Bankruptcy and Foreclosure

There was a client who filed bankruptcy in October of 2008. At the time, the lawyer told them that by including the home in the bankruptcy was the same as signing a “DEED IN LIEU”. This is may be the case as far as the bankruptcy is concerned as the house goes back to the bank and the client is no longer responsible for the payments. HOWEVER, when this client came in to purchase a home, it was discovered that the foreclosure date was not the same as the bankruptcy date. The foreclosure was not finalized until December of 2009. (the rule is that a borrower has to wait 3 years after a foreclosure before they can obtain another loan on a home). If the client would have signed an actual “DEED IN LIEU” then the date of foreclosure would have been October of 2008. The “DEED IN LIEU” actually transfers title back to the bank on the day it is signed and there is no need for the bank to go through the foreclosure procedures. By just including the home in the bankruptcy, means that once the bankruptcy is discharged, then the bank has to still go through state laws and go through the procedure of foreclosure in order to get the title transferred which can take a year or two to complete. Therefore, the actual date of title transfer is not the same as the bankruptcy discharge date. From a lending point of view, including a home in the bankruptcy is NOT the same as signing a “DEED IN LIEU”. If you are including any home in a bankruptcy, be sure to consider the difference of just including it, and signing a “DEED IN LIEU” as it will affect your next purchase date.

Preparing for a mortgage loan

Here are a few tips when you are getting ready to purchase or refinance your home.

1.  The lender will need 2 months of bank statements.   These need to be actual statements from the bank.  An online screen shot of your account will not work unless it has your name and full account number on it.  So, start saving the statements you get in the mail, or start printing them off each month so you will have them ready.

• Make sure there are no “non sufficient funds” in your account for the 2 month period.
• Every deposit must be explained.  If it is a pay check, have copies of your pay stub ready to show that is where the money came from.  (if it is direct deposit, it will already verify the deposit on your statement.)  Do not deposit any money into your account that cannot be verified as this money will have to be deducted from your balance and a 5% payment will be added to your liabilities.
• If you are planning to use cash money from your sock drawer, deposit all of it in the bank the month previous to the months you are showing the lender so there is no “large” deposit on the bank statements you are sending to your lender.

2.  A month or two before having your credit report ran, make sure that all your revolving debt is below 50% of the maximum credit limit.  This will help improve your credit scores.  If you can’t pay down the debt, see if your creditors will increase your limit enough to have your balances below 50%.  You should never go over 50% of your credit limit when it comes to calculating a credit score.

3.  Paycheck stubs will be needed that cover a 30 day period.  They need to show a year to date and your employers name on them.  Start saving them and continue saving them until the loan is complete.  Sometimes the process takes a while and the lender will need current information in the file.

4.  File your taxes.  The lender will need to gather information from the IRS to verify your taxable income.

5.  Be sure to inform you loan officer of all the properties you own.   Even if there is not a lien against that property.

6.  Let your loan officer know if you have a small business on the side (such as selling Avon or a photography hobby) that you show on your taxes.  The income that is gathered from the IRS must match what is on your W-2 or there will be questions.  It is best just to bring in your tax returns from the previous 2 years if there is anything that could cause a potential difference.

Just keep in mind that everything mentioned on your application must be verified.  (income, assets, REO’s, ect)

Serving the  Treasure Valley, Boise, Meridian, Nampa, Caldwell ares.