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Foreclosure Inside a BK – Same Seasoning Periods

As mentioned yesterday, we often get borrowers with recent bankruptcies (BKs), and we quote the normal seasoning periods that lenders require after a BK is discharged. The seasoning period is usually 2 years b/c most of our borrowers have had Chapter 7 BKs.

But often, after further digging, we discover that borrowers had one or more foreclosures within their BK. In those instances, the seasoning periods for a BK become irrelevant. Lenders focus only on the longer seasoning periods required for foreclosures. Foreclosures supersede BKs. In other words, a foreclosure cannot be buried in a BK to garner a shorter seasoning period.

Further, BKs do not “hide” a foreclosure. Credit reports and BK papers always illuminate foreclosures.

FHA requires 3 years of seasoning after a foreclosure.

Erratum: Yesterday, we stated that borrowers need to re-establish credit after a BK in order to get financing. Our full-time Trainer, however, quickly pointed out that we were wrong. FHA will take borrowers with NO re-established credit in some cases; borrowers either need to have at least 3 new re-established trade-lines or NO re-established credit at all. There is no “in-between”.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646