2 years out of Ch7, Home included in BK. Looking to purchase this summer. Options?

Asked by Erics14, Minneapolis, MN Mon Jun 25, 2012

Hi all,
Both my wife and myself worked for a mortgage company during the boom. I was an LO, she was running the office. The company is no longer in business due to fruadulant activities. That started our troubles. We both no longer work in mtg and have now been w2 working for different companies now 5 years.

Our credit is in the mid 600 (640'ish). Dti should be low as we each only have 2 cc to reestablish our credit with low limits and she has one car loan. We can do 80% ltv.

I'd apprecitate any thoughts.



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Chris Block, , Saint Paul, MN
Mon Jun 25, 2012
Hey Eric!

Guess what I have had 2 clients in the past 3 months with this problem so I am starting to get the hang of it haha.

1) I had a client that said the same thing to me: THE HOME WAS INCLUDED IN THE BANKRUPTCY. Said to my loan officer that she surrendered the home to the bank. Well come to find out later that the lender still went through the foreclosure process and THAT IS STILL CONSIDERED A FORECLOSURE. Pretty weird when you think about Eric, but that means it has to be 3 years usually versus just the 2 years. That is how Fannie & Freddie look at it (which still makes zero sense to me by the way).

2) Now, if you are telling me that you stayed current on payments the whole time, and the lender never initiated a foreclosure against you everything should be fine with 2 years. I am going to paste a link to a loan officer in Minneapolis that is both a nerd and a genius. I think you being in the former biz will enjoy talking to him. No matter what contact him (he is right on Trulia) and confirm that you are good for the 2 years, because finding out later is no fun (I was there!).

3) Even if you were late on payments and the lender initiated foreclosure proceedings it is still possible to buy after 2 years. It is called "extenuating circumstances". Basically, did you have a hardship? Usually the answer is yes. Can you put 10% down? Yup. The last tricky part is you technically have to "downsize" in this purchase compared to what you had 2 years ago. That IS however one way to still do it after 2years still.

Those are the main points I want to get across to you, because like I said I am dealing with a client right now that told me the home was included in BK only to find out she was late on payments, and if it was not for the fact we are using a co-signer the deal would have fallen apart.

His name is Charles Daily for loan officer and I have pasted is profile link below.

Good Luck!
1 vote
Mary Jo Quay, Agent, Burnsville, MN
Mon Jun 25, 2012
Hi Eric,

Two years after a Chapter 7 discharge, you can apply for an FHA loan.
You'll need to rebuild your credit to a minimum of 640, but you'll want it higher to get better rates.
Make sure tht you carry less than 1/3 of your credit limit per card, per month and pay more than the minimum. Always be on time. Make sure the car payments are on time.

As you know, your credit is evaluated in parts, not as a lump. It's the late payments that causes a drop. I have a client who missed 2 $40 payments, and his credit tanked 60 points. Ouch. Most lenders are more credit savvy than they were 5 years ago.

You mentioned that you could do an 80% LTV, but you'll only need 3.5% with FHA, and have some flexibility with closing costs. You wouldn't want to clear out your reserves, and it always looks better to the bank if you have a little cushion. Rates are so low that you wouldn't be gaining much by using up your reserves, but you do want to stay within a comfort zone on your monthly payments. As you well know, you could qualify for more than you would be comfortable paying every month.
Let me know if you need a little help, or L/Os who understand and work with credit.
1 vote
Vicki Schwar…, Agent, Victoria, MN
Mon Sep 24, 2012
We work with investors who purchase and place potential homeowners in homes of their choice. They qualify potential clients according to their requirements. Some of the requirements are:
- a down payment/funds 10 - 15% of the purchase price of the home
- you must be able to repair your credit so that you can purchase the home from the investor within two to five years
- and you must have proof of income, credit report, bank statements and tax returns reviewed by the investor. They understand they are working with potential clients that have had some kind of hardship. Bankruptcy, short sale, foreclosure, etc. are generally not issues.

If sounds like something you would like to look into a little deeper, please give me a call on my cell phone to discuss.



