Mortgage after bankruptcy

Anonymous · ‎03-24-2015

I have been reading a lot about trying to get a new mortgage after filing bk, and I just need a little clarification.

My home is in IL and our BK was discharged 6 years ago. We have continued to make on-time payments but are still very upside down on our home. And we were told by our BK attorney NOT to reaffirm our mortgage.

I have read that for deed-in-lieu's (which I think is my only option since we're so upside down) that it's a 2 year waiting period for conventional (with a 20% down payment) or 4 years (with a 10% down payment). I'm just wondering is someone can help me with IL law regarding this.

I personally know people that were in a similar situation as mine and got approved for a new mortgage before they did the deed-in-lieu (the bank didn't see any mortgage on their credit report since it was not reaffirmed) but I wanted to see if anyone knew the law in IL.

Any advice would be appreciated.

Thank you.

StartingOver10 · ‎03-24-2015

For legal advice, you really need to go to an attorney in your area that has the expertise.

Have you checked recent values? You can get a free market analysis with no obligation from an experienced Realtor,

If you are still upside down in value, you can short sale the property as well as do a DIL. In fact, usually the lender wants you to try the short sale process before they will consider accepting a DIL.

What you are describing toward the end of your post is called a :"buy and bail". That means they purchased the new property and then stopped making payments on the old property. The lenders have guidelines now to prevent giving mortgages to allow a buy and bail. You can see why this would be a very bad idea for both you and the lender.

Anonymous · ‎03-24-2015

I appreciate your thoughts on this. I have checked comps in the area and we are about $100,000 up side down.

So do you know how long I have to rent something after a short sale is finalized?

If I did stop paying on my current home and "walked away", how does that show on my credit report? Is it the same as a foreclosure? If so, I'm guessing a short sale would still be the better option since I understand a short sale will not affect me quite as badly as a foreclosure. I have tried working with my mortgage company but since we are so upside down, they have not been willing to work with us.

I even asked them why they aren't willing to work with me because I would think they'd rather lower my interest rate or even decrease the balance of my mortgage (not sure of correct term, but they can write off a portion of the principal balance) instead of having me walk away and then they are out the entire balance. They told me when I called again in Feb. to call them again in April. Not sure why, but that's usually the response I get. So frustrating! I'm trying to do the right thing but they are not willing to work with me.

StartingOver10 · ‎03-24-2015

@Anonymous wrote:
I appreciate your thoughts on this. I have checked comps in the area and we are about $100,000 up side down.

So do you know how long I have to rent something after a short sale is finalized?

If I did stop paying on my current home and "walked away", how does that show on my credit report? Is it the same as a foreclosure? If so, I'm guessing a short sale would still be the better option since I understand a short sale will not affect me quite as badly as a foreclosure. I have tried working with my mortgage company but since we are so upside down, they have not been willing to work with us.

I even asked them why they aren't willing to work with me because I would think they'd rather lower my interest rate or even decrease the balance of my mortgage (not sure of correct term, but they can write off a portion of the principal balance) instead of having me walk away and then they are out the entire balance. They told me when I called again in Feb. to call them again in April. Not sure why, but that's usually the response I get. So frustrating! I'm trying to do the right thing but they are not willing to work with me.

If you walk away, the lender will have to f/c. The f/c won't show on your credit report because that property has already been discharged in Bk (and not reaffirmed) according to your original post. However, the f/c will show in the public records. Since your personal liability to repay was discharged in Bk, the only way to remove the mortgage lien on the property is to either complete a short sale or DIL or f/c. There have been recent reports (within the past 3 or 4 months) that some lenders have allowed the orginal owner to actually 'buy back' their own property in a short sale. To my knowledge it is very rare. Really, talk to a good real estate attorney to see if that is an option for you.

The new lenders for a new mortgage will use the Bk time periods. Read this post by Shanethemortgageman http://ficoforums.myfico.com/t5/Mortgage-Loans/BIG-changes-to-Fannie-Mae-s-policy-regarding-mortgages-included/td-p/3294446

cem13 · ‎03-30-2015

@Anonymous wrote:
I have been reading a lot about trying to get a new mortgage after filing bk, and I just need a little clarification.
My home is in IL and our BK was discharged 6 years ago. We have continued to make on-time payments but are still very upside down on our home. And we were told by our BK attorney NOT to reaffirm our mortgage.

I have read that for deed-in-lieu's (which I think is my only option since we're so upside down) that it's a 2 year waiting period for conventional (with a 20% down payment) or 4 years (with a 10% down payment). I'm just wondering is someone can help me with IL law regarding this.

I personally know people that were in a similar situation as mine and got approved for a new mortgage before they did the deed-in-lieu (the bank didn't see any mortgage on their credit report since it was not reaffirmed) but I wanted to see if anyone knew the law in IL.

I am in this EXACT situation. I filed BK7 in Jan 2011 and discharge in JUN2011. I did not reaffirm. I had a second home that went into foreclosure. I kept up my first home payments but was upside down.

Fast forward to Jan 2015, 4 years post BK7 and I have paid $12K per year for 4 years and only took off about $8K in principle. So I wrote WF a letter and offered a short payoff. I f they did not accept this short payoff, then I will "walk away". WF told me that a foreclosure will hurt my credit.... I laughed and told her that I am a Member of teh MyFICO Nation.

In MI, we use a Sheriffs Sale as the foreclosure process. It is much easier for the bank, no lawyers and courts etc. The good point is that a foreclosure is NOT documented anywhere. There is no court records. The bank asks the Sherrif to give them a clean title. The Sherrif signs off and they take the clean title and register it with the Register of Deeds, and the bank is the new owner.

Freddie Mac knows about the foreclosure on my second home so I had to disclose it on my FHA app. Freddie Mac accepted my short payoff (short sale to myself) and FHA approved me as I met all of their guidelines, FICO 705, high income etc. I knocked $40K from my original note and I will have it paid off in 10 years instead of 17 if I stay on my current plan.

I close tomorrow.

FICO 08 JUL23: TU 850; EQ 846; EX 843. Clean since BK7 D/C 6/2011.

Anonymous · ‎03-30-2015

I've seen other foreclosures on our counties website so I'm sure it has to go through the courts in Illinois. but I'm going to talk to my mortgage company to see if they'll accept a short pay off instead of foreclosure or DIL. Thanks for the info! You have me a little bit of hope!