Mortgage With Judgment Guidelines On Home Purchase


Mortgage With Judgment Guidelines On Home Purchase

This BLOG On Mortgage With Judgment Guidelines On Home Purchase Was UPDATED On February 11th, 2019

A judgment is one of the worst derogatory items that you can have on credit report.  Actually, it is worse than a 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 mortgage with judgment without having it addressed.

There are ways to qualify for mortgage with judgment if the borrowers has the following:

  • Have a written payment agreement with judgment creditor
  • Have three months of timely payments to 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 mortgage with judgment
  • Lenders want to see three months of seasoned documented payments
  • Judgments can be negotiated to lesser amount than face value and be paid at closing
  • Proof of funds for the payment to judgment creditor is required by mortgage underwriters

How Does Consumers Get Judgments?

  • When consumers default with creditors, they can get sued
  • The creditor needs to follow proper procedures in file 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 consumer
  • There are other methods of service depending on the county and state
  • If defendant does not show up to court or if they lose 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
  • Most creditors prefer borrowers with a 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 bankruptcy discharge
  • However, a judgment is a can of warms 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.

  • 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 making 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 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 debtor won the lottery or inherited tons of assets, they can come after debtor
  • Creditors have between 10 to 20 years to enforce judgments
  • Statute of Limitations depends on the state.

How Can I Get Rid Of Judgment?

There are three ways of getting rid of judgment.

  • The first way is to try to get 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 defendant 3 years to get a judgment vacated
  • After that period, debtors lose 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
  • 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 gets wiped out with a Chapter 7 bankruptcy
  • Unless they are judgments that involve fraud and/or child support/alimony judgments or debts to 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 mortgage loan with an outstanding judgment if they have written payment agreement
  • Borrowers needs to make at least three months of payments to the judgment creditor
  • Three months of cancelled checks and/or bank statements needs to be provided to mortgage underwriters

Gustan Cho NMLS ID 873293


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