Mortgage Part Of Bankruptcy Case Scenario On Conventional Loans

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This Article On Mortgage Part Of Bankruptcy Case Scenario On Conventional Loans Was UPDATED And PUBLISHED On November 14th, 2019

Mortgage Part Of Bankruptcy Case Scenario
Gustan Cho Associates

This story begins around October of 2009. When our borrower married his wife.

  • The wife 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 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 is also known as an 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 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 playing a significant role in the borrower’s pursuit of homeownership in the future

In this article, we will discuss Mortgage Part Of Bankruptcy Case Scenario On Conventional Loans.

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

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 an associate contributing editor for Gustan Cho Associates:

  • Dale is a 20 plus year veteran in the mortgage industry
  • Dale Elenteny is an expert on FHA, VA, USDA, Non-QM, and Conventional Loans
  • The good news for homebuyers 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
  • This holds true 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 direct lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. The Team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer any questions you may have.

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.

    1. 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.

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