+1 vote
My wife and I want to refinance our mortgage in Houston, Texas. We have a lot of equity, and need to use the equity to make repairs and improvements in the house , and for extremely urgent medical procedures not covered by Medicare.

Our Loan-to-Value (LTV) is only 60 percent, our Debt-to-Income (DTI) is 41 percent, and our FICO score is about 688.

On September 2014, I was summarily terminated from my job. At the same time, I had 9 payments remaining on my Chapter 13 payment plan. My income dropped to zero except for Social Security which was not enough to pay living expenses and the Chapter 13 payment.

This incident qualifies as Exceptions for Extenuating Circumstances, loss of income beyond my control. The result was catastrophic, i.e. the bankruptcy court had no choice but to dismiss, not discharge my case. The primary creditor was the IRS, I owed the 20 percent withholding taxes on IRA withdrawals.

After the dismissal, the IRS removed the lien on our house (our attorney filed a Chapter 7 in my wife's name to apply to the remaining balance owed to the IRS), considered the remaining balance uncollectible and has since left us alone, now going on two years we have not heard from the IRS.

However, every lender I have contacted has turned us down on the refinancing because of the bankruptcy dismissal and the Chapter 7 even though all the above was a direct result of my losing my employment, income which was beyond my control. Lastly, due to Hurricane Harvey, our mortgage company has given us a temporary hardship forbearance plan, deferred payments until December 20, 2017.
asked Nov 24, 2017 in Refinancing by Philip collins

2 Answers

+1 vote
Extenuating circumstances, as you correctly say, are events over which you have no control. (Mortgage lenders also call them mitigating circumstances, depending on the program.)

If you have a bankruptcy discharge or are still in a Chapter 13 plan, extenuating circumstances allow mortgage lenders to approve a loan to you sooner than they would otherwise be allowed to. Here are Fannie Mae's guidelines:

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.

Nor sure what the discharge date is on the 7. However, you have multiple bankruptcies because of it, and that changes the guidelines for Fannie Mae and Freddie Mac.

Exceptions for Extenuating Circumstances for Multiple Bankruptcies

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.

Finally, lenders are sympathetic when you are in a bad way due to no fault on your part. But to finance you, they also want to be reasonably certain that you are in decent shape to repay a new loan. And if you are currently in deferral, it does not appear that you are ready yet for a new mortgage. Lenders want to know that you have recovered and that the event is unlikely to recur. An emergency fund covering several months of mortgage payments goes a long way toward convincing them that a job loss in the future would not leave you unable to cover your housing.
answered Nov 27, 2017 by GinaPogol (47,650 points)
0 votes
The issue here is not the Chapter 13 or the Chapter 7. You met the waiting period after CHAPTER 7 BANKRUPTCY discharged date of two years. The dismissal doesn't matter. The issue is the IRS tax lien. You need a written payment agreements with the IRS and 3 months monthly payments. Need to provide proof of payments via 3 months canceled checks and/or bank statements showing timely payments for at least 3 months. Another important issue you should be aware of is that any late payments after a bankruptcy and/or foreclosure is extremely frowned upon by all mortgage lenders. Most lenders will flat out say no to any borrowers who has any late payments after a bankruptcy and foreclosure. They consider this a second offender and will disqualify any borrowers with late payments after a bankruptcy and/or housing event. Make sure the mortgage you have in forbearance is not reported late on credit bureaus.

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answered Feb 6, 2018 by GustanCho (106,540 points)
edited Feb 13, 2018 by GustanCho

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