I have been talking to a potential client that has gone through a bankruptcy and been discharged. The house is now set for foreclosure in about 80 days. He's trying to avoid foreclosure. He hasn't lived in the house for over 3 years. He's now worried about a foreclosure on his record. But, because the house was in the bankruptcy, isn't he not responsible for the house anymore? If it goes to foreclosure, it shouldn't matter to him, right? I suppose I could short sale the house, but does it really benefit him?
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Foreclosure can impact the timeframe needed to qualify for another mortgage. Current mortgage guidelines state that a person can qualify for an FHA loan 3 years from the date of foreclosure. Here is the catch. The foreclosure date means the date that the bank settles with an insurers and not the courthouse step date. Unfortunately, the owner has no control over how long it takes the servicer to "finalize" the foreclosure with MI companies. **** My client's BK which was discharged in November 2009. The house included and not reaffirmed. In November 2012, we requested a pre-qual to buy and found out that the foreclosing bank did not "settle the foreclosure" until October 2011. Hence, my client cannot qualify until October 2014.
the foreclosure is more of a credit issue...not a legal issue. Even the tax ramifications are nullified by the bankruptcy
Since there is no way to know for certain that the foreclosure won't hurt his future financial recovery, and in the instance where he is already making more money, has assets now, etc.,since providing financial documents to the bank doesn't endanger him of getting a deficiency judgment or p-note requirement, he has nothing to LOSE by doing the short sale. It's a matter of certainty over the unknown. And the bonus is you make a commission. You just never know how they are going to report things, how a future underwriter will look at it, etc. so the best course is the certain one and just do the short sale.
Rob Olson the upside for your prospective clients to short sale to avoid foreclosure is HUGE even with a BK7 discharge.
The clients upside is all about accelerating his future financial recovery and qualifying for his next new purchase mortgage.
I had a recent conversation with a past client with a BK7 discharge after which I closed his short sale transaction.He now has recovered financially and recently applied for a new purchase mortgage. He carefully documented an explanation letter with supporting documents for an exception for “extenuating circumstances” always required after BK.
He is closing his new purchase loan next month 25 months from short sale closed date and 30 months from BK7 discharge date with the following scenario 20% cash down payment, 80% NO PMI conventional loan, loan debt ratio less than 20% with 18 months cash reserves. FULL DISCLOSURE: This fortunate fellow landed a $120,000 a year salaried employment one week after the SS Closing and saved $60,000 in his first 12 months. Success is always in the details.
Rob Olson my experience is that BK7 discharged short sales applications are sometimes the easiest to process and close and they always have pending sheriffs sale dates to contend with.
My advice is to get it listed, get the sellers HS package submitted to that servicer pre-contract and lobby immediately for the suspension of the sale date. It may take a FMV buyer purchase contract to acquire the suspension but submitting it now lets that lender know your clients intention.
If your client lets it foreclose it may take him another 5 years to qualify for a new mortgage again always depending on other consequences and circumstances.
Another possibility is that you may be able to arrange a deed in lieu....and an REO listing. May make things a lot simpler for you and still allow an agency position. Depending on the region you are in this could be a problem if the lender will only use preapproved agents for REO (agent already in thier system).
The fact that you arrange the deed without foreclsoure could position you well with them. It is worth looking into and the sale is direct for REO...
Well, the advantage would be the shorter wait time for a new loan following a short sale vs that in a foreclosure.
Even though it doesn't show up on credit, when he eventually goes for a new mortgage, he will need to document what happened to the home.