Just over 2 years post chapter 7. Need advice on getting out of this house and into something new...

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Hi,

I'm going to try and summarize our situation as best as I can because I would probably write a book if I tried to explain it all. I'm hoping someone can give me an idea of where/how to start the process to move on.

Wife quit work in 2014 to stay home and care for the (4) kids after one of the kids had been hospitalized 3-4 times for mental health issues in the prior year. Things are better at home, but my wife has yet to return to work due to continuing issues with the kids (and now a grandkid). -- Can this be claimed as extenuating circumstances? I have medical records, bills, court documents, etc.

Our home was included in chapter 7 which was discharged in Jan 2016, so we are just over 2 years out.

CMA a few months ago valued the home at $259k.

$193k 1st mortgage (we are current on this ~$1.4k/month)
$ 63k 2nd mortgage (stopped paying in early 2014)
$ 46k 3rd mortgage (stopped paying in early 2014)

My wife really wants to get out of this house due to... let's just say bad memories...
I don't disagree with her that we should move, but doing so is difficult enough that I've been ok just staying here in limbo.

Need help figuring the best plan to get out.

I guess the most recommended option is to find a house to rent and just walk away and wait for a foreclosure to happen. Maybe we should have done this two years ago so we would be that much closer. I don't know. Negatives here are that we have 2 dogs and 3 cats most of which would have to find new homes. And also the loss of the home mortgage interest deduction...

My other thought is to see if the credit union that has the 3rd will settle for something close to 10%. They filed a lawsuit back in 2015 that forced us to file the bk so I don't know if they would deal or not. Maybe they would given the alternative. Then, provided that the 2nd doesn't foreclose, we could do a little bit of work on the house and try and sell it w/o a short sale. I've read that the settlement on the 3rd would likely be seen as better than a foreclosure, but I would feel better about it - and we wouldn't have to wait an unknown amount of time for it to happen. Or maybe this idea is just foolish since we don't want to stay here?

Can anyone offer any advice?

I guess the earliest we would qualify for any financing is Jan 2020 with conventional. Unless our circumstances would be considered extenuating? Then that could be this past Jan 2018 for conventional?

FHA, the clock hasn't even started ticking since we're still in the house?

USDA is no longer an option with a recent salary increase that put me over the limit.

But regardless... there is no financing anything until we get out of this house?

Thanks for any thoughts!

Dave
 

Jzone

LoanSafe Member
Jun 20, 2017
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Hi,

I'm going to try and summarize our situation as best as I can because I would probably write a book if I tried to explain it all. I'm hoping someone can give me an idea of where/how to start the process to move on.

Wife quit work in 2014 to stay home and care for the (4) kids after one of the kids had been hospitalized 3-4 times for mental health issues in the prior year. Things are better at home, but my wife has yet to return to work due to continuing issues with the kids (and now a grandkid). -- Can this be claimed as extenuating circumstances? I have medical records, bills, court documents, etc.

Our home was included in chapter 7 which was discharged in Jan 2016, so we are just over 2 years out.

CMA a few months ago valued the home at $259k.

$193k 1st mortgage (we are current on this ~$1.4k/month)
$ 63k 2nd mortgage (stopped paying in early 2014)
$ 46k 3rd mortgage (stopped paying in early 2014)

My wife really wants to get out of this house due to... let's just say bad memories...
I don't disagree with her that we should move, but doing so is difficult enough that I've been ok just staying here in limbo.

Need help figuring the best plan to get out.

I guess the most recommended option is to find a house to rent and just walk away and wait for a foreclosure to happen. Maybe we should have done this two years ago so we would be that much closer. I don't know. Negatives here are that we have 2 dogs and 3 cats most of which would have to find new homes. And also the loss of the home mortgage interest deduction...