Vicki Schwartz
MN Real Estate Options
Broker/Owner/Short Sale Professional
Accredited Platinum Real Estate Professional
Phone: (952) 443-2056
Fax: (952) 236-6429
Cell: (612) 801-2355
Check out our website at http://www.mnrealestateoptions.com for great information on all aspects of real estate, for Buyers, Sellers and Investors
0 votes
Jennifer Hen…, Agent, Edina, MN
Mon Jun 25, 2012
2 years after a BK discharge date is typical; however, I have been told that it is now 3-4 years from BK depending on the type of loan you will be obtaining. 3-4 years on a foreclosure is minimum (unless you can get into FHA under the extenuating circumstance rule) but I think FHA is actually 3-4 years off a BK...I would definitely consult with a banker that is familiar with the most updated programs as guidelines can change at any time, as I'm sure you recall. The fact the home is included in the BK does not eliminate any foreclosure lending guidelines from hindering you if FC procedures did take effect during the BK.

I am not aware of any bank that will originate mortgages based off any other guidelines other than the FNMA/FHLMC/FHA/VA saleableguidelines. (Hard money aside, but those are 6 month loans typically and can't be financed longer). I can't find any banks that currently are lending on common-sense/equity based strategy alone.

Good Luck! Unless you are open to a contract for deed or lease option....another year may be on the horizon....
0 votes
Mark Claesse…, Agent, Coon Rapids, MN
Mon Jun 25, 2012
Hi, Eric,

I just spoke at length with my loan officer at Edina Realty Mortgage and he stated that when a home is lost and included in the bankruptcy that it is treated as a foreclosure. That rule states that you must wait 3 years from the discharge date.

I know this is not what you wanted to hear, but it is very simple and it is the fact.

Now, I have an alternative plan that I think you will really , REALLY like. But I don't want to disclose that here to the whole world. Please give me a call later today or maybe tomorrow around 1-2 p.m. if you can fit that in your schedule and I will be happy to outline a plan that can get you in a house right away. And don't worry, it is very simple and it is highly legal. I've used this with 3 buyers in recent months and would be glad to give you their contact information if, once we have went through the idea, you would like to know how I performed and what they were able to accomplish. Some of them were much worse off than you, too!!

All of my contact information is on my website below.

Have a great day,

0 votes
, ,
Mon Jun 25, 2012
Great feedback from Chris, Mary Jo and others so I won't add much. I'll add a link to the comprehensive and up to date waiting periods after major credit events in the web reference below. On that same site, if you search for "extenuating circumstances" on the right hand side search bar, you'll find the requirements for that as well. Good luck Eric.

P.S. '08 was my brutal year. I think anyone in mortgage lending who didn't take it in the shorts in the last 5 years either had a well heeled spouse, wasn't doing well before the crash or is still in denial and lying about what happened. :)
0 votes
, ,
Mon Jun 25, 2012
You both know that lenders want to see 3 years after a foreclosure and that is best case. If the mortgage you had was an FHA and there was a claim you aren’t eligible for another FHA until the lender can get a clear CAVIRS. Both of you should also know the guidelines are there to protect you more than they are the lender, don’t fight it. Good luck,

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
0 votes
Mike Kelcher, Agent, Burnesville, MN
Mon Jun 25, 2012

For most lenders, before they'll give consideration to a person in your situation, you'd have to wait 3 years beyond the point in time when the title on your previous home, passed to someone else. FHA may be do it after 2 years. However, since you have 20% to put down, you may have some options.

1. You can rent with an option to purchase.
2. You can purchase on a contract for deed.
3. An "in-house" lender who keeps their loans (rather than sells them), for example, TCF or a credit union, may give you a mortgage.

If you can find a lender, I can find you a home.

~mike 763-228-2967
0 votes
Donald James, Agent, Edina, MN
Mon Jun 25, 2012
Good Morning Eric,

Yes, there may be some good news. There are programs that may work for you. We also have several homes available to purchase on C4D that would also help you reestablish credit.
0 votes
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