is charged off.
Liability After Mortgage Charge Offs
Don’t think just because the lender has charged off the remaining debt homeowners are in the clear of any liabilities. A mortgage charge off is just a term the lender uses in accounting. Even if the mortgage lender writes off the charge as a loss on their books, consumers still owe that mortgage loan balance. This holds true even after the property is taken away from you via foreclosure and the foreclosure is finalized and sold. Banks can still contact homeowners and attempt to collect the unpaid balance. The mortgage lender may also sell the debt if they cannot collect from you or are unable to locate you. Sometimes lenders just don’t have time or the resources to continue the collection process. They then sell the debt to a collection agency that has the resources to attempt to collect the charge offs.
Credit Damage Due To Mortgage Charge Offs
People who had a prior mortgage charge off will have negative and their credit scores will drop by almost or more than 100 Points. Credit scores and credit rating will take a major hit with foreclosure but what can cause even more damage is a mortgage charge offs after a foreclosure. Other lenders may take that the foreclosure and charge off show that you refused to work with the bank to resolve the debt. While this may not be the intention that will be the perception. It remains to be seen the damaged consumer credit report. But the higher you’re rating before the greater the damage that will happen.
How Will Bad Credit Affect You As A Homebuyer and Consumer
Credit rating will be affected for seven years after a foreclosure and charge off. You might be asking how will this affect my purchasing a home in the future. You can qualify for a home loan after a mortgage charge off. With FHA mortgage lending guidelines, qualifying for an FHA loan after a mortgage loan charge off is three years from the date of the charge off. Fannie Mae and Freddie Mac’s Guidelines in qualifying for a conventional loan after a mortgage charge off account are seven years from the date of the charge off. VA guidelines require a two-year waiting period after a housing event for buyers to qualify for a VA loan.
Legal Consequences With Mortgage Charge Offs
While a foreclosure is damaging to credit as well as credit scores, mortgage charge offs accounts will be worse. Not only is the foreclosure reporting on the credit report, but the charge off account is reporting it too which is a double hit. What has to be avoided at all costs is a lawsuit that can turn into a judgment. Consumers have to double-check if they live in a state that prohibits mortgage lenders from suing them after foreclosure on their primary home. Whoever owns the charge off account has the legal right to take them to court over the unpaid charge off collection balance. Consumers could face asset seizures, wage garnishment, and bank levies if the charge off creditors wins.
