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need help with a difficult question

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seratonin
Valued Member

need help with a difficult question

I have an unusual situation and I need to know the bottom line.  I declared bankruptcy almost five years ago, and have rebuilt my credit score to over 700.

I did not reaffirm my mortgage in the bankruptcy.  I have continued to make the payments, and always paid on time.  Now, I very much need to apply for a new mortgage.  I really need to move.  I cannot rent or put my house up for sale until I have a new house.  I have saved some money for this, but when I factor in two mortgage payments, it looks like I could not qualify for enough money to buy a functional house.  My current mortgage was actually discharged in the bankruptcy.  Will that debt or payment be factored into the calculations by the mortgage company if it was discharged in bankruptcy?  The market value of my house is about $37,000 more than what I owe.  I fully intend to sell it and pay the bank, etc..  From a legal or mortgage professional's perspective, do I have a mortgage if this mortgage was discharged in bankruptcy?  The credit bureaus reflect the bankruptcy on the mortgage account but vary in saying the account is open or closed.  Can you give me some advice?  Thanks.

Message 1 of 10
9 REPLIES 9
seratonin
Valued Member

Re: need help with a difficult question

my original attempt to post this question went into the ditch.  any feedback would be appreciated.  thanks.

Message 2 of 10
seratonin
Valued Member

Re: need help with a difficult question

Since there have been no responses, I think I need to clarify that the moderator MarineVet emailed on 3-14-12 that it was ok for me to ask this question again

and he would freeze the original version.  He said:  "No problem. I will unlock the one thread and remove the one addressed to Shane. What you might do also is bump that thread to bring it back to the top of the page."  So if you have any thoughts on this, please answer.  Thanks.

Message 3 of 10
IOBA
Senior Contributor

Re: need help with a difficult question

seratonin - This is how I understand things....

 

1.  Since the mortgage was not reaffirmed, it is basically in limbo.   Technically, the debt was discharged, but as far as other creditors are concerned, the debt may or may not be yours.

 

2.  In terms of renting out the house - technically, you can not do that.  You technically do not own the house since you included in your BK and it was discharged.

 

3.  In terms of buying another house - technically, you can not do that either.   The mortgage companies look at when the title changed hands/names.   Although the mortgage was discharged, the house went back to the bank, the bank has not reclaimed the house.   

 

When a mortgage is discharged in BK, the lender still has to go through the "foreclosure" process to legally take back title.   The clock starts ticking after the title is changed to the lenders name.   Usually 2-5 yrs need to pass before you get another mortgage.

 

4.  In terms of selling the current house - technically, you can not do that either.  You do not own the house.  The bank does.

 

5.  You have basically been "renting" the house from the bank.   The bank had no motivation to "foreclose" on the property since you continued to pay the mortgage.  

 

6.  It's probably too late to reaffirm your mortgage.

 

So where does this leave you?   Unable to purchase another house until the lender transfers title to their name and some time has elapsed.

 

The bank should not be updating your credit report to show the recent payments made.  All reporting should have stopped when you filed for BK.

 

I hope this helps...if you have more questions, please ask (post or pm).

Message 4 of 10
StartingOver10
Moderator Emerita

Re: need help with a difficult question


@IOBA wrote:

seratonin - This is how I understand things....

 

1.  Since the mortgage was not reaffirmed, it is basically in limbo.   Technically, the debt was discharged, but as far as other creditors are concerned, the debt may or may not be yours.  Not True. The personal liability for repayment of your mortgage was discharged in your BK. However the mortgage lien remains on your home. You are current based on your post.  The debt is discharged. There are many things you can do. In order to qualify for the new mortgage you will need to show at least 12 months of ontime payments since the payments are not showing on your credit report. Get a copy of your cleared checks to show you paid on time. You did a ride through - not a reaffirmation. It's perfectly allowed in BK.

 

2.  In terms of renting out the house - technically, you can not do that.  You technically do not own the house since you included in your BK and it was discharged.

     Yes, you own the house. You can rent it out. As long as you make the payments you own the house. If you stop making payments, then the bank will foreclose on their lien, but they can't come after you for the deficiency.

 

3.  In terms of buying another house - technically, you can not do that either.   The mortgage companies look at when the title changed hands/names.   Although the mortgage was discharged, the house went back to the bank, the bank has not reclaimed the house.    Yes, you can buy another house. You have to qualify for the mortgage on the new house with the ratios showing your current house expense. You have some extra steps to go through by proving you have made the payments ontime and you are not in default because the payments are not recorded on your credit report. THE HOUSE DOES NOT BELONG TO THE BANK. The bank would have to foreclose on it in order to belong to them. You went through a BK, not a foreclosure. It takes a complete foreclosure for the house to belong to the bank.

 

You have already passed the time period to qualify for another mortgage. As long as you have re-established your credit, you can get a new mortgage within the guidelines of post bankruptcy underwriting. People do it everyday. You have had more than enough time since your BK.

 

When a mortgage is discharged in BK, the lender still has to go through the "foreclosure" process to legally take back title.   The clock starts ticking after the title is changed to the lenders name.   Usually 2-5 yrs need to pass before you get another mortgage.