My other thought is to see if the credit union that has the 3rd will settle for something close to 10%. They filed a lawsuit back in 2015 that forced us to file the bk so I don't know if they would deal or not. Maybe they would given the alternative. Then, provided that the 2nd doesn't foreclose, we could do a little bit of work on the house and try and sell it w/o a short sale. I've read that the settlement on the 3rd would likely be seen as better than a foreclosure, but I would feel better about it - and we wouldn't have to wait an unknown amount of time for it to happen. Or maybe this idea is just foolish since we don't want to stay here?

Can anyone offer any advice?

I guess the earliest we would qualify for any financing is Jan 2020 with conventional. Unless our circumstances would be considered extenuating? Then that could be this past Jan 2018 for conventional?

FHA, the clock hasn't even started ticking since we're still in the house?

USDA is no longer an option with a recent salary increase that put me over the limit.

But regardless... there is no financing anything until we get out of this house?

Thanks for any thoughts!

Dave
I would say walk away. And here's why.

You've already filed bankruptcy and are no longer liable for the debt and you don't really like the home you are in.

I filed chapter 7 also, but decided to keep the house while kids were still in school. All graduated know, but still paying on 1st mortgage, but not the second.

Not sure what the rental market is in your area, but you say you are current on your 1st mortgage and it is $1,400. month.

Your 2nd and 3rd mortgage probably will never foreclose, simply because they would need to pay off the 1st mortgage also. Thats the strategy I've been using and have been back and forth with the second mortgage holder to settle.

Here are the steps I would try:

1. Offer to settle your 2nd and 3rd mortgage for 10% of the balance. If they accept, great. If not, that is another reason to walk away.

2. I have no idea what your income is, but if you are current on a $1,400 mortgage, Im guessing you probably making $80-$100,000 year. It will take a minimum of 3 months to foreclose and the bank to take possesion of your home. Probably more like 6 month to a year. Why not stop making your mortgage payment, save that $1400 a month and use it to find a rental house for a year or two?

3. Your bankruptcy allows you to get a fresh start. Take advantage of that. I would not refinance your current home. Doesnt sound like you want to be there anyway. Maybe a fresh start is what is needed for your family.

JZ
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
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Jan 14, 2011
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I can give you some advice based on what my previous clients have done.

Because you included the property in bankruptcy, the lien is no longer reporting on credit so in most cases a foreclosure isn't going to impact your FICO score for purchasing ability (Disclaimer: I am not a credit expert). So in that case why not let the home foreclose and possible buy another house?

We have a program here where as long as you included a home in bankruptcy it will be treated as one event and eligible for the 2nd best program under portfolio which starts at 10% down with a 660 credit score. Rates aren't that bad either so it's an option to be able to purchase (if you have the funds) rather than renting, which it sounds like will help your animals as well.

The only caveat to it is that you would have to have the property foreclose, deed be transferred out of your name in order to be eligible for the program. You may have to find a place to live for a couple months while you find a new house unless you're lucky enough to time it just right.

If you want me to take a look at your financial situation to see what you might be eligible for if this home was to foreclose I can help anytime. 619-379-8999 or [email protected]
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Hey again,

It has only taken me 7 months to say it, but Thanks! to those who have responded and offered advice.

To answer one question, It is true that we would not be able to find a rental the size that we need for anywhere near our current payment on the 1st mortgage. Probably looking at $800-1000 more unfortunately.

So my wife has recently gone back to work after more than four years of living on my income alone. The increased income has me thinking, so I'm back again with a new question that I'm hoping someone might be able to comment on.

Maybe a stupid question, but is it possible to get a mortgage on another property while still keeping my name on this one? Could I qualify using only the payment on the 1st - and not the 2nd & 3rd charged off mortgages (all three included in the bankruptcy.) ?

My thought was that if our income is enough to qualify for (though maybe not afford) both the current $1400 mortgage, + $700/month car payments, and another $2000 mortgage, we could move into the new home while deciding what to do with the current home.

I thought I read somewhere... I want to say it was a "walking away" thread. That they even told the new lenders they were going to just dump the current home afterwards and they didn't care. As long as they qualified all was good. But the thing I don't remember is if they were current on all mortgages. I can imagine that might be a problem..

