Waiting Period After Bankruptcy for a Conventional Loan

Waiting Period After Bankruptcy for a Conventional Loan

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Bankruptcy can be a the best solution for individuals who have gotten themselves in a bad financial situation. Through the bankruptcy process, unsecured debts — and even some secured debts — can be discharged.

This allows people to start afresh on solid financial footing, rather than getting buried in mounds of debt with no end in sight. Of course, there are some downsides to filing for bankruptcy, including the immediate hit on your credit score that will come.

If you are also looking to apply for a mortgage, it’s important to understand that there will be a waiting period before you can apply for different types of loans. We’ll discuss that in more detail below.

Understanding the Waiting Period

Once you file for bankruptcy, there is a mandatory waiting period put in place by home lenders before you can apply for a new home loan. Each type of loan has a different waiting period, with conventional mortgages traditionally having the longest period. 

Why Is There a Waiting Period for Mortgages After Bankruptcy?

Lenders have put the waiting period in place to ensure that you didn’t use the bankruptcy process to get in a more favorable financial situation for a home loan. In addition, the lenders want to see that you have done the financial work necessary post-bankruptcy to afford a home loan.

How Long After Bankruptcy Can You Buy a House?

Technically speaking, you can buy a house immediately after you file bankruptcy. However, this isn’t a likely outcome, as most lenders will require the waiting period to get a new home mortgage. And if you had enough cash to purchase a home outright without a loan, you likely wouldn’t have needed to file bankruptcy in the first place.

Waiting Periods by Home Loan Type

The waiting period post-bankruptcy depends on two things — the type of bankruptcy protection you filed and the type of home loan you are seeking.

 

Bankruptcy and Mortgage Types

As mentioned, each different type of mortgage has a different waiting period post-bankruptcy. In addition, the waiting period also may differ depending on the type of bankruptcy you file.

Conventional Loan Waiting Period: 2–4 Years

Conventional loans have the longest waiting period. For Chapter 13 bankruptcy, the waiting period is two years from the discharge date or four years from dismissal.

For Chapter 7 bankruptcy, the waiting period is four years from the discharge date.

FHA Loan Waiting Period: 2 Years

FHA loans, backed by the Federal Housing Administration, have a shorter waiting period. For Chapter 13 bankruptcy, the waiting period is one year from the discharge date. For Chapter 7 bankruptcy, it’s two years from the discharge date.

USDA Loan Waiting Period: 3 Years

USDA loans, backed by the U.S. Department of Agriculture, have the same one-year waiting period from the discharge date for Chapter 13 bankruptcy, and three years from the discharge date for Chapter 7 bankruptcy.

VA Loan Waiting Period: 2 Years

VA loans, backed by the federal Department of Veterans Affairs, share the waiting period with FHA loans.

 

Post-Bankruptcy Financial Rehabilitation

The trade-off for the financial freedom that comes from bankruptcy is, of course, the hit to your credit score and the tightening of credit you’re likely to feel from different lenders. These restrictions, though, are only temporary. 

There are plenty of steps that you can take that will help you to re-establish a solid credit profile and get you on the right track.

Getting Your Finances and Credit in Shape

There are many things that you can do to get your finances and credit in shape following bankruptcy. First and foremost, make sure that you create and stick to a solid budget. This will help you to stay on top of your bills, set some money aside for savings and make sure that you don’t find yourself in the same financial position again.

Steps to Improve Your Credit Scores after Bankruptcy

The first step in improving your credit score after bankruptcy is to pay all of your bills on time. By not missing any payments, you’ll be ensuring that you aren’t making your situation worse than it already is.

At some point, it will be a good idea to try to open a credit card so that you can start building your credit. You may not be extended any offers for unsecured credit cards at first, so consider a secured credit card — which will require you to put up collateral, such as cash.

What Can I Do During the Waiting Period After I File Bankruptcy?

During the waiting period, it’s important to put yourself in the best financial position possible. Build your credit as aggressively as you can, put money aside for extra savings and for a down payment, and build a budget that works for you.

 

Credit and Mortgage Application Process

The mortgage application process post-bankruptcy will be the same as if you never filed bankruptcy. The lender will, of course, look at your entire financial and credit history, which will include your bankruptcy.