 

4.  In terms of selling the current house - technically, you can not do that either.  You do not own the house.  The bank does. This is not true. You own the house. You can sell it and take the proceeds and buy something else. Which based on your situation, that is what I would do. Sell it first. Then go buy a house. It is a much cleaner transaction that way.

 

5.  You have basically been "renting" the house from the bank.   The bank had no motivation to "foreclose" on the property since you continued to pay the mortgage NO  NOT TRUE.

 

6.  It's probably too late to reaffirm your mortgage. True. You have to reaffirm during the bk before the discharge. It is not required to reaffirm if you continue to pay.

 

So where does this leave you?   Unable to purchase another house until the lender transfers title to their name and some time has elapsed.

 

The bank should not be updating your credit report to show the recent payments made.  All reporting should have stopped when you filed for BK.

 

I hope this helps...if you have more questions, please ask (post or pm).


Actually IOBA you are usually right with your analysis. In this case however, you might not be familiar with how a BK affects the OP so I am answering right next to your points.
It does make it a little more difficult as the OP has to come up with more documentation. It would be much, much easier on the OP to sell first.  Rent a bit while looking for the new one, and then buy. OP you need a good mortgage banker. 

Message 5 of 10
seratonin
Valued Member

Re: need help with a difficult question

wow!  No wonder I was floundering with this issue.  Thank you both for responding and clarifying the issues.  I should change my username to MortgageSeekerinHell.

Message 6 of 10
fused
Moderator Emeritus

Re: need help with a difficult question


@seratonin wrote:

 

I should change my username to MortgageSeekerinHell.



I can help you with that.Smiley Very Happy

Message 7 of 10
IOBA
Senior Contributor

Re: need help with a difficult question

StartingOver10 - I am not on expert on BK, which is why I started the post with a disclaimer saying that was how I understand things...  Smiley Happy

 

The bank still has a lien (on file) against the property.  With the BK discharging the debt - how would the OP get the lien removed?  Just ask the lender nicely to sign away the deed?   There has to be another step after BK to get things to the point where the OP could sell the property.

 

Many other people have posted that they did not reaffirm their mortgage in BK and had challenges getting a new mortgage.   What would make the difference for the OP?  Is it the location/state the person is in?  The amount of time that has passed since BK was discharged?

Message 8 of 10
StartingOver10
Moderator Emerita

Re: need help with a difficult question


@IOBA wrote:

StartingOver10 - I am not on expert on BK, which is why I started the post with a disclaimer saying that was how I understand things...  Smiley Happy

 

The bank still has a lien (on file) against the property.  With the BK discharging the debt - how would the OP get the lien removed?  Just ask the lender nicely to sign away the deed?   There has to be another step after BK to get things to the point where the OP could sell the property.

 

Many other people have posted that they did not reaffirm their mortgage in BK and had challenges getting a new mortgage.   What would make the difference for the OP?  Is it the location/state the person is in?  The amount of time that has passed since BK was discharged?


Part 1 of your question:  In this particular instance there are two things that make it very easy for the OP to sell: 1) she has equity and 2) she is current with her payments.

 

All that has to be done is a regular closing. Normally the Trustee has to sign off, but it is a normal and customary process that is done all the time with properties that have been through BK. The closing attorney/title co will know how to do this its a simple and customary process.  How the lender signs off on their lien is they accept full payment from the sale and they release the lien. It's easy because the OP has been current and is doing nothing other than a 'ride through' on the mortgage.

 

[As a note, I even have completed short sales where the seller has gone through BK and been discharged but did not continue to make their payments and the bank had not yet completed the foreclosure.  All it is then is the regular short sale process plus the additional sign off with the BK trustee. In this instance (short sale) the Trustee will hold out their hand for $$$ to obtain the signature. $2k to $10k is average depending upon what is negotiated in the short sale.The money is deducted from the proceeds going to the first mortgage co and is paid at closing just like a regular short sale]

 

The property does not belong to the bank unless and until the lien has been removed through foreclosure or deed in lieu.

 

As to part 2 of your question, there are very specific mortgage guidelines that the borrower has to meet in order to get a new mortgage after Bk.  A lot of the guidelines have to do with re-estabishing credit after the BK and having a certain amount of time pass from the time the BK is discharged until the time of the issuance of the new mortgage. Naturally all the other mortgage criteria applies as well. The time frame directly depends upon the type of mortgage (FHA or conventional) and the type of BK (7 or 13) and whether the borrower had sold their property short or had it foreclosed.  Selling a property with the lender receiving payment in full is a positive event and not a negative/derogatory event. Where many people run into issues is they don't keep their documentation of payments made during and after the BK or worse yet, they stop paying during the BK and they have equity. Naturally, if they stop paying the lender forecloses.

 

The OP has had quite a few years since her BK and if she can document her payments were all made on time, she really shouldn't have an issue at all. Naturally, since she has equity, she will have have to show she paid the lender in full. Remember, the bank only wants the money.

Message 9 of 10
IOBA
Senior Contributor

Re: need help with a difficult question

seratonin - Plesae let us know what your lender and your current mortgage company say/do in the coming weeks.

 

StartingOver10 - thank you for more information.  It sounds like this OP is the exception, not the rule.  Smiley Happy

Message 10 of 10
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