I dunno, is this even a possibility?

Thanks again,
Dave
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,049
161
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San Diego, California
www.loansreduced.com
I have been able to finance someone with a property included in BK however they were actively behind and property was pending foreclosure. If you're current on the home, I would assume the mortgage liabilities would be counted against you but I can't be certain.

In regards to your income, the job gap sounds like it's very large and would need to be explained. Typically we want to see 2 years history of employment without gaps.

It honestly sounds like what you have may be a tough thing to accomplish however if you're planning on renting the home that you live in now, you can offset that liability and potentially qualify for a new purchase.
 

AZ_Dreaming

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Apr 25, 2014
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Erik,

Thanks for the input. I hadn't even thought of the lapse in my wife's income as a consideration (prior to this, we've both always worked so it's never been an issue in the past I guess.) Hopefully it would help that I've been at the same employer for 18+ years and 80% of the $155k total gross is my income.

I think my main unknown is how the "forgotten" 2nd and 3rd mortgages would play into the calculations. Would the fact that they even exist make this not possible. The first hasn't foreclosed because I am current with the ~$1400/month payments. The other two haven't received a penny from me in over 4 years, but combined would have been another $1200/month.

Thanks,
Dave
 

AZ_Dreaming

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Apr 25, 2014
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I apologize as I'm afraid I'm straying just a bit from the topic of this forum since I'm trying to find a way to avoid dealing with the foreclosure... And I'm obviously grasping with this next thought, but...

Wife and I are currently on the deed to this house. Instead of needing to wait for a foreclosure to occur, could a quitclaim or warranty form be used to remove me from the deed, leaving only my wife? Both of us are still on the mortgage(s), but they are all discharged in Chapter 7 (Jan 2016).

Then could I apply for a new mortgage in my name alone?
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,049
161
63
San Diego, California
www.loansreduced.com
This honestly is a question I wouldn't feel comfortable answering, I would recommend reaching out to your local title/escrow or closing attorney in your area for advice in that department. Because you're on the mortgage, removing yourself from title in my opinion wouldn't help at all because you have just as much of a liability toward it as your wife does.

I know it's a ways away but January 2020 you will have conventional eligibility.

For portfolio loans, they require that the deed is transferred out of your name on the property that is pending foreclosure.
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Hi Erik,

January 2020 is indeed getting closer... Thanks again for your earlier replies.

Quick recap: Chap 7 Bk closed Jan 2016. Current on 1st Mortgage, haven't paid 2nd or 3rd in over 5 years

I understand that the deed needs to be transferred out of our name to qualify for a portfolio loan so even if we had the %15 down and reserves, etc right now we couldn't do that (w/o stopping payments and waiting for the foreclosure to occur).

But you're saying that we will be able to qualify for a conventional loan after Jan 2020 (4 years from BK) regardless of our name being on the deed to this house - being that all 3 mortgages were included in the BK filing?

I just want to be sure that I'm not going to be surprised in 5-6 months to find that we'll still need to wait for a foreclosure, find a temporary rental that will fit all of us, etc...

Thanks!
 

OneHugeMess

LoanSafe Member
May 30, 2016
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AZ_Dreaming, couldn't you just place the Property into a LLC with a Quit Claim Deed? You could continue making payments if you wanted to afterwards, but it would remove your name from the title.

Another option -- would be to Deed the property (again through Quit Claim) to the Co-Borrower or Spouse in name only. This would work if only one income was going to be used for the new loan.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,049
161
63
San Diego, California
www.loansreduced.com
Hi Erik,

January 2020 is indeed getting closer... Thanks again for your earlier replies.

Quick recap: Chap 7 Bk closed Jan 2016. Current on 1st Mortgage, haven't paid 2nd or 3rd in over 5 years

I understand that the deed needs to be transferred out of our name to qualify for a portfolio loan so even if we had the %15 down and reserves, etc right now we couldn't do that (w/o stopping payments and waiting for the foreclosure to occur).