How Long After I File Bankruptcy Can I Apply for a Mortgage?

As mentioned above, different mortgage types have different waiting periods.

Minimum Credit Score Requirements

The minimum credit score requirements vary by mortgage type as well. Typically speaking, you will need a minimum credit score of 620 for a conventional loan. An FHA loan will require a credit score of 580 if you’re making a down payment of 3.5% or 500 if you’re making a 10% down payment.

While the VA doesn’t have a credit requirement, most lenders will require a credit score of 580 for this type of loan. The same goes for USDA loans, though many lenders will require a credit score of at least 640.

Importance of Credit Report in Mortgage Approval

Lenders will take a look at every aspect of your current financial status and past financial history to make a lending decision. 

 

Strategies for Mortgage Approval After Bankruptcy

Bankruptcy isn’t a death sentence for a future mortgage. There are things you can do to put yourself in a good position in time.

Tips to Improve Your Chances of Getting a Mortgage after Bankruptcy

Make sure that you increase your credit score by reducing debt and paying all your bills on time. Set and keep a good budget that includes extra money set aside for savings. And ensure that you establish a stable income.

Write a Letter of Explanation to Lenders

A good idea could be to write a letter of explanation to lenders. This gives you the opportunity to explain why you filed for bankruptcy, and the steps you have taken to change your financial situation in the time since.

Respond To Lender Inquiries

It’s always advisable to be on top of all lender inquiries. Don’t be afraid to talk about your bankruptcy and what you’ve done to put yourself in a better position since then.

 

Types of Mortgage Loans Post-Bankruptcy

There are many different types of mortgage loans you can get after a bankruptcy.

What Are FHA Loans?

FHA loans are backed by the Federal Housing Authority, which guarantees a large portion of the loan. They are offered through private lenders with the government’s backing. 

The minimum requirements to qualify are lower, including a down payment of as little as 3.5%.

What Are Conventional Loans?

Conventional loans are considered the gold standard of mortgages. They follow all standards of Freddie Mac and Fannie Mae. They typically have the most competitive interest rates and flexible repayment options. You’ll need a better interest rate to qualify, and will need to make a down payment of at least 20% to avoid paying monthly private mortgage insurance (PMI).

Understanding Different Mortgage Loan Options After Bankruptcy

It’s important to understand the different type of mortgage loan options you’ll have after bankruptcy. Which loans you will qualify for will depend on your current situation as well as that of the house.

For instance, to qualify for a VA loan, you must be a veteran or active duty military personnel, or be a spouse of one. To qualify for a USDA loan, your home must be located in what’s considered a rural part of the country.

 

Navigating Bankruptcy and Its Aftermath

Navigating bankruptcy can be difficult and challenging, but you don’t have to go it alone.

Is It Hard To Get New Credit After Bankruptcy?

Getting new credit after bankruptcy may be difficult at first, but after building up your credit by paying bills on time, it will get much easier.

Need Help Navigating the Bankruptcy Process?

You should never go into the bankruptcy process alone. It’s complicated, complex and can get quite expensive. That’s why you should always hire an experienced bankruptcy law firm such as Babi Legal to help you navigate the bankruptcy process.

Reset Your Finances

If you’ve found yourself in a bad financial situation, you can reset your finances by filing bankruptcy. To find out your options, contact Babi Legal today.

Main things to know about the Small Business Reorganization Act (SBRA)

Main things to know about the Small Business Reorganization Act (SBRA)

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Chapter 11 bankruptcy is one of the most popular options for businesses to seek relief when they are struggling financially. But, it is often an expensive and cumbersome process, which dissuades small businesses from pursuing it.

That’s a main reason why Congress passed the Small Business Reorganization Act of 2019 — to make it easier for small businesses to file for bankruptcy protection. The streamlined process called Subchapter V is the main aspect of the SBRA, which is a manageable and cost-effective option for small businesses to pursue.

Below are some more details about the SBRA.

Best bankruptcy for your small business

The type of bankruptcy that you pursue for your small business will depend on not just the financial situation that you’re in, but how you want to manage your business after the process.

Chapter 7 bankruptcy, for instance, is known as “liquidation.” That’s because all property and assets are sold off under the oversight of a bankruptcy trustee, and those proceeds are dispersed to creditors. Once the bankruptcy proceedings end, the business will shut down.

