The problem with delayed foreclosures
We've written here before that you should stay in your home even after you get the notice of a foreclosure sale. We recommend you stay put up until the time the lender - or whoever buys the home at the foreclosure auction (usually the lender) – gives you 30 day official notice that they will take possession of the home. Why? Many lenders will dawdle and not foreclose or foreclose and then not take title and possession. In the past, this could mess up your time line for buying a new home.
The way it was – waiting periods before the rule change
Prior to Fannie Mae's new clarification, there were two policies in force. One, if you filed a bankruptcy that wiped out your mortgage debt, you would have to wait two years before getting a new mortgage. Second was if you were foreclosed on, you would have to wait three years before getting a new mortgage. But for those that went through both major life events, the longer time period prevailed and if the foreclosure lingered due to an inattentive lender, it could roadblock someone and leave them waiting for much longer than seems reasonable.
The new rule – and what it means for you
With the new Fannie Mae clarification, if you have both a bankruptcy and a foreclosure, only the bankruptcy waiting period will apply- this is very good news for those hard hit by a major life event that derails their finances. For most people, it's a period of unemployment, a divorce, major illness or other significant setback that caused their money problems and once they get past this, are able to carry on with their finances normally. You shouldn't be punished because life threw some financial roadblocks into your path and this rule change reflects what's reasonable.
As a clarification, the two years don't start ticking from the time you file your bankruptcy, but from the time your discharge is issued – usually a few months after you file. And the bankruptcy chapter referred to here is a Chapter 7 – where you can discharge any balances associated with a mortgage on a foreclosed-on property. So if you've been waiting and waiting to buy a home after your bankruptcy, you may not have to wait any longer!