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Are you ready to buy again after…………..?

In today’s real estate market, foreclosure or short sale are two of the most popular terms. Actually, almost fifty percent of all the Arizona real estate listings are distressed properties; as such, whether you want to sell your home, are looking to purchase a home, or work in the real estate industry, you have most likely heard the terms foreclosure or real estate a lot. However, even though these terms are used a lot, there are quite a few people who do not know exactly what they mean, or how they will be able to buy such properties after having filed for bankruptcy.

By now we are all aware of the troubles of the economy and of the real estate market and the effects they have had on people’s lives. Astonishingly, it’s been more than four years since the bubble burst and things unraveled so quickly for so many people. What this means to the marketplace though is that those first waves of people who had gotten into trouble are now starting to come out of the other end of the tunnel.  What does this mean?

There were three course of actions that people took that inhibited their ability to buy another home right away. Short Sale, Foreclosure and Bankruptcy.  Each of these events, though devastating at the time, are all cured over time. Each one is treated a little differently than the other. But generally, after two to three years most folks can buy another house if they’ve kept their nose clean and paid their bills on time.  Here’s a look at each one.

A short sale can be defined as, homeowners negotiating with the mortgage lender to ‘forgive’ some amount of the debt owned on their homes, so that they can prevent their homes from going into foreclosure. For example, you owe approximately $350,000 on your home; however, the market is currently demanding $225,000 for it. If your mortgage lender will agree to accept less than the original loan amount, you can try to sell your home for $225,000. Generally, mortgage lenders only agree to a short sale if there is proof that you are undergoing some type of financial hardship such as losing your job.

The FHA loan program will allow you to qualify for a new mortgage no less than 36 months after the short sale closing date of the home.

Foreclosures are not too much different except for the fact that the bank acquired the property at a trustee sale and the home owner relinquished all ownership rights to that property without going through the normal sale process.

The home owner who suffered through a foreclosure must also wait 36 months from the trustee sale date until they can qualify for a new mortgage.

The final event that many people have been faced with is Bankruptcy. Most people file for a Chapter 7 Bankruptcy. This type of bankruptcy eliminates all debts. the process takes 3-6 months to complete and the completion is called the Dismissal.  Any person who has filed for bankruptcy must wait 24 months, but not less than 12 months, after the dismissal before they can be qualified once again for a mortgage.

Some people however must file a different kind of bankruptcy. This is called the Chapter 13 Bankruptcy whereby some types debts are dismissed without further obligation and the others are put into a payment plan, generally 60 months in length. The person filing the Ch. 13 bankruptcy will be eligible for new mortgage financing within after 12 months of on time payments to the trustee and with the trustee’s approval.

Duckworth Lending will provide you with information that will definitely find helpful, once you decide to purchase a home after you have filed for bankruptcy or have suffered through a short sale or a foreclosure. Give us a call.


About danielduckworthmortgagenotes

Senior Mortgage Loan Officer at Academy Mortgage Group in Scottsdale, AZ

5 responses »

  1. I liked this article, so I am sharing this information with several of my social groups that I belong to on Linkedin. Would like to see more of this type of information published to our communities making the consumers more aware of their options to purchase a home again.

    Thank You

    Ric Snapp
    Prestige Realty

  2. So does this mean that a bankruptcy is not the same as a foreclosure regarding ability tobuy again? The bankruptcy provides a shorter path to a new mortgage?

    • That is correct Jim. A foreclosure is seen as a more severe occurrence since it was the defaulting of a mortgage loan (which the applicant is now asking for another mortgage loan). A bankruptcy does not always include a mortgage default (sometimes but not always).

      So, for a bankruptcy filing the waiting period is 2 years. For a foreclosure or a short sale the waiting period is 3 years.

      There are instances where exceptions are made depending on the circumstance surrounding these events. Hope this helps. :))

  3. So just to be clear – if you include the house as part of the bankruptacy estate- on the credit report the notation might say “discharged through bankruptacy” instead of forclosure?

    • Usually it’s pretty clear on the credit report because what you’ll normally see if 90, 120, 150 days late on the mortgage payment history and then it will just stop reporting. One can conclude that this was a foreclosure. FHA underwriting considers anything over 90 days late the same as a foreclosure. This then triggers the 36 month rule.

      If the credit report shows no lates, or maybe only 60 days, then the underwriter may want to investigate further to see whether or not the property actually went into foreclosure. It’s pretty simple to look at it through public records to see if a Notice of Trustees Sale was filed or not.

      So, to answer your original question, the reporting on the credit report may or may not state “foreclosure proceedings started”. It depends if that actually happened or not. In either case it should also have the verbiage “discharged through bankruptcy”. So, it may contain both.


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