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Florida mortgage After Foreclosure or Bankruptcy!

Note: We are not Florida attorneys we cannot give you legal advice!

Note: The terms “preforeclosure sale” and “short sale” are used interchangeably in this Guide and have the same meaning (see Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account below).

The presence of significant derogatory credit events dramatically increases the likelihood of a future default and represents a significantly higher level of default risk. Examples include derogatory credit events include collection accounts, repossessions, Judgements,  bankruptcies, foreclosures, deeds-in-lieu of foreclosure, preforeclosure sales, short sales, and charge-offs of mortgage accounts.

The Florida mortgage lenders must determine the cause and significance of the derogatory information, verify that sufficient time has elapsed since the date of the last derogatory information, and confirm that the borrower has re-established acceptable credit history. Florida mortgage lenders must make the final decision about the acceptability of a borrower’s credit history when significant derogatory credit information exists.

This topic describes the amount of time that must elapse (the “waiting period”) after a significant derogatory credit event before the borrower is eligible for a new loan salable to Fannie Mae. The waiting period commences on the completion, discharge, or dismissal date (as applicable) of the derogatory credit event and ends on the disbursement date of the new loan for manually underwritten loans. See B3-5.3-09, DU Credit Report Analysis, for additional information pertaining to DU loan casefiles, including how the waiting period is determined. Also see B3-5.3-08, Extenuating Circumstances for Derogatory Credit, for additional information.

Note: The requirements pertaining to significant derogatory credit are not applicable to high LTV refinance loans. (See B5-7-02, High LTV Refinance Underwriting, Documentation, and Collateral Requirements for the New Loan.)

Fannie Mae Bankruptcy (Chapter 7 or Chapter 11)

A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.

Fannie Mae Bankruptcy (Chapter 13)

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:

  • two years from the discharge date, or

  • four years from the dismissal date.

The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.


Multiple Bankruptcy Filings

For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date.

Note: The presence of multiple bankruptcies in the borrower’s credit history is evidence of significant derogatory credit and increases the likelihood of future default. Two or more borrowers with individual bankruptcies are not cumulative, and do not constitute multiple bankruptcies. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy this is not considered a multiple bankruptcy.

Exceptions for Extenuating Circumstances

A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances.



A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.

Exceptions for Extenuating Circumstances

A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:

  • Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.

  • The purchase of a principal residence is permitted.

  • Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.

Note: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a seven-year waiting period has elapsed.


Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the Florida mortgage lenders obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.


Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account

These transaction types are completed as alternatives to foreclosure.

  • A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remarks Codes such as “Forfeit deed-in-lieu of foreclosure.”

  • A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. These are typically identified on the credit report through Remarks Codes such as “Settled for less than full balance.”

  • A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.”

A four-year waiting period is required from the completion date of the deed-in-lieu of foreclosure, preforeclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower.

Exceptions for Extenuating Circumstances

A two-year waiting period is permitted if extenuating circumstances can be documented.

Note: Deeds-in-lieu and preforeclosure sales may not be accurately or consistently reported in the same manner by all creditors or credit reporting agencies. See Identification of Significant Derogatory Credit Events in the Credit Report above for additional information.


Fannie Mae Summary — All Waiting Period Requirements

The following table summarizes the waiting period requirements for all significant derogatory credit events.

Derogatory Event Waiting Period Requirements Waiting Period with Extenuating Circumstances
Bankruptcy — Chapter 7 or 11 4 years 2 years
Bankruptcy — Chapter 13
  • 2 years from discharge date

  • 4 years from dismissal date

  • 2 years from discharge date

  • 2 years from dismissal date

Multiple Bankruptcy Filings 5 years if more than one filing within the past 7 years 3 years from the most recent discharge or dismissal date
Foreclosure1 7 years 3 years

Additional requirements after 3 years up to 7 years:

  • 90% maximum LTV ratios2

  • Purchase, principal residence

  • Limited cash-out refinance, all occupancy types

Deed-in-Lieu of Foreclosure, Preforeclosure Sale, or Charge-Off of Mortgage Account 4 years 2 years


Requirements for Re-establishing Credit

After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, preforeclosure sale, or charge-off of a mortgage account, the borrower’s credit will be considered re-established if all of the following are met:

  • The waiting period and the related additional requirements are met.

  • The loan receives a recommendation from DU that is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.

  • The borrower has traditional credit as outlined in Section B3–5.3, Traditional Credit History. Nontraditional credit or “thin files” are not acceptable.

How does bankruptcy affect a borrower’s eligibility for an FHA mortgage?

Chapter 7 bankruptcy (liquidation) at least two years have elapsed since the date of the bankruptcy discharge. During this time, the Borrower must have:re-established good credit; or chosen not to incur new credit obligations.
Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA-insured Mortgage, if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed. The Mortgagee must determine that during this time, the Borrower’s payment performance has been satisfactory and all required payments have been made on time; and the Borrower has received written permission from bankruptcy court to enter into the mortgage transaction.

If you already own a home and file bankruptcy there are generally two few options, keep the home or get rid of the debt. There are advantages and disadvantages to each option. You should consult with a bankruptcy law firm in Tampa to learn more. Each case is different, and you should have a plan based on your specific goals.

FHA and VA Mortgage with Bankruptcy

The FHA and Veteran’s Association allow a debtor to qualify for a mortgage in just 2 years after the discharge. See FHA Regulation 4155.4 The discharge is a court order that releases the borrower from liability to the bank. As with most legal issues, the outcome will depend on the specific circumstances of each case. Thus, you should speak a bankruptcy attorney to learn more about your case.

