Denver Real Estate Law and Family Law Blog. (Vol 1.32) April 1, 2014
By Craig Franklin Chambers, Esq. 7851 S. Elati Street #204, Littleton, CO 80120. The Littleton Lawyer.
As a Littleton real estate and property law attorney, with a practice that includes divorce, child custody, and family law cases in Littleton, Denver, Englewood, Highlands Ranch, Chatfield, Columbine and South Jeffco, and as a Colorado real estate broker with over 30 years experience, I often run into legal myths that need to be debunked.
One such myth is the idea that you cannot obtain financing for a home loan after a bankruptcy. Or that it is preferable for your credit to allow your home to go into foreclosure or to sell your home in a short sale rather than to file bankruptcy.
I have advised clients as a real estate broker and as a lawyer reviewing residential real estate transactions who are ashamed of their recent bankruptcy and are too embarrassed to inquire into the effects a bankruptcy has on your credit. Some go to the lengths to seek unfavorable, alternative financing or lease-purchase agreements which may or may not have the most favorable terms.
Given almost a decade of economic hardship, unemployment, and business failures, the stigma of bankruptcy is largely disappearing. In fact, bankruptcy is an age-old process. You have a right to file bankruptcy which time-honored proceeding is contemplated in the United States Constitution.
Of course, home loan qualification underwriting requirements are always changing, and there are different loan underwriting requirements depending on the type of loan you are seeking and other factors such as the loan-to-value ratio and what efforts you have made to re-establish your credit.
According to a reliable mortgage broker, under current loan requirements, a home buyer can purchase a home with a new FHA loan or VA loan after 2 years of discharge of a Chapter 7 bankruptcy and after 4 years after discharge of the bankruptcy for a conventional loan. The length of time to wait for a loan after a short sale or deed in lieu of foreclosure is recorded is 3 years for FHA and 2 years for VA, but 7 years for a conventional loan.
This suggests what I have observed in my law practice and real estate business. Generally, a bankruptcy is considered a positive step towards starting over financially over just letting your home go into foreclosure.
I do not practice bankruptcy law, and I am not a financial or credit counselor, and you need competent advisers in these fields before you make decisions regarding whether or not to file bankruptcy.
I think it is important to debunk legal myths when you can, especially if the myth affects the efforts you may or may not make in determining the qualifications for something as fundamental and significant as a new home loan.