Chapter 11 bankruptcy is known as “reorganization.” That’s because the process allows business owners to still operate while they work out a plan to meet all their debts. Chapter 11 is much more in-depth and expensive, though, but Subchapter V makes available a streamlined version of it.

Personal Bankruptcy for Small Business Owners

Small business owners who want to file personal bankruptcy have a few options. 

Chapter 13 bankruptcy is also known as a reorganization bankruptcy, but it’s intended just for individuals. Sole proprietors can use this tool, therefore, to help them reduce their personal debt, which could include balances on credit cards, so that their business can remain open.

Sole proprietors and individuals can also file Chapter 7 bankruptcy, which will erase their personal debts, though their personal assets that are not protected could be subject to be sold.

Continuing Your Business: Factors to Consider

Before you decide what type of bankruptcy to file, there are some factors that you should consider about continuing your business.

First, you should analyze whether your business is making money. If you are losing money consistently, then it might be best for you to close the doors rather than trying to operate after bankruptcy. If you are profitable, though, reorganization could be a great way for you to restructure.

Second, consider if the value of your assets are greater than your liabilities. If your assets are worth more than your liabilities, then it would be in your best interest to try to continue operating after bankruptcy.

Finally, consider if you might be personally liable for your business debts. If you are responsible for these debts, then it could make more sense for the business to continue operating. If you close it, after all, your personal assets could be at risk.

The SBRA (Small Business Reorganization Act)

The SBRA took effect on February 19 of 2020, right before the full outbreak of the COVID-19 pandemic in the U.S. This act created Subchapter V for Chapter 11 bankruptcy that streamlined the reorganization process for small business owners. 

Subchapter V is essentially an alternative that small business owners can use to pursue Chapter 11 bankruptcy. In essence, the SBRA seeks to strike a solid balance between the two most popular bankruptcy options — Chapter 11 and Chapter 7 — allowing businesses to continue operating while also having a quicker, cheaper and more streamlined option for figuring out their debts.

Pros and cons of Chapter 7 and Chapter 13 bankruptcy

There are many pros and cons of the different types of popular bankruptcies. 

Chapter 7 allows you to wipe away personal debts and basically start anew. It provides a fresh start to a lot of individuals who find themselves underwater with debt, allowing them to wipe away unsecured debt while still protecting significant assets such as homes and cars.

On the flip side, Chapter 7 bankruptcy from a small business standpoint means that the business will have to be liquidated to cover outstanding debts. Small businesses will close once the Chapter 7 bankruptcy proceedings end.

Chapter 13, meanwhile, allows the filer to keep some of the assets and property that they’d normally lose through Chapter 7. It allows business owners to reorganize their personal debts so that they can continue operating their business.

The downside is that Chapter 13 doesn’t include any business debts at all. In addition, it can be a rather expensive process.

Going to bankruptcy court as a small business owner

Bankruptcy court can be a daunting place for small business owners to go. That’s why any business owner who is considering filing for bankruptcy should enlist the services of an experienced bankruptcy law firm such as Babi Legal.

Chapter 7 Bankruptcy for a Sole Proprietorship

Sole proprietors can file for Chapter 7 bankruptcy, just as individuals may. This allows filers to erase both their personal and business debts. Any assets that they have — both personal and business — are subject to be sold if they’re not protected by certain exemptions.

The business might end up closing through this bankruptcy process if the bankruptcy trustee needs to sell property and assets to cover debts. 

What Happens When a Business Files for Bankruptcy?

What happens to a business when it files for bankruptcy depends on which type of bankruptcy is filed. Chapter 11 bankruptcy allows the company to continue to operate and reorganize rather than liquidate.

Chapter 7 small business bankruptcy

Under Chapter 7, the business will immediately cease operating and will go out of business. The company’s assets will be sold off to cover its debts. As mentioned, the debts will be completely wiped out, but the company won’t be able to operate afterward. 

Limited Liability Partnerships (LLP)

Members of a LLP can file Chapter 7 bankruptcy so that all business debts can be disposed. In most cases, partnerships won’t receive discharges through this type of bankruptcy. 

