If my mortgage was discharged in 2005 but I kept the house and am current on payments, could I go and apply for a new mortgage on a new home now.

Asked by Dan, Anoka, MN Fri Jul 15, 2011

I filed bankrupcty six years ago in 2005, my mortgage was discharged but I've always maintained the house payments (It was not reaffirmed). I'm nowgoing through a divorce and I'll have the house. My wife was not on the mortgage but both of us are on the title. I believe to be upside down now on the mortgage and really would like to move. The mortgage was discharged so I have no financial obligation but will my name being on the title affect me for applying for a home mortgage on another property? I'm not late on any of my house payments but as I'm upside down on the loan I'm wondering if walking is my best option with all the better deals out there. I realize if I let my home go into foreclosure that would clearly prevent me but what if I apply for a mortgage now while I'm still in the home, no mortgage in my name and current on payments with no foreclosure on my record. Do they do some sort of title search on buyers to see if they have homes in their name.

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Ron Thomas’ answer
Ron Thomas, Agent, Fresno, CA
Fri Jul 15, 2011
I cannot comment on the BK/Legal aspects,
And I will not comment on the Mortgage aspects (Shane is an expert on that!)
But, I might be able to help a little:

Upside ~ Down

We get a lot of questions about Homeowners being Upside-Down on their house.
I will try to cover the field on this topic:
1.) Just being Upside-Down is not sufficient reason for the Bank to do anything for you:
2.) The Bank did not create the Recession and the bank has it’s own problems.
3.) For some RELIEF, you need a dire Financial Hardship to exist; such as you lost your job, or you had a Medical Catastrophe.
4.) If you want to do a Shortsale, you will have to prove to the Bank that they must help you, now or later. Most Banks will not even talk to you if you are CURRENT; so you will have to go past the Point-of-no-Return before they will do anything.
5.) The first step would be to find a Realtor, well versed in Shortsales, who will help you.
6.) This is not as simple as it sounds; many Agents have “sworn off shortsales” because of what is involved in them.
7.) It will make a very big difference if you have ONE LOAN as opposed to having a SECOND. The chances of succeeding in your Shortsale are greatly reduced by having a SECOND loan.
8.) You will have to sit down and compose a letter to your Lender; telling them exactly why you have a hardship and what you plan to do. It is my experience that you have to do this, personally; your Realtor cannot do it, and your Attorney cannot do it for you. You should be OPEN and HONEST, don’t try to B.S: This is about the only thing in the whole process that is PERSONAL. (If you really want to be PERSONAL, do it on a lined pad in your own LEGIBLE handwriting or printing.)
9.) If successful, you now can say (in the Listing) that your Shortsale is pre-approved by your bank.
10.) Now, you can List the house with your Realtor and the MLS. Your Realtor will do a CMA, (Comparative Market Analysis) to determine the Listing Price. The Bank may order a BPO, (Broker Price Opinion) to determine the Listing Price. In many cases, you will be on your own; the Bank will not communicate with you.
11.) If you get an Offer, you will probably “rubber stamp” it and your Realtor will forward it to the Bank.
12.) There is no set time for the Bank to respond; we have heard of three weeks, and we have heard of a year or more. This is not fair, not reasonable, and in fact, it is rude and ridiculous. But it is a fact; so do not get impatient or upset with your Realtor, it is not their fault and they have no control over it. They will gently try to push it along, calling every week or two; but they understand that the person who has that file on their desk, probably has 100 to 300 other files, (they could accidently take a file and move it to the bottom of the pile; things like that have been know to happen.)
13.) You must understand that the Bank is there to make money; they are not a social service organization. It is possible that they believe that they might be able to make more money by letting the property go through Foreclosure. Or, they might believe that next year (or six months from now) the Market will be stronger and they can either COUNTER your offer, or, let it go through Foreclosure.
14.) Now, it is seven months later, and you get a Letter of Acceptance from the Bank: It will probably delineate the terms that they deem acceptable: For example; it will say that the Escrow is to be 45 days, that XYZ is going to be the Title Company, That they are not going to do, nor pay for, any Inspections, that they will pay a maximum of $750 for Schedule A(1) repairs due to Pest Inspection, and that if you are not ready to close on time, you will be charged $50 per day for each and every day.
15.) If you are still in the game, your Buyers will do their Inspections, and set up their Loan. The Bank will order the Appraisal.
16.) Follow your Realtor’s guide and in 45 days, you will be moving.
17.) You’re not out of the woods yet. If the Bank accepted $100,000 less than the amount of the loan, they might come after you with a Deficiency Judgment. The list of Non-Recourse States is changing fast. Please consult an Attorney at this point; I am not equipped to answer Legal Questions. But,
18.) I will say that it looks like Deficiency Judgments are like an ice berg sitting out there, waiting for a ship to come along. You need to do your Diligence.

Good luck and may God bless
2 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Fri Jul 15, 2011
You need to disclose all real estate you own on the mortgage application. You also need to disclose if you've owned a home in the past 3 years. You also need to disclose where you have lived for the past 2 years. The lender does a search to find out if you do own other property/had a mortgage. Your mortgage will likely appear on your credit report. A mortgage included in BK still puts you in limbo afterwards because the property is still legally in your name (call up the county and ask who they bill the property taxes to/who is listed as the owner, someone trips over a rake in your yard and impales them and see who they file a lawsuit against) and so the foreclosure process has yet to begin, if it will ever (such as in your situation where you maintain payments, the lender has no reason in the world to take back the property, you are paying on a debt you don't even legally have to...!). You are also under the false impression that you "let them" foreclose on you, you do not let them foreclose on you, they choose to foreclose on you. You can set the stage, but they pull the trigger. And they may wait, and wait, and wait... I spoke to someone in Michigan who filed BK, included their mortgage, and moved out of their home 5 years ago and their lender still hasn't taken the home back, they get county tax bills to this very day. So that's the bad news.

