May 21, 2013
A reader asks, “I had a home that Foreclosed in 2009. The Sheriff Sale was completed in December 2009, however according to the FHA office the claim on my home was not closed out until a little over a year later on January 14, 2011.”
“Which means that instead of being in a position for another FHA Loan in 2012 we have to wait until January 2014, which is considered to be over 4 years since the Sheriff Sale. Why would it take so long between the Sale and the actual closing of the claim on the house? Is there anything I can do other than wait until 2014?”
While we can’t address why it takes so long between a foreclosure and the sheriff sale, we can address the portion of this reader question that is directly concerned with FHA loans. The answer to this portion of the question is found in the FHA loan rules spelled out in Chapter Four, Section C of HUD 4155.1. It states:
“A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years
• his/her previous principal residence or other real property was foreclosed, or
• he/she gave a deed-in-lieu of foreclosure.”
The reader asked if there is anything a borrower can do besides wait out the three year required “seasoning period” following foreclosure. The FHA does address this question in the same chapter.
“Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.”
At this point, some potential borrowers have follow-up questions. What constitutes extenuating circumstances? Could divorce or other issues that may have contributed to the foreclosure count? The FHA anticipates this question, at least in part, with the following:
“Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower’s loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.”
For more information, a borrower would need to contact the lender to find out what that financial institution would permit as “extenuating circumstances” not covered by the above quote. It’s the lender’s discretion in these cases, as to the exceptions–borrowers should not expect an automatic exception or that exceptions are widely available.
Do you have questions about FHA home loans? Ask us in the comments section.
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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