Urgent help need for chapter 7 bankruptcy and mortgage application

[GunsCarsPlanes]

If this comes off misspelled or you notice typos I'm sorry... I'm just really nervous like literally sweating after the phone call I just had.

I'm applying for a mortgage with a mortgage broker.  A while ago I filed for chapter 7 and walked away from my condo, the date of discharge is 8/21/2018.  I was always under the impression (and Better.com just confirmed) that I need to wait 2 years from date of discharge to qualify for a FHA loan and I need to wait 4 years from date of discharge to qualify for a conventional loan.  My landlord is suddenly selling the place and I rent and I need to be out in 90 days when my lease agreement expires anyhow.

Fair enough, it has been 3 years and 10 months so maybe I can't get conventional but I'll ask for FHA.

My mortgage broker said the 2 and/or 4 year rule applies if I file for bankruptcy and leave my condo by way of foreclosure.  Mortgage broker said since I just used chapter 7 the date I can apply for a new mortgage goes by the date my condo was resold by the bank which took years and just happened in Feb of 2022.  Mortgage broker is saying I need to wait 3 years from Feb 2022 but I have never ever heard that.

Is my mortgage broker wrong, I applied for Better.com and they pre-approved me after running my credit score, social security number and verififed my income.  When I called Better.com on the phone they said they are not sure of the 3 year date from sale if foreclosure wasn't used and they never heard of that.

Some banks sell the home from a bankruptcy case in months some take a year some take 5+ years, I find it odd that a person can't get a new mortgage until the bank gets around to selling the dwelling and every single person who goes through this process all have different timelines.

I was hoping someone could confirm or deny what I'm going through and hopefully lend some peace of mind.  Please help me I'm really nervous.

[ShanetheMortgageMan]

FHA's 3-year foreclosure rule goes by the date the home was foreclosed on, not re-sold after it was foreclosed on.  Call the county clerk or recorder's office of the county the home was in, then ask to get a copy of the foreclosure deed on your home (your county might even have a searchable website, try googling [County Name] [State] "Deed Search").  That'll be what any underwriter is looking for to document the date of foreclosure.  It's unlikely it took them nearly 4 years to foreclose, but anything is possible.

[MortgageMama]

Just to add a bit here... IF your mortgage was included in the Chapter 7, then the waiting period is 2 years from the discharge for an FHA loan. You would need to provide the schedule of creditors to show the lender the mortgage was included. Either way, if it was or was not included the measuring of time is based on:

1) Discharge of the Chapter 7 (if mortgage included) -or-

2) Date the Sheriff's Deed was recorded from the foreclosure. In that case the waiting period is indeed 3 years.

You do not need to wait until the original lender disposes of the property.

[GunsCarsPlanes]

ShaneTheMortgageMan -

I found this https://findmywayhome.com//home-mortgage-news/fannie-mae-waives-waiting-period-on-foreclosure-after-...

The other mortgage expert I'm working with confirmed less than a half-hour ago that yes the "guidance" is still active and applies to me.  The aging period with the "fannie mae wavier guidance" (I'm just mashing up those words it's not a real term....obviously) says if the property was truly surrendered then the aging process can be applied from bankruptcy discharge date and not when the bank got around to selling.  In my case the bank sat on my old condo and sold it over 3 years later and if it wasn't for what I've discovered my 3 year aging would have started a few months ago when the condo was sold.

[GunsCarsPlanes]

MortgageMama -

The mortgage was indeed included.  My mortgage broker specifically asked for two documents you just mentioned he explained it this way...

So looks like that guidance is still available.  See below and send me what you can on this. 

1) If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy.  
 The complete BK paperwork must be submitted for review ... all schedules ... not just the discharge doc. 

2) Provide evidence of the Trust Deed or Sheriff’s Sale, as applicable, to determine the date of the Foreclosure. 

It looks like I am starting; and it's not set in stone yet so I stress the work STARTING to head down the direction of things possibly working out with time, proof, paperwork and a good expert compared to heading down the direction of "no this isn't going to work any way shape or form and we need to completely discard any effort to make it work and explore non-QM loans"

I feel like this process is going to age me.

[MortgageMama]

Directly from Fannie Guidelines:

What are the waiting period requirements for a Chapter 7 or Chapter 11 bankruptcy?

Bankruptcy (Chapter 7 or Chapter 11)

A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.

[GunsCarsPlanes]

Oh trust me that's what I've been showing everyone but they always come back and say it's 3 years from the date my name is removed from the property and that's why I'm trying to gather this paperwork and use this guidance that was provided by Fannie Mae.

[ShanetheMortgageMan]

I think we're confusing two different types of financing. 

FHA is a government backed loan, 3.5% down, goes to lower credit scores, has shorter seasoning for certain credit events, etc. - that requires 3 years from the foreclosure date to be eligible for a new FHA loan, unless the foreclosure was due to an extenuating circumstance then it can be as little as 1 year after foreclosure.  This can be found at https://www.hud.gov/sites/dfiles/SFH/documents/sfh_hb_4000_1_update_12_redline_06_29_22.pdf and go to page 206 (page 222 of the .pdf) for when you receieve an Approve/Eligible response, and page 283 (page 298 of the .pdf) for when it's manually underwritten.

Fannie Mae is conventional financing and has a 7-year waiting period after foreclosure, unless it was due to an extenuating circumstance then it's just 3 years after foreclosure & 10% down.  Fannie Mae also has an additional guideline that says if the mortgage was included in a discharged BK and then subsequently foreclosed on (as well as a short sale or deed in lieu) then the bankruptcy seasoning period apply instead, which the standard seasoning requirements are 4 years from a Ch 7 BK discharge and 2 years from a Ch 13 BK discharge (can be reduced to 2 years for a Ch 7 BK if due to extenuating circumstances).  All of this info can be found at https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-B...

Did you call the county to get a copy of the foreclosure deed yet?

[MortgageMama]

Just remember that proving Extentuating Circumstances to get the 2 year waiting period is extremely difficult and quite subjective on the part of the underwriting. Generally, the cause of the event must be catasrophic and you must prove it in great detail. Hope this helps!

Extenuating Circumstances

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

[GunsCarsPlanes]

Yes I think I'm confusing different things.  I know after chapter 7 there is a 2 year wait for FHA and 4 year wait for conventional.  My case was a little different there was a property involved that I surrendered within the bankruptcy all of which was discharged on 8/21/2018.  I did not foreclose but I guess a step of the bank getting rid of the property is a foreclosure must happen.  This part confuses me.

I have the county deed and it shows the bank sold the property in Feb of 2022 which is causing this whole mess because of the 3 year wait time.  The mortgage representative told me there is a guidance that further states any aging process should be at the bankruptcy discharge date if the property was fully surrendered during the bankruptcy.

It seems like no one is aware of this guidance to age things by the discharge date because that's when the condo was really taken away from me.  The bank owned it for those 3+ years and I am being told I need proof of such.

Does that help me explain things to you or is it that I'm not understanding what you're saying?  I'm aware of the 3 years foreclosure aging but I'm saying the guidance says the lender should not use that and should instead age things from the date of discharge.