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emgagne1

Purchasing a home after Chapter 7 Bankruptcy

16 posts in this topic

My husband and I filed Chapter 7 and it was discharged December 2016.  The bankruptcy included our previous mortgage.  We attempted to apply for a rent to own home, however we were advised by the mortgage broker that we needed to wait 3 years from the date the property was transferred out of our names to apply for a new mortgage.  We have asked our attorney that handled the bankruptcy and did not believe this to be true.   

 

The previous home we owned is still in our name as the mortgage company that was listed in the Chapter 7 sold the loan immediately after the discharge then that company sold it again.  We have filed a new motion and are waiting for the foreclosure to happen, however in the mean time renting and in limbo.   

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We had stopped paying on the mortgage and left the property, then filed for bankruptcy.  The attorney said there was a step was missed once the bankruptcy was discharged which was the Foreclosure Referee Appointment for the Bankruptcy Property.  

 

 

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The bankruptcy and the foreclosure are two separate legal events. 

 

What would normally happen is that when it was discharged, if you wanted to stay in the home, you would reaffirm the debt otherwise the foreclosure process would start and you would be out of the house.  That didn't, or at least hasn't, happened in your case.

 

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So it sounds to me that our attorney had mis-informed us as to the steps and actions/consequences with the bankruptcy and the property.  The reason we filed and walked away from the house was that we were told there would not be any foreclosure because the property would be discharged in the bankruptcy and we could purchase another home in 2 years from date of discharge.  

 

We were way upside down on the house after 13 years and many renovations.  Tried to go Deed in Lieu 3 times before giving up.  

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During the bankruptcy process, the bankruptcy trustee will normally abandon the estate's interest in the property, if it is obviously underwater.  That means the title to the property reverts to the title owner, i.e. you, but still subject to the mortgage.  The mortgage holder can then foreclose on the mortgage but you can't force them to do it.  It is up to the mortgage holder to petition for the appointment of a Referee, which is a state court, not bankruptcy, procedure.  It no longer involves you, except that you need to be given notice of the foreclosure.  You have no power to force the mortgage holder to do the foreclosure.  So you are stuck.  That is one of the more serious consequences of bankruptcy and defaulting on your mortgage.  

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You didn't ask a question, so I'm uncertain what the purpose of your post is.

 

 

3 hours ago, emgagne1 said:

We have filed a new motion

 

Motion for what?

 

 

2 hours ago, PayrollHRGuy said:

So basically you still own the home?

 

2 hours ago, emgagne1 said:

I suppose, but I guess I don't understand how that can be if the mortgage was discharged in the bankruptcy.

 

How the mortgage was treated in the bankruptcy has nothing to do with the title of your home.  That said, the mortgage almost certainly was not discharged.  More likely, your personal liability for a deficiency balance probably was discharged, but the lender's rights regarding the property almost certainly survived.  Eventually, the current owner of the mortgage will get around to foreclosing.

 

 

2 hours ago, emgagne1 said:

we were told . . . the property would be discharged in the bankruptcy

 

That doesn't make sense.  Assets do not get discharged in bankruptcy.  The only thing that gets discharged is the debtor's liability for debts.

 

 

2 hours ago, emgagne1 said:

and we could purchase another home in 2 years from date of discharge.

 

You can purchase another home anytime you like, as long as you have the money to do so and/or the ability to obtain a mortgage.  Most mortgage lenders are not going to extend credit to a person who was discharged in bankruptcy only a couple years earlier.

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1 hour ago, emgagne1 said:

So then is there any rule or law that says there is a 3 year waiting period from date of title transfer after foreclosure, if the debt was discharged in bankruptcy?  

 

No.

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There  is no federal law I am aware of.  However, I think you would be extraordinarily fortunate to find a mortgage company that would finance the purchase of a new home shortly after a liquidating bankruptcy and in the course of a pending foreclosure.  The bankruptcy wiped out your personal liability for any deficit when the foreclosure is finished, but the lien still exists unless the foreclosure is completed.  The bankruptcy will remain on your credit record for about ten years and the foreclosure will remain for seven years.  In other words, right now your credit score may be as low as it can possibly go.  You need to build it back up before you are going to get any financing for anything.

 

BTW, if you have just come out of a liquidating bankruptcy where is the money for a down payment coming from?

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Retired inVA - The money for down payment and closing will be a gift from my grandmother and money we are able to save ourselves.  We were discharged 2 years ago so our credit scores are decent again (high 600 to low 700).  

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You cannot be discharged in bankruptcy and not expect to be viewed by lenders with some caution. I highly doubt your credit scores are as high as you believe they are, and while you may be able to get a loan, you can expect to pay a much higher interest rate and have other contingencies that would not be required of an applicant with more stellar credit. You are kidding yourselves. Don’t forget to pay Grandma back. 

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