Underwriting question - HELP

[Anonymous]

Background: Filed Chapter 7 BK and included home loan; discharged 12/2007. After BK Mortgage company asked if I would do a short sale on property, as a courtsey, so home didnt sit empty; complied and home was short sold 3/2009 (also shows on deed).

I was told by my Mortgage carrier, California, that I was approved for a FHA home loan since it would be based of 3 years from BK date and not short sale as I was not liable for the debt. Underwriting came back and denied loan saying they are using the short sale date. They said everything was excellent EXCEPT for this issue.

Is there anyway possible to go around this or are we basically screwed? He said he was going to try a couple other places but I feel like it is going to be the same scenario.

[ShanetheMortgageMan]

It's going to be the same outcome everywhere unfortunately.  A lot of loan officers are under the impression that a home included in BK starts the foreclosure seasoning... but it's actually from the date that the home is no longer legally yours.  Discharge of the debt doesn't mean the home is no longer your responsibility, there are still taxes, insurance, HOA dues, etc.   Now if in your BK documentation it says that the home is legally surrendered back to the creditor as of the discharge date, then that would mark the beginning of the 3-year waiting period on the foreclosure.  Often BK documentation doesn't specifically spell that out though.

[Anonymous]

Thanks Shane...I had a feeling this was going to happen. In the BK it list the property but doesnt say anything further.

I do have one question, the BK/Short Sale was due to a medical condition of my husband. We were current on the mortgage up until the discharge was completed as our lawyer said we no longer had to make a payment. I heard FHA may look at this different because of the medical...is this true? If so, generally how long do they like to wait?

[ShanetheMortgageMan]

Welcome.  Yeah most BK paperwork doesn't say that, not surprised yours doesn't either.

If the foreclosure was caused by medical and can be tied together, then it would fall under extenuating circumstances and then at least 12 months, but typically must wait 24 months, then you can be eligible for FHA financing.

However you said that the mortgage was current up until the discharge was completed - and the BK was due to medical.  So it sounds like if you didn't file BK/discharged it, then you would've still been able to make the mortgage payments?  Is that the case?  If so, then while the BK was due to medical, the short sale was due to advice from your attorney.  Let me know if that is different than I am thinking.

[Anonymous]

We were basically  "robbing peter to pay paul" during my husbands time off. So we were borrowing against credit cards and not paying our car payments, etc to make mortgage up until the discharge; the mortgage was always late but not past 30 days.  We thought we had to pay the mortgage until discharge and found out later we didnt.

So to answer your question, we did file bankruptcy for medical reasons and we did the short-sell because the bank asked us if we would but was also based of medical. So both were due to medical as my husband was off for long periods of time in 2007 (BK was discharged 12/2007), couple months in 2008 and 4-5 months in 2009.

We never asked the attorney about the short-sell. After the discharge of the BK, the mortgage company called and asked if we could do the short-sell as a courtsey so the house didnt sit empty. She said that it wouldnt effect us in anyway, little did I know, and that it would just require signing papers at time of closing.

[ShanetheMortgageMan]

Ah, so it sounds like there were some financial spot fires along the way, then just got too much to handle.  Worst case is you could try for an exception due to extenuating circumstances and get denied, to either try again with a different lender or just wait the full 36 months.  I feel your chances of approval would increase quite a bit if you were to wait until the 24 month mark.  We just had a similar situation, got denied a couple places and then was able to get it approved at a third.  Just need to have a very detailed letter of explanation on what transpired and what you've done to make sure it won't happen again, and supporting documentation like hospital admission records, etc.

[Anonymous]

Hi Shane,

Well, underwriting didn't question the BK/Short-sell (it only showed as BK on the credit report) and approved the loan with a couple contingencies that I provided (paystubs, etc). I am told they issued final approval and docs have been sent over (whatever that means).

It is an FHA loan so do you think I am good to go or does it go through a final audit where they could go back and deny for this or ask to provide more information?

Thanks!

[Anonymous]

Sorry, I forgot to mention...they sent it to a different bank and that is where underwriting approved it. Not at the same bank that originally denied it.

[IOBA]

That sounds great!  I hope all goes well for you!