Bankruptcy and Mortgage Loan

[Anonymous]

Hello All,

I have a unique situation and looking for some advice.

We declared BK in 2005 and house was included with option to reaffirm.  Bank never reaffirmed loan.  So we've been paying the first and second mort for 7 yrs now.  Our house is now about 90K underwater and we are considering trying to buy a new house and then walk from the current home since it was never reaffirmed.

Credit report shows no current home loans - credit scores are about 640 (working on paying down credit cards to raise that) and we will have a 3% down payment.  We are going to be contacting our local credit union for a loan. 

1) So do we just avoid the question of the current house, or be completely honest and tell them we are going to walk?

2) If we get a new mortgage, move and walk away - once the bank forecloses on the house, will it then show on our credit report?

Has anyone been successful in a situation like this?  We asked our bk attorney and he hadn't seen this situation before.

[tooleman694]

I don't think you can buy a home for several years. You need to take care of the home you are in first.

[MovingForward_2012]

Is the mortgage loan reporting on your credit report in anyway? Even if it is not, it is searchable through the title database lenders use and they will see that your names are on the deed and if you lied on your mortgage app by saying you have no current mortgages, that is mortgage fraud.

[Anonymous]

I never said I was going to lie!  I realize that they can see that we live in the home due to property records.

My question was "avoid the question or be completely UP FRONT and honest and tell them the situation" - ! 

And second question was "will the foreclosure show on my credit report if I walk away from the home?"

Its not my first choice to walk from the home, but my home is $90K underwater and i am paying $1500 a month for this home.  I'd much rather sell it, but homes near me are selling for $100K (they are dumps btw, so mine could sell for more, but nothing near the $190K i owe on it).

And no I dont want a short sale on my record either, since it will prevent me from getting a mortgage on a new home.  We are now 7 yrs our of our BK and dont  want to go back there.

[203bravo]

yes you should be upfront about your plans with your current house and yes it will hit your credit report once they foreclose.

[MovingForward_2012]

+1, I think during Desktop Underwriting you will have to put down that you have a current mortgage. What is your total household income? Because applying for a mortgage while already carrying a mortgage, the lender will need to verify that you can afford both homes. The only way around this is to sell the first home and show that the sell paid off your current mortgage completely for the $1500 to not be counted in your DTI. That is your biggest hurdle...showing that you can afford both mortgages.

[foofighter74]

Yeah, even if you could convince them that you intend on keeping both houses for whatever reasons you come up with.... you're going to have qualifiying DTI ratio's which include the mortgage on the first house. 

If you tell them you intend to walk away from the first mortgage, no lender will even take an application from you.  If you say you plan on keeping both houses, you must then tell them which home will be your primary residence and what you are going to do with the home that isn't your residence. You will be writing LOE's and ultimately, you will sign so many disclosures and so much paperwork that they'll have a mountain of evidence to suggest that you knowlingly misled them while going through the process of buying the second h ouse.

I would say this...if you got lucky and found someone to approve you, you'd probably wind up in a lot of trouble later on when you did walk away.  Would the foreclosure show up on your credit report? Yes, but it would be the least of your problems. 

Gotta deal with the 1st house. 

[foofighter74]

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@Anonymous wrote:

I never said I was going to lie!  I realize that they can see that we live in the home due to property records.

My question was "avoid the question or be completely UP FRONT and honest and tell them the situation" - ! 

And second question was "will the foreclosure show on my credit report if I walk away from the home?"

Its not my first choice to walk from the home, but my home is $90K underwater and i am paying $1500 a month for this home.  I'd much rather sell it, but homes near me are selling for $100K (they are dumps btw, so mine could sell for more, but nothing near the $190K i owe on it).

And no I dont want a short sale on my record either, since it will prevent me from getting a mortgage on a new home.  We are now 7 yrs our of our BK and dont  want to go back there.

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There isn't ultimately a choice in terms of your first question and whether or not you will lie about your plans.  You will be put in a situation where you either tell them what you're going to do with the first home, or you'll have to lie because you won't get approved any other way. 

[purbutterfly77]

My fiance just went through this. He filed bankruptcy due to the fact that he had co-signed for about 36000 worth of personal loans for an ex and she defaulted. They were suing him and were not willing to work things out with us.

He did not reaffirm on the first or the second mortgage. However we could keep property as long as we make payments. We did not reaffirm as the house is majorly upside down. We knew that after we saved enough money for the down payment we would walk away from the house and I would buy a house in my name only. Which is where we currently are at.

I close on the new mortgage on April 8th. Laywer says that they can not file a foreclosure against his name because it was included in the bankruptcy. What they will do is file a foreclosure against the property address to obtain the deed, this is after you surrender the house to the bank.

I'm not sure how surrendering will work yet, we haven't gotten that far.

So to answer your question no a foreclosure can not appear on your credit report if you did not reaffirm. Simply explain that you filed bankruptcy, did not reaffirm, however retained property by making payments "kind of like a rental with your bank being the landlord". You do not own the property anymore and are not legally obligated to pay for it. The bank ownes the property, since you did not reaffirm you couldn't sell it if you wanted to.

[foofighter74]

Well, first, the bank doesn't take the home back in their name until there is a foreclosure.  They have to legally foreclose on the property, and the deed is transferred back to the bank at that point.  The OP's name will still be on the deed if there has not been a foreclosure. Bankruptcy does not get that done.

Second, the bankruptcy gets rid of the responsibility to pay the debt.  What it does not do is take your name off the mortgage.  If there is a foreclosure, the bank cannot report the credit line on your report as "foreclosed."  But a public record of foreclosure can and most likely will show up on the OP's credit reports.  EVen if it doesn't, it will be a matter of public record and easily found by an underwriter.  

Third, you are buying this new home in your name only. That's situation is different than what the OP is suggesting.  If your fiance tried to put his name on a home loan now, he would not be able to get approved. Just as the OP won't be able to buy a home if they're listed on the mortgage they included in bankruptcy.  If both the OP and their significant other are listed on the mortgage that was included in bankruptcy, neither will be able to get a home loan for another house until 3 years after the current home is foreclosed on.