Waiting period starts from the recorded date in foreclosure
Most folks now realize that there are waiting periods to apply for a mortgage loan after a bankruptcy, foreclosure, short sale, and deed in foreclosure. Waiting period for a bankruptcy is 2 years from the date of the bankruptcy discharge. For a short sale, it is three years from the date of the sale of the property for a FHA loan and 2 years from the date of the sale of the property for a conventional loan only if the borrower can put down 20%. However, with a deed in lieu of foreclosure and/or foreclosure, it can be tricky and millions of Americans have fallen victims because the mortgage lender has not transferred out of the borrower’s name and into the mortgage lender’s name.
Waiting Period Start Date
The waiting period for those who have had a deed in lieu of foreclosure or a foreclosure starts from the date of the sheriff’s sale or the date when the deed of the home was transferred out of their name and into the name of the mortgage lender. Just turning in the keys to the mortgage lender is not good enough. Most lenders will take the keys from the homeowner and has no intention on transferring the deed over to the lender’s name. They realize that this will hurt the foreclosed homeowner and many do this on purpose.
Foreclosure as part of your bankruptcy
I run into situations where folks have had a deed in lieu of foreclosure and have included the deed in lieu of foreclosure as part of the bankruptcy. They assume that the waiting period starts from the date of the bankruptcy discharge date and work diligently in re-establishing their credit and wait the three year waiting period and contact me to qualify them for a mortgage. Unfortunately, on many cases, I cannot qualify the potential homeowner because even though they have included their deed in lieu of foreclosure as part of their bankruptcy, the deed is still not out of their name. For those folks who have this problem, the waiting period has not even started yet. They need to get the deed out of their name and into the bank’s name immediately and then the three year waiting period clock starts ticking. It is extremely unfortunate but there are no loopholes in the system to get around this. Bankruptcy attorneys should have caught this but the mortgage rules and regulations are so complex that many real estate attorneys still do not know this important matter.
What if the mortgage lender decides not to take your name out of the deed into their name?
I know of several dozen cases where the mortgage lender would not transfer and record the deed of the foreclosed home out of their name into their name. On cases where you have had the deed in lieu of foreclosure as part of your bankruptcy, you own the house free and clear because the mortgage was wiped out in the bankruptcy. You are offering the deed to your property back to the bank and the bank is not willing to take it. Technically, you own the home free and clear of no mortgage. I would notify and threaten the mortgage lender that you are planning on selling the foreclosed home since it is under your name and list the property. I guarantee you that the mortgage lender will transfer the deed so fast out of your name. Legally, you can sell the home and keep all the proceeds of the sale of the home since the deed is still in your name and the bank refused to transfer it to their name.
2015 Update To This Mortgage Blog Article
There has been many changes since this mortgage article blog post has been written and published on Gustan Cho Associates. First, Fannie Mae no longer has the 2 year waiting period for a conventional loan with 20% down payment after two year waiting period after short sale and deed in lieu of foreclosure. Fannie Mae now requires a mandatory four year waiting period after deed in lieu of foreclosure and short sale to qualify for a conventional loan with 5% down payment. On another positive note, if you had a mortgage loan as part of your bankruptcy, the waiting period starts from the discharge date of your bankruptcy and not the recorded date of the deed of your home being transferred out of your name into the mortgage lender name.