The good news is since you've maintained the mortgage payments on it afterwards (meaning no late payments) then your credit history is probably in pretty good to excellent condition at this point, and if you can qualify for both the new & existing payments, then you should have some financing options. Or if you can't qualify for both mortgage payments and need rental income to help offset it, then if you are also relocating to a new area not within reasonable commuting distance because you are being transferred or gaining new employment, you can put a renter in there (signed lease agreement + evidence of 1st months rent and/or security deposit) and use that to help offset your current home's mortgage payment.
2 votes
Chris Block, , Saint Paul, MN
Thu Jul 21, 2011
Anoka County is my neck of the woods and I am a short sale specialist.

From everything I have read it seems as though there is no recourse on this, so it just depends on what it will take to purchase another home. The only reason to do a short sale is because you A) Can't get approved for financing on two properties B) a foreclosure would drastically change your options.

I usually say a short sale is always better than foreclosure but you could be a rare case friend. Are you looking to buy in Anoka too? Just let me know when you would like some help!

Chris Block
0 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Fri Jul 15, 2011
You are welcome Dan - the advice a BK attorney gives may not always be the best advice in order for you to qualify for a mortgage later on. But I suspect they may not have known 6 years later that you would be getting a divorce. It's tough being an attorney.

As far as the credit, that also stinks about the re-established credit all in your wife's name. After a BK it is really important for you to have re-established traditional credit, such as credit cards, student loans, personal loans, car loans, etc. for at least 12 months with 3 trade lines. I usually recommend Orchard Bank, Crown Jewelers, and a secured credit card, as all 3 are relatively easy to obtain. Santander is easy going on getting new auto loans. Even though the mortgage doesn't report to your credit, it still counts as a traditional credit trade line if you can provide a payment history of some sort (such as the lender verifying the payments, or cancelled checks from your checking account), so at least you have that going and re-established credit after a BK that includes on time mortgage history is the strongest type of re-established credit that there can be (since it's "like" credit to a new mortgage).

So you know how that requirement on the way you can use rental income from your primary-residence-converted-to-a-rental to qualify? The job relo? The other way is if you have equity, either 25% or 30% depending on the program, useless info in your situation right? Yeah I know. I just said it so I can also say the last way you can use rental income to qualify in your situation is to have it reported on your tax returns (as well as actually vacating the home), so that means you could turn this sucker into a rental property right now, rent a place yourself for the remainder of the year, report this properties rent on Schedule E of your 2011 tax returns, then in say April of 2012 when they can be verified by the lender you have a bona fide rental property and don't have to qualify under the primary-residence-to-rental-conversion guidelines.

Real estate will come back around one day, may not be awhile, but it'll come back. Have you looked into what your home would rent for? Anything close to the monthly housing payment?
0 votes
Dan, Home Buyer, Anoka, MN
Fri Jul 15, 2011
Shane thanks for the heads up about the taxes adn disclosure requirements....

I do not get credit for making payments on my credit. Once it's been included in a bankruptcy they no longer report the payments in my case I've pulled my credit report and found that out long ago-I would have had to have reaffirmed the mortgage (and they wouldn't let me) to get the payments reported to one of the three credit places. Therefore I don't have good credit as I have taken out ZERO loans or credit cards since 2005. Well to be honest I did but we took them out in my wifes name and I paid on them....she got all the credit and now we're divorcing and she has good credit and no ties to the house. As far as the foreclosure goes when I mean "Let them foreclose" I simply meant stop making payments and start the assumed process that would begin. I assume they will foreclose within a reasonable time and around here I've never heard of them not doing so. But it's interesting that they have that option NOT to foreclose, I just don't see that being the norm around here-something I'm going to look more into though-good information to have. I also really appreciated the information of the disclosure requirements....that in a nut shell is what I think I was looking for. I suppose one could sermise that if you have a title on a property you own it, paid for or not and hence you would have to disclose that.

RON thanks for all the information, I hope some read up on it. It doesn't apply to my situation due to the fact that the mortgage was included in the bankruptcy over six years ago but all the information you provided is great for people to have.
0 votes
Anna M Brocco, Agent, Williston Park, NY
Fri Jul 15, 2011
Protect yourself and consult with your attorney before considering to walk, then follow Shane's advice...
0 votes
Dan, Home Buyer, Anoka, MN
Fri Jul 15, 2011
It's really a technical question, does a lender look for titles in a borrowers name during the application process?

I have no legal obligation to the mortage, this I'm sure of. I'm really only wondering if they look for titles in the borrowers name. If I let them foreclose on the property PRIOR to closing on a new home that would clearly be a big difference and go on my credit which of course they check, but what If I close on a new place while keeping up on the current home?

Thanks for your input, asking a lender verses an agent I really hadn't made that distinction so that was good information.
0 votes
Suzanne MacD…, Agent, Succasunna, NJ
Fri Jul 15, 2011
You really need to talk to a real estate attorney or even a lender. The problem is, you have been paying, and if you find a different home, you intend to stop paying. That's a tough one! I think an attorney is the place to start.
0 votes
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