But you're saying that we will be able to qualify for a conventional loan after Jan 2020 (4 years from BK) regardless of our name being on the deed to this house - being that all 3 mortgages were included in the BK filing?

I just want to be sure that I'm not going to be surprised in 5-6 months to find that we'll still need to wait for a foreclosure, find a temporary rental that will fit all of us, etc...

Thanks!
Yes, I called Fannie Mae this past Friday actually when you posted and asked them a question about a borrower that has a pending short sale. They said that as long as it was included in BK, they don't care if the property has been sold or not as long as it meets the 4 year requirement you can purchase a new home.

This is actually news to me as well because the guidelines specifically spell out foreclosure, they don't reference short sale. Now every lender is different, they're going to underwrite it based on what they think it should be. For example, the reason I made the phone call to Fannie Mae was to have ammunition when the underwriter comes back and gives me a hard time about the pending short sale.

Fantastic news though!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,049
161
63
San Diego, California
www.loansreduced.com
Now on a side note, the only thing that I could see hindering an ability to qualify for a mortgage would be housing history. All programs require that you're current on your housing for the prior 12 months....but then again I've already done this on a borrower who was still living in the home waiting for the deed to get transferred out of her name.
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Another option -- would be to Deed the property (again through Quit Claim) to the Co-Borrower or Spouse in name only. This would work if only one income was going to be used for the new loan.
I asked that question just a few messages up from my latest. Doesn't sound like it would be a possibility. I've asked elsewhere and was told the same. Not sure about the LLC though.
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Now on a side note, the only thing that I could see hindering an ability to qualify for a mortgage would be housing history. All programs require that you're current on your housing for the prior 12 months....but then again I've already done this on a borrower who was still living in the home waiting for the deed to get transferred out of her name.
In the past 12 months I know I was a day or two late paying on the 1st at least once, but definitely not 30 days late. (They did charge me a late fee, but later refunded it - because of the bankruptcy I'm assuming.)

But, does being current include the 2nd and 3rd?? If so, then even with a short sale or foreclosure I'm still waiting at least another 12 months.
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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A pristine house 2 doors down just sold for $360k. My house definitely needs some work.

I'm seriously thinking about taking a $46k loan from my 401k to pay off the third to remove their lien.

That leaves me with about 192k to payoff the 1st + $63k on the 2nd (assuming there aren't any huge interest amounts added since the last statement I received in 2015.) Hopefully someone would be willing to buy the house as-is for $260k to fix up and flip for $360k+

I dunno.. I just want to return to a "nomal" life with no more Bk stuff hanging over my head (other than post-bk credit issues)
 

OneHugeMess

LoanSafe Member
May 30, 2016
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A pristine house 2 doors down just sold for $360k. My house definitely needs some work.

I'm seriously thinking about taking a $46k loan from my 401k to pay off the third to remove their lien.

That leaves me with about 192k to payoff the 1st + $63k on the 2nd (assuming there aren't any huge interest amounts added since the last statement I received in 2015.) Hopefully someone would be willing to buy the house as-is for $260k to fix up and flip for $360k+

I dunno.. I just want to return to a "nomal" life with no more Bk stuff hanging over my head (other than post-bk credit issues)
Could you settle the 3rd Mortgage for less than the full amount? Is it underwater?
 

AZ_Dreaming

LoanSafe Member
Apr 25, 2014
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Could you settle the 3rd Mortgage for less than the full amount? Is it underwater?
The third is with a credit union. I talked to the manager of the collections department several months back because I've had similar thoughts since the beginning of this mess. Nice lady, but she told me that the goal of the board that makes those decisions is to guarantee that I have no chance to benefit from the situation. Said they would have no problem approving a short sale no matter how small of an amount they get because then they are sure that the house is out of my hands.

Said that if they were to accept a settlement, I could possibly hold on to the house and sell years later after it appreciates and end up coming out ahead. They'll won't allow that to happen. She told me I should try for a short sale.