All of the assets under this bankruptcy for LLPs will be liquidated and then dispersed to all creditors. In most cases, if any partner is liable for the debts of the partnership, then their liability won’t suffer from the bankruptcy that the LLP files.

However, if the value of the LLPs assets aren’t sufficient to pay off all creditors, then the credits could be able to claim the partners’ personal assets are liable for the debt.

The downsides of bankruptcy

While there are many advantages to filing bankruptcy, there are also some downsides as well.

How does filing a business bankruptcy impact credit?

Filing Chapter 7 or Chapter 11 bankruptcy shouldn’t affect a business owner’s personal debt if they’re operating a corporation or LLC. There are exceptions to this, however, including if you’re personally liable for the debt.

Your small business credit might get impacted by a bankruptcy as well. Bankruptcies make up anywhere from about 5% to 10% of business credit scores, which shows how significant filing for bankruptcy can be.

At the same time, if you file personal bankruptcy, it could also affect the credit score of your business.

Can a Small Business Owner Benefit From Filing a Personal Chapter 13 Bankruptcy Case?

While businesses can’t file Chapter 13 bankruptcy, the business itself can benefit from an owner filing this type of personal bankruptcy. If a small business owner frees up cash through the Chapter 13 bankruptcy, then the small business could benefit substantially from the investments that could be made.

Forgivable Loans and the CARES Act

Forgivable Loans

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The federal government passed several emergency aid bills during the COVID-19 pandemic that were meant to help people survive during what was one of the most challenging times in U.S. history.

The first of these aid bills was called the CARES Act. Passed in March 2020, there were many aspects to the multi-trillion-dollar package. Multiple forgivable loans were created specifically for use by small businesses, while other forgivable programs were created for individuals.

While these are some of the most well-known forgivable loans, they are not the only type. In this article, we’ll discuss what forgivable loans are and what eligibility and tax issues result from them.

Economic Injury Disaster Loan (EIDL)

The Economic Injury Disaster Loan (EIDL) program expanded considerably during the pandemic. The federal government declared the entire country to be in a disaster zone as a result of the pandemic, effectively making every small business eligible for these loans. 

The first type of EIDL loan was the most common one. They provided small businesses with funds to pay for working capital and other normal operating expenses. These loans had favorable terms but were forgivable and had to be repaid.

There were different requirements for this EIDL loan, depending on how large the loan amount was. Loan increases were also available until all the funds were exhausted.

The second type were the EIDL Advance funds. They were awarded to existing EIDL applicants who met additional criteria. The Advances are treated like grants without the typical requirements the federal government places on such programs.

Because of their grant-like nature, EIDL Advance funds were forgivable and didn’t need to be repaid.

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness program, or PSLF, applied to borrowers who had federal direct loans. These borrowers could qualify for loan forgiveness after they made 12 monthly payments while they were working for an eligible employer on a full-time basis. 

Payments made as part of an income-driven repayment plan also qualified as payments toward the PSLF. 

Paycheck Protection Program (PPP)

Perhaps the most popular forgivable loan program was the Paycheck Protection Program, or PPP. It was a new loan backed by the Small Business Administration aimed at helping small businesses continue employing their workers during the pandemic.

The money handed out under the program was a loan that could turn into a forgivable grant if the recipient met certain qualifications. 

Loans of as much as $10 million were available to small businesses to use for as much as six months of their average monthly payroll costs from the previous year. Businesses that received the loans could use as much as 40% of the total on non-payroll costs, including utilities, rent and mortgage interest.

All loans were for five years with a fixed interest rate of 1%. If the loans were used for the purposes described above, they could qualify for full forgiveness. The amount to be forgiven would be reduced, though, depending on how the funds were allocated.

Eligibility

To be eligible for a PPP loan, a small business had to have 500 employees or less. Each business could apply for a loan worth as much as 250% of its average monthly payroll costs — with a maximum of $10 million — and it was meant to cover up to eight weeks of payroll, and help with the other expenses mentioned above.

Those who are self-employed, an independent contractor or sole proprietor were also eligible to apply for a PPP loan. Any portion of the PPP loan that wasn’t forgiven was subject to a loan term of 10 years, with a maximum rate of 4%. 

