Refinancing Your Home

Mortgage Loan With Judgment

Gustan Cho Associates

Mortgage rates are still low and many homeowners has not refinanced their home yet.  Refinancing your home is the same as applying for a home purchase mortgage loan.  By refinancing your high interest rate mortgage to a lower interest rate mortgage can save you tens of thousands of dollars over the life of your mortgage loan.  Your monthly payments can greatly be reduced by refinancing your home.  Mortgage lenders will need to see your income, credit, and liabilities.  Having a period of prior bad credit is fine and understandable and collection accounts with balances do not have to be paid, depending on the mortgage lender.  However, if you have a judgment or judgments on your credit report, that is a different story.  Is it possible to get a refinance mortgage with a judgment?  The answer is yes but under certain circumstances.

What Is A Judgment?

A judgment is when a creditor tries to collect on a bad debt a debtor owes and takes you to court so the judge can rule on their favor and issue a judgment.  You must properly be served for the judgment to be valid.  The creditor will file a lawsuit with the county court house and the county sheriff or process server needs to serve you with a summons for you to show up to court.  If you do not show up, the judge normally issues a judgment against you in favor of the creditor.  You can show up with proof that the debt has been settled or does not belong to you and if the judge deems it that the creditor does not have a valid reason to warrant the collection, the judge will dismiss the lawsuit and everything is expunged.  However, most consumers who do owe debt normally do not show up in court and end up having a judgment entered against them.

Judgments Are Worst Derogatory Item You Can Have

A judgment is probably the worst derogatory item you can have against you on your credit report.  A judgment remains on your credit report for 7 years from the date it was entered but most judgments have statute of limitations for 10 years plus judgment creditors can renew the judgment once the statute of limitations expires in ten years for another ten years.

Creditor Enforcement Of Judgment

If a creditor has a judgment against you, the creditor can enforce the judgment by trying to place liens on your assets such as your home, other properties, bank accounts, investment account, or can even try to garnish your wages.  However, if you do not have much assets or no assets, and no income, you are considered judgment proof which means that they cannot do anything.  Once a judgment creditor has a judgment against you, they will try to aggressively try to collect on the judgment and when they find out that you do not have much assets or income, they will eventually lay off.  As the judgment ages, the collection activity will die down and the judgment will become dormant.  However, if the judgment creditor gets wind that you have assets or are making good income, they can restart and aggressively pursue collection proceedings.  Most judgment creditors do not renew the judgments after the statute of limitations period is over.

How Can I Vacate A Judgment?

There are three ways of getting rid of a judgment.  The first and easiest guaranteed way of getting rid of a judgment is by filing bankruptcy.  Most judgments are discharged on a bankruptcy unless the judgment is from fraud or a government debt such as a tax lien or delinquent student loans.  Child support and alimony debts cannot be discharged through bankruptcy.  The second way of getting rid of a judgment is by paying off the judgment or entering into a written payment agreement with the judgment creditor.  You can settle for a percentage on the judgment amount owed and have the judgment creditor clear you of the judgment and record it on public records as satisfied.  The third way of getting rid of a judgment is by having it vacated by petitioning to the courts that you were not served properly.

Refinancing With Judgment

If you have a money judgment against you, the judgment creditor can have an interest and lien against your property.  Money judgments are court rulings where the courts issues an interest against the property owned by the judgment debtor.  Mortgage lenders do not want to lend on any property that has a judgment against it.  Many mortgage lenders will require that the judgment be paid off and released in order to proceed with refinancing the homeowner.  There are other mortgage lenders that will entertain refinancing a mortgage loan as long as the judgment debtor has a written payment agreement with the judgment creditor and has made three timely payments.  Canceled checks needs to be provided.

Refinancing with judgment is possible, however, you need to discuss the judgment issue before you can proceed with the processing and underwriting of your refinance mortgage loan.  Worst case scenario, you may need to enter into a payment plan with the judgment creditor and make three payments to them for you to be able to proceed with refinancing.

Collection Accounts Can Become Judgments

Another fear some mortgage lenders have is that an unsatisfied collection account can be a time bomb in turning into judgments.  Although under FHA guidelines, a mortgage loan applicant can qualify for a mortgage loan with unsatisfied collection accounts with credit balances, many mortgage lenders have overlays that unpaid collection accounts need to be paid in full for a mortgage loan application to proceed.  The reason mortgage lenders have overlays on having collection accounts paid in full is due to fear in having collection accounts become judgments.

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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.

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