The Mortgage Connection

Jan 16th, 2013 | By | Category: The Mortgage Connection

There is a lot of confusion about what guidelines apply when a Mortgage is included in a Bankruptcy. For lending purposes, the Bankruptcy guideline does not supersede the Foreclosure or Short sale guideline.

The main confusion is what actually happens to a mortgage after Bankruptcy. The lien does not go away. Only the liability goes away. It is still a valid lien that can be foreclosed on and the borrower retains legal title to the property. The borrower is still the legal owner because they are still on title and there is still an outstanding Deed of Trust because the lien doesn’t get released by a Bankruptcy. In many cases the property never gets foreclosed on.

After the Bankruptcy one of 5 things happens.

  1. The lender forecloses and there is a Trustee’s Deed.
  2. The borrower does a short sale and there is a HUD1 showing this.
  3. The borrower is living in the property and making payments.
  4. The borrower is living in the property and not making payments.
  5. The borrower is not living in the property and not making       payments.

Borrowers with a mortgage included in a Bankruptcy only have three options to be eligible for new financing.

  1. Provide proof of a lien release dated at least 12 months prior to our closing date. This will usually be a short sale and the short sale guidelines apply.
  2. Provide proof of an acceptable payment history on the property for the last 24 months through our  closing date.
  3. Provide proof of the Trustee’s Sale and then wait the required Foreclosure waiting period from the date of the sale.

If you have had a Bankruptcy and wonder if you are eligible for financing please call me to discuss your options or feel free to email me at: morgan@peoplesmortgage.com. Phone 520-954-7686.

 

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