Mortgage With Judgment Guidelines On Home Purchase

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This Article Is About The Mortgage With Judgment Guidelines On Home Purchase

Homebuyers and homeowners can qualify for a mortgage with outstanding judgments as long as they have a written payment agreement with the judgment creditor and have made three timely payments. A judgment is the worst derogatory credit tradeline any consumer can have on their credit report. Judgments are issued by a judge when a creditor sues for defaulting on their obligation. Most judgments are good for ten to twenty years but the judgment creditor can always renew the judgment for another ten to twenty years several times. The only way to get rid of a judgment is to either negotiate with the judgment creditor, make a written payment agreement, or file bankruptcy. In this article, we will discuss and cover qualifying for a mortgage with judgments.

What Is A Judgment?

What Is A Judgment?

A judgment is one of the worst derogatory items that you can have on the credit report.  Actually, it is worse than bankruptcy, foreclosure, deed in lieu of foreclosure, and/or short sale. Borrowers can qualify for FHA Loans with outstanding collections and charged-off accounts without having to pay them off. However, borrowers cannot just qualify for a mortgage with judgment without having it addressed.

Ways Of Qualifying For A Mortgage With Outstanding Judgments

There are ways to qualify for home loan with judgment if the borrowers have the following:

  • Have a written payment agreement with the judgment creditor
  • Have three months of timely payments to the creditor
  • Need three months canceled checks and/or bank statements reflecting payment to creditor
  • Debtors cannot pre-pay the three months upfront in advance to judgment creditors in order to qualify for a mortgage with judgment
  • Lenders want to see three months of seasoned documented payments
  • Judgments can be negotiated to a lesser amount than face value and be paid at closing

Proof of funds for the payment to the judgment creditor is required by mortgage underwriters.

How Do Consumers Get Judgments?

When consumers default with creditors, they can get sued. The creditor needs to follow proper procedures in filing a lawsuit. The creditor files the lawsuit in court. Once it is filed the sheriff’s department of the county and/or third-party process server needs to physically serve consumers. There are other methods of service depending on the county and state. If the defendant does not show up to court or if they lose the lawsuit, then the judge will issue a judgment. A judgment is a court order allowing the creditor to pursue further collections on the unpaid debt. This can be done by wage garnishment, asset forfeiture, bank account levies, placing liens on real estate and property.

Bankruptcy Solution To Getting Rid Of Judgments

How to resolve bankruptcy to get rid of judgments

Most creditors prefer borrowers with bankruptcy than those with judgments on their credit reports. A bankruptcy wipes the slate clean. Consumers have no liabilities after bankruptcy discharge and creditors from the past cannot attempt to collect any debts discharged by a bankruptcy discharge. However, a judgment is a can of worms that can blow up at any time. Statute of limitations On Judgments are 10 to 20 years depending on the state and judgments can be renewed for another 10 to 20 years. In most cases, a judgment will remain dormant after 5 years of inactivity. Most creditors decide not to pursue the judgment debtor because they just assume that the judgment debt is judgment proof.

What Is Judgment Proof?

Being judgment proof means that judgment debtors are not collectible to a judgment creditor. For those with little or no income nor any assets, a judgment creditor cannot come after them. The courts do not enforce collection on a judgment. It is up to the judgment creditor to enforce a court judgment by taking collection activities. If the judgment creditor finds out that judgment debtors make a good income and have assets, they can pursue enforcement actions by trying to garnish wages, levying bank accounts, and placing liens on assets. The first three years after the judgment, creditors will most likely aggressively pursue enforcement activities. After that period the judgment will most likely be dormant. However, just because judgment is dormant does not mean that debtors are off the hook. In the event, if the judgment creditor finds out that the debtor won the lottery or inherited tons of assets, they can come after the debtor. Creditors have between 10 to 20 years to enforce judgments. Statute of Limitations depends on the state.

Mortgage With Judgment: How Can I Get Rid Of Judgment?

There are three ways of getting rid of judgment.

  • The first way is to try to get the judgment vacated due to improper service
  • This method needs to be done as soon as possible and consumers cannot wait years
  • Defendants improperly served by judgment creditor can try to get the judgment overturned by the courts due to improper service
  • However, most states only give the defendant 3 years to get a judgment vacated
  • After that period, debtors lose the right in getting judgment overturned and/or vacated
  • The second way to get judgment off is to pay off the judgment or to settle with the judgment creditor
  • The older judgment is, the more likely the judgment creditor will be willing to negotiate for a percentage of the original judgment amount

Also, the judgment creditor may require to provide them with a Personal Financial Statement and run a financial background investigation.

Mortgage With Judgment: Negotiating Pennies For The Dollar On Judgment

Which means negotiating pennies on the dollar in court

For those with little or no assets and very little income, the chances are that the judgment creditor will take pennies on the dollar:

  • They rather take a little something than nothing
  • The third way of getting rid of a judgment is by filing bankruptcy
  • Most judgments get wiped out with a Chapter 7 bankruptcy
  • Unless they are judgments that involve fraud and/or child support/alimony judgments or debts to the government
  • Tax liens, student loans, and government loans, and government judgments cannot be discharged in a bankruptcy
  • Consumers should consult with a bankruptcy attorney if they are contemplating getting rid of judgments through bankruptcy

They should be able to tell consumers whether or not bankruptcy is the right avenue for them.

Can I Get Mortgage With Outstanding Judgment?

Yes. Lenders cannot approve borrowers with outstanding judgments and/or tax liens without having them addressed. Borrowers can qualify for FHA Loans with outstanding collections and charged-off accounts. Under FHA Guidelines, outstanding collections and/or charged-off accounts do not have to be satisfied to qualify for FHA Loans. Many lenders have overlays on outstanding collections and/or charged-off accounts and require borrowers to pay them off even though HUD, the parent of FHA, does not require it. The reason being is because collection accounts can turn into judgments if the creditor decides to pursue collection efforts. Home Buyers can get a home loan with a judgment if they have a written payment agreement. Borrowers need to make at least three months of payments to the judgment creditor. Three months of canceled checks and/or bank statements need to be provided to mortgage underwriters.