Fannie Mae Mortgage after Bankruptcy

Borrowers can become eligible for a mortgage with Fannie Mae in as little as two years after the bankruptcy discharge. Moreover, if a debtor makes twelve consecutive Chapter 13 payments they may have permission to increase their debt. The increase in debt may even include obtaining a new mortgage. For Chapter 7 cases, Fannie Mae will require borrowers to wait at least 2 years to qualify for a mortgage.

Difference Between Chapter 7 & Chapter 13 Bankruptcy

Chapter 7 is intended to be a liquidation bankruptcy. In Chapter 7 cases, the borrower may be required to liquidate non-exempt assets as a condition of the case. On the other hand, Chapter 13 is a reorganization bankruptcy. In Chapter 13 cases, the debtor consolidates their debts into one monthly bill that is paid to the bankruptcy trustee.

Unlike Chapter 7, borrowers are not required to sell their assets in a Chapter 13 case. Chapter 13 is considered a restructuring bankruptcy. In these cases, the borrower continues to make payments according to the Chapter 13 plan. Due to this difference, many creditors view Chapter 13 more favorably than Chapter 7 when evaluating borrowers for new loans. Both Chapter 7 and Chapter 13 have their unique advantages and disadvantages. If you are considering bankruptcy, speak with a Tampa bankruptcy attorney for advice on your specific needs.


Remove 2nd Mortgage from Home in Bankruptcy

Lien stripping can allow homeowners to remove the 2nd mortgage from their home. Lien stripping is a process that removes junior loans and changes the debt from a secured loan to unsecured. See Bankruptcy law 11 US 506. Unsecured debt has no collateral, like most credit cards and medical bills.

If the lien is stripped down to the market value, the remaining loan balance is treated as unsecured debt. For example, if you owe $12,000 on your car but the vehicle is only worth $5,000 then $5,000 is secured debt and the remaining $7,000 is unsecured. Stripped liens will receive the same treatment as all your other unsecured debts. Common examples of unsecured debt are credit cards and medical bills. Unsecured claims usually receive nothing or only a small amount of the balance owed.


Surrender Home in Bankruptcy

Some homeowners who file Chapter 7 choose to surrender their homes because they can no longer afford the home. In Chapter 7 cases, the borrower must file a “Statement of Intention.” The Statement of Intention is necessary to tell the bankruptcy court how you intend to handle the home. Some of the options include: reaffirm, modify a loan, or surrender your home. See bankruptcy law 11 U.S.C. § 521(a)(2)(A).

If you choose to surrender, you can escape personal liability on your mortgage. If you surrender the property, you are walking away from it and forfeiting it to the Chapter 7 trustee. You are not allowed to defend a foreclosure action against your home after you receive a discharge. See bankruptcy case Failla v. Citibank. When you surrender the property, you will no longer be personally liable for the debt connected to the property.  The surrender option exists to give you a “fresh start.” A creditor can no longer seek collection if the debt was discharged.


Loan Modification with Chapter 13 Bankruptcy

Chapter 13 allows homeowners to force the bank to accept a 5-year payment plan for the past due amount. The homeowner won’t have to pay the full mortgage in 5 years, only the amount that is past due. You don’t need to apply for a loan modification, you can force the bank into the 5-year payment plan. See bankruptcy law 1322.

Additionally, you can apply for a traditional loan modification as part of the Chapter 13 case. These modification applications are usually much different than when a homeowner applies. In Chapter 13 mortgage modifications, the U.S. Trustee is there to oversee the bank. Additionally, there can be a mediator appointed as well to help streamline the process. With much more oversight the bank is less likely to cause unnecessary delays and wrongfully deny modification requests.

What is Mortgage Deficiency?

A mortgage deficiency occurs when the foreclosure auction does not yield enough money to pay the loan in full. For example, if a bank foreclosed on a home due to a $150,000 debt, but the home only sells for $1000,000, the bank is still owed $50,000. Therefore, there would be a deficiency of $50,000 still owed to the bank. The Florida mortgage lenders can then sue the borrower for the deficiency. If they get a judgment, the bank can garnish your wages and place liens on other property you own. See Florida Statute 702.06.

How to Stop a Mortgage Deficiency

For some homeowners, bankruptcy is the best solution to stop a mortgage deficiency. Under Bankruptcy law, a discharge will void a judgment, “to the extent that it is a determination of the personal liability of the debtor. If a debt is discharged in bankruptcy the borrower, will be released from personal liability on the debt. The discharge is a permanent court order releasing the borrower from the responsibility of having to pay the debt. Further, the discharge prohibits a creditor from taking any collection action against the borrower. Therefore, the discharge will prevent and stop a mortgage deficiency in Florida.

Bankruptcy law 11 U.S.C. 524(a) precludes creditors from trying to hold the debtor personally liable for a discharged debt. For instance, threatening to garnish wages or sue the debtor can be a violation of debt collection laws. A willful violation of the ban on collection activity can lead to sanctions being imposed on the creditor. These sanctions can include an injunction, monetary sanctions, reimbursement of funds paid by the debtor, and even punitive damages. Additionally, the creditor may be responsible for reimbursing a debtor for the money spent on an attorney to stop the collection action. See bankruptcy case In Re All Media Properties.

Consult a Florida Bankruptcy Attorney 

If you are having a difficult time meeting your financial obligations, Florida Law Advisers may be able to help. Our bankruptcy attorneys in Tampa have years of experience helping people solve their financial problems. We understand these are very difficult times and we are here to help. In some cases, filing for bankruptcy may be a good solution, however, it is often not the only choice available. The right course of action will depend on the unique circumstances of each case. To see which options may be available to you, contact us to schedule a free consultation.

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