Mortgage Part Of Bankruptcy Case Scenario

This Article On Mortgage Part Of Bankruptcy Case Scenario Was Written By Dale Elenteny

This story begins around October of 2009. When our mortgage loan borrower married his wife she had already owned what would be their primary residence, so he was not on the mortgage or note. He also owned an investment property. The mortgage loan borrower’s wife purchased the primary residence in October of 2007 utilizing an eighty percent first mortgage, ten percent second mortgage and a ten percent down payment also known as a 80/10/10 mortgage. The first mortgage was financed on a two year arm, meaning it is fixed for two years and converts to an adjustable rate after the loan’s two year anniversary date. Depending on the annual and lifetime rate caps this can have a significant impact on the adjusted payment. In this particular case, in 2009, after the two year fixed period was over and the new adjustments were applied, the borrower’s wife was confronted with a new payment that was well above their budget. Unable to deal with the “payment shock,” the borrower’s wife made several attempts with her existing first mortgage company to modify the mortgage loan back to its original payment and was unsuccessful. While this happened our borrower was having difficulty renting the investment property he owned, creating an additional burden they could not overcome. Dealing with real estate values that were rapidly declining the borrower’s wife was able to get permission from the first mortgage company to proceed with a short sale which was finalized in 2013. The borrower and his wife decided to file Chapter 7 Bankruptcy in 2010 and start over. Included in that Chapter 7 bankruptcy was the borrower’s investment property, which would be play a significant role in the borrower’s pursuit of home ownership in the future.

Mortgage Part Of Bankruptcy Case Scenario: Fast Forward To 2016

Fast forward to February of 2016 and after several conversations with the borrower we felt that the borrower could qualify for a Conventional Mortgage utilizing the “Foreclosure and Bankruptcy on the Same Mortgage” guideline offered by Fannie Mae. The waiting period on this program is four years from the discharge of the bankruptcy and the foreclosure must be satisfied or completed. In July of 2015 our borrower’s investment property, which was included in the bankruptcy, was sold and per Fannie Mae allowed us to use the bankruptcy discharge date as the beginning of the waiting period – well past the four year minimum required by Fannie Mae. Since the borrower’s wife completed her short sale less than four years prior to the loan application and the short sale was not considered an extenuating circumstance, she was not eligible to be on the loan. Armed with a cautious sense of optimism we proceeded in qualifying our borrower using the “Foreclosure and Bankruptcy on the Same Mortgage” guideline. We informed the borrower it would probably take forty-five days to close and would have to be very diligent about documenting the file with updated pay stubs, bank statements and other items requested by underwriting. The file went through the process without any problems, and closed in sixty days. The only reason it did not close in forty-five days or less was that the seller wanted to close at the end of the month, adding three weeks. All in all a success and we have a happy homeowner!

About The Author Of Mortgage Part Of Bankruptcy Case Scenario: Dale Elenteny

This article on Mortgage Part Of Bankruptcy Case Scenario was written by Dale Elenteny. Dale Elenteny is a contributing editor for Gustan Cho Associates and a 20 plus year veteran in the mortgage industry. Dale Elenteny is an expert on FHA Loans, VA Loans, USDA Loans, and Conventional Loans. The good news for home buyers who had a mortgage part of bankruptcy is that there is a four year waiting period to qualify for a Conventional Loan from the discharged date of their Chapter 7 Bankruptcy regardless on when the actual recorded date of the foreclosure is. The foreclosure can be recorded after the discharged date of the Chapter 7 Bankruptcy and it will not affect the waiting period. This is not the case with FHA Loans. With FHA, if you had a mortgage or mortgages as part of your Chapter 7 Bankruptcy, there is a three year mandatory waiting period from the actual recorded date of the foreclosure and/or date of the sheriff’s sale even though the mortgage was included in the Chapter 7 Bankruptcy and the mortgage has been discharged. If you had a mortgage or mortgages as part of your Chapter 7 Bankruptcy and have passed the 4 year waiting period and need a Conventional mortgage lender with no lender overlays, please contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer any questions you may have.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

2 Comments

  1. Teri Martin says:

    Looking to purchase a home. In Chapter 13 with some late pays haven’t had any in almost a year. Already have approval from the courts.

    • Gustan Cho says:

      Most mortgage lenders do not want any late payments however if you have a few late payments, it is not a deal killer. Please give me a call at 262-716-8151 so we can discuss.