Purchase Post Short Sale, Foreclosure or BK

Buying after Short Sale Foreclosure in Phoenix

One of the first questions on someone’s list after a foreclosure or short sale is “when can I qualify for a new mortgage?”  While the time frame depends upon several different factors, one thing is consistent regardless of the scenario at hand.  Calculating the exact date someone can qualify for a new mortgage requires a great deal of due diligence to get it right.

GUIDE TO BUYING AFTER FORECLOSURE, BK or SHORT SALE

Click HERE for an outline of when you can buy after Bankruptcy

Click HERE for an outline of when you can buy after a Foreclosure

Click HERE for an outline of when you can buy after a Short Sale

When applying for a new mortgage after a short sale, foreclosure or bankruptcy that included a mortgage it is important to dig deep to verify completion dates.  I am referring to short sale completion dates and/or the date that the County recorded a foreclosure.  Why?   If this is not done at the front end of a mortgage pre-approval you can bet your bottom dollar that it will surface once the file reaches an underwriter’s desk.  If the proper time-frame has not passed the borrower does not get to pass GO!  If an underwriter is looking at a file there is most likely an executed purchase contract in place and that borrower has likely spent non-refundable funds on an appraisal and/or a home inspection.  Goofing on these crucial dates can prove to be emotionally draining and extremely expensive for a home buyer that is halfway down the home buying trail.

Buying a home is an emotional experience and all too often a buyer will move as quickly as their loan officer allows them to.  How many buyers are going to say “are you sure I am approved?” or  “Can you please double check your work before I go house hunting?” to their lender.   The vast majority of buyers do not know enough about the mortgage industry to smell trouble on the horizon.  They are excited to go and find their new Arizona dream home and trust their mortgage company.

Double Check Dates!

Short answer – A LOT!   Let’s examine a typical short sale scenario.  When an Arizona Mortgage Lender pulls a credit report for a buyer they will find evidence of a short sale.  The mortgage that was paid in short by the borrower will have a note similar to this underneath it – “Account settled for less than full balance.”   In the date reported section of the credit report the loan officer will see the last time the mortgage that was “sold short” reported activity to the credit bureaus.  This is NOT necessarily the short sale completion date.  The only way to know what the short sale completion date is beyond a shadow of a doubt is to request the final signed settlement statement from the Title Company that closed the short sale for the borrower.  At some point this will come up before this borrower’s new mortgage is approved.  Best to figure it out on the front end.

Now, let’s look at a foreclosure example.  The same ideas hold true for a foreclosure.  The credit report will reveal what mortgage was part of a foreclosure however, the date of last reported activity is again a very poor indicator of the actual foreclosure date.  When a foreclosure is a part of a borrowers past, the new mortgage lender needs to request a deed from a local Title Company to document when the foreclosure officially recorded with the county.  Guess who will ask for this if the borrower’s loan officer does not ask up front?  Everyone’s favorite person – the underwriter approving the application.

So far, nothing we have gone over is too challenging to handle for any attentive loan officer.  This next example is where things get a little sticky.   Oftentimes, people include a mortgage in a bankruptcy.  Eventually, that mortgage can go into foreclosure.  This scenario proves that…well the devil is certainly in the details.  Let’s break this down.  There are different waiting periods relative to when a borrower can qualify for a mortgage after a bankruptcy and after a foreclosure.  The waiting period is typically shorter for a bankruptcy.  A scenario that is misjudged by lenders all too often is when a borrower includes a mortgage in a bankruptcy they filed.  In this case, that borrower is held to the foreclosure waiting time-frames and NOT the bankruptcy time frames.  Big difference!  To take this one step further, a mortgage that is included in a bankruptcy can sometimes not go through foreclosure for quite a while.  While a lender can clearly see the discharge date for the bankruptcy in this situation, adding the required waiting time-frame to that date is a risky and inaccurate way to figure out when that borrower can obtain a new mortgage.  Instead, the loan officer needs to put their detective hat on and research the recording date of the property that went into foreclosure to accurately figure when that borrower can move forward with their new mortgage application.

If you have any questions regarding how to calculate when you can buy after a short sale, foreclosure or bankruptcy please call or email me.

By Jeremy House
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Comments

  1. tony risoldi says:

    mortgage was included in chp13 bk in feb 2010. in august 2010, judge approved wage earner plan and released house to lender. bank did not foreclose and transfer title until jan 2012. jobs r great…credit scores for both, just over 700….have down payment for fha loan…when would we be eligible please. thx

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