May 26, 2015
A reader asks, “I filed a chapter 7 in 2009 and listed my home in the bankruptcy as it tuned out I tried to short sale but the bank told me no. so I filed and it discharged in 2009. The bank did nothing for 7 years. I moved out of the home in 2009 and it remained empty for 7 years. I purchased another home (hard money loan) in 2012. I improved my credit rating and I want to refi my home. The bank finally let me short sale the home in 2014 it sold. What is going on the lenders are telling me that there going by the short sale date not the bk date. Can you help?”
There are two issues at work in these situations–FHA loan rules and lender standards. A borrower may technically be within FHA loan requirements but still have to meet the lender’s standards, so a great deal would depend on what the rules at a given financial institution are.
That said, FHA loan rules for purchase following a short sale state:
“A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his/her principal residence simply to
–take advantage of declining market conditions, and
–purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value”.
Furthermore, FHA loan rules say, “A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all
–mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
–installment debt payments for the same time period were also made within the month due.
A borrower in default on his/her mortgage at the time of the short sale (or pre- foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale. Note : A borrower who sold his/her property under FHAs pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.”
FHA loan rules do provide certain exceptions to the above if a borrower’s mortgage loan default was because of circumstances beyond the control of the borrower, “such as death of primary wage earner or long-term uninsured illness”. In such cases the lender is required to review the borrower’s credit report and make a determination as to whether or not the exception is justified. Speak to your loan officer to learn more about what may be possible in your circumstances.
Do you have questions about FHA loan rules? Ask us in the comments section. All comments are held for moderation before appearing on the website.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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