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Late payments before filing g a chapter 13 bankruptcy
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I have a client with multiple 60 day lates on a mortgage in last 24 months prior to filing a chapter 13 bankruptcy..
If the mortgage is in the chapter 13 are those 60 day lates excluded from the manual underwriting guideline rule of no more than 2X 30 day lates on an installment loan last 24 months?
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3 Replies
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Alex Carlucci contacted HUD about the borrower being able to qualify for FHA loans one year into a Chapter 13 Bankruptcy repayment plan. HUD specialist said it should be no problem but on the HUD 4000.1 FHA Handbook, it does not state that you can or you cannot do it. Therefore, the HUD specialist will escalate it to upper management to get confirmation. The team at Gustan Cho Associates has done literally hundreds of these in the past 10 years and never had an underwriter question this. The underwriting manager at EPM or Equity Prime Mortgage agrees with Alex Carlucci that is should not be a problem but the underwriter who is underwriting this file is the first underwriter that is bringing this up. Good underwriter and great point to get this cleared up now.
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@alexcarlucci Is your client trying to execute a C.O. Refi to pay off the debtors named in Chapter 13? If yes, contact your borrower’s lawyer and ask them to email you the proof of payment leger. If that leger is good to go with no payments missed or showing lates, the lawyer will email you a letter on company letterhead stating so. Then the judge will more than likely sign off on the transaction. Usually, that will force the underwriter to comply. You will need a 24-month bank transaction statement from the borrower as well.
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This reply was modified 1 year, 4 months ago by Dustin.
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This reply was modified 1 year, 4 months ago by
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Chapter 13 and Recent Late Payments Limited Before Bankruptcy is Entered.
For the mention of manual underwriting standards for loans post-filing of Chapter 13 bankruptcy, it is clear that payment history would be key. Here’s how it generally works:
A History of Late Payments, Which Leads After That to The Insolvency Level of Chapter 13.
Discharge Effects: After a borrower requests to enter a Repayment Plan under Chapter 13 bankruptcy, the considered focus becomes the payment history after the plan is filed. However, bankruptcy may allow for a new approach to assessing credit availability.
Treatment of Late Payments as Pre-Bankruptcy: Late payments before the bankruptcy filing are not an issue when getting qualified for an FHA or VA loan during the Chapter 13 bankruptcy repayment plan. However, you should not have late payments on the repayment to the bankruptcy trustee.
Manual Underwriting Guidelines
Standard Rule: Manual underwriters require no more than two instances of the latest thirty-day installment for more than twenty-four months to qualify for a mortgage loan.
Exclusion of Late Payments: It is possible that if such a mortgage is included in the plan under Chapter 13, the late payments before the description of the bankruptcy level may be treated somewhat differently. Some other lenders may ignore those late payments, considering that the borrower paid his payments in full and on time during the Chapter 13 repayment.
You are on Specific Lender Policies
Late Payments and Bankruptcy: There are policies with all the lenders, even if there was a late payment before or after the time of bankruptcy. It is important to contact the specific lender to find out how, for example, Chapter 13 bankruptcy will affect their specific policies or treatment of late payments.
Explanation and Evidence: Providing evidence such as financial hardship that led to bankruptcy can improve the chances of approval of late payments due to bankruptcy in the 13th chapter.
Late payments made before the bankruptcy Chapter were easier to consider in manual underwriting. Still, if the mortgage is already in the bankruptcy plan, it may not be such a factor. Lender guidelines regarding the documentation provided by the borrower should also be provided so that the lender’s policies can be easier to understand.