Understanding General Guidelines for Loan Underwriting: Bankruptcy, Foreclosure, Pre-Foreclosure, and Short Sales
Guest Blogger: Steven Kitnick, CFAC, CNE, CSP, GRI, RRG
Steve is a Nevada Real Estate Broker-Salesman, California Real Estate Broker, & Managing Director of Steven Kitnick Seminars, LLC – a real estate continuing education provider.
Here's a common question from homeowners - especially those dealing with a distressed property...
“How soon will I be able to get a home loan if I file for bankruptcy, let my house go to foreclosure, execute a deed-in-lieu of foreclosure, or agree to a short sale?
The following may assist you in understanding general guidelines used by many underwriting departments:
Chapter 7 (“A type of bankruptcy in which a person’s assets are liquidated – collected and sold- and the proceeds are distributed to the creditors”). 4 years from either the discharge or dismissal date.
Chapter 13 (“A type of bankruptcy in which a person keeps his assets and pays creditors according to an approved plan”). 2 years from discharge date or 4 years from dismissal date. If multiple bankruptcies within a 7-year period, it is 5 years from the most recent dismissal date.
Foreclosure is 5 years from completion date. Deed-in-Lieu of Foreclosure is 4 years. Pre-Foreclosure is 2 years from date house closed. If house was a short sale and borrower was not in pre-foreclosure (no 60, 90, 120, or 150 day “lates” in last 12 months), lender can sell the loan to Fannie Mae. The lender/servicer that completed the short sale must NOT have entered into any agreements that obligate the borrower to repay any amounts resulting from the short sale, including a deficiency judgment.
Bankruptcy Chapter 7 – 2 years. Chapter 13 – 12 months after release.
Foreclosure or Deed-in-Lieu of is 4 years from completion date. Pre-Foreclosure is 2 years. Same exception as conventional (above) if not delinquent.
*Exception - If borrower is in a Chapter 13 BK for at least 12 months, has no “lates” to the trustee and the lender can get a letter from the trustee that it is okay for them to buy a house, the lender can waive the required time from BK.
Source: Dan Means, Branch Manager, imortgage – Las Vegas, NV
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