Conditions for Loan Forgiveness

In order for small businesses to receive loan forgiveness under the PPP program, there were a number of requirements they had to meet. Only 40% of the funds could be used for non-payroll expenses, while the rest had to be used to maintain payroll.

Businesses that received these loans had to compile proper documentation, fill out a forgiveness form and submit the documentation to the lender. Those files would all be reviewed, with a decision sent back to the small business.

Small businesses that received a PPP loan before June 5, 2020, had to repay their loans fully in two years, or within five years if they were approved after that time. Payments could also be deferred for as much as 10 months after the disbursement date of the loan. 

Other Types of Forgivable Loans

There are other types of forgivable loans that weren’t related to the pandemic and weren’t targeted to small businesses. 

Here are some examples. 

Teacher Loan Forgiveness (TLF)

Many different states have Teacher Loan Forgiveness (TLF) programs available for teachers. Typically speaking, teachers must work for at least five years in a row at a low-income school district or educational service agency.

After this period of time, they may qualify to have part or all of their school loans forgiven. How much of the loan is forgivable depends on a number of factors, including the state they teach in, their specialization and location.

Down Payment Assistance (DPA)

Some borrowers may qualify for a second mortgage that will help them cover closing costs and a down payment when they are buying a new home. There are various factors that determine whether a borrower might qualify for a DPA as well as how much the loan could be worth.

In most cases, the borrower can qualify for full forgiveness of the DPA if they lived in the home for at least five years. The length of time they must live in the home varies from case to case, though. 

Some of the DPA programs that are available are targeted specifically to types of buyers such as military personnel, teachers and first-time homebuyers.

Tax Implications of Forgivable Loans

While forgivable loans are certainly great, they aren’t without implications. Depending on the type of loan that was forgiven, you may take a tax hit as a result.

That’s because the Internal Revenue Service (IRS) typically treats forgivable loans as taxable income. This means that you must claim the amount of the loan that was forgiven on your tax returns at the end of the year, just like other sources of income.

There are, of course, exceptions to this rule. The most popular ones are the pandemic-related loan programs. For instance, forgivable PPP loans were not considered to be taxable income, which provides small business owners with more financial relief. 

It’s important that you consult with an experienced tax professional and attorney to determine how loan forgiveness might affect you from a tax perspective.

Weigh Your Options with an Experienced Attorney

Forgivable loans became very popular during the COVID-19 pandemic. While most of these programs have since ended, there are still some forgivable loans available. 

That being said, some people still experience financial difficulties even after they receive forgivable loans. If that’s the case, it’s important to weigh your options with an experienced attorney.

At Babi Legal Group, we have more than 20 years of experience in real estate law and more than 10 years experience in business, bankruptcy, debt collection and debt settlement law. We can help advise you on the implications of forgivable loans and help you explore your options if you’re still experiencing financial difficulties.

For more information, please contact us today.

 

How the CARES Act shields homeowners from foreclosure and eviction

How the CARES Act shields homeowners from foreclosure and eviction

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The CARES Act, passed in the early stages of the COVID-19 pandemic, was a massive aid package that was meant to provide financial relief to individuals and businesses struggling during the pandemic and mandatory government shut-downs. 

With much of the country forced to shut down during the outbreak of the pandemic, people were left scrambling to figure out how they were literally going to put food on the table.

The CARES Act had many parts, including direct payments that most every American received. It also enhanced unemployment benefits and provided loans to small businesses to maintain their payroll — which turned into grants if certain requirements were met.

Another main aspect of the act dealt with mortgages and foreclosures. Below, we’ll dive deeper into the details of how the CARES act shields homeowners from foreclosure and eviction.

Coronavirus and the CARES Act

When the COVID-19 pandemic broke out in the U.S. in March 2020, virtually everyone across the country was forced to lock down in their homes. Schools and businesses were shuttered, except for a few essential services such as grocery stores and medical facilities. 

While some people were able to continue working from home, many others were laid off overnight. Some who weren’t laid off didn’t receive payment from their companies, because those businesses were no longer generating sales.

With all of this happening swiftly and at once, Congress stepped in to pass the CARES Act — with trillions of dollars in financial aid going to a number of different areas.

So many people were struggling paying their bills that the federal government didn’t want to see millions of homes go into foreclosure overnight. That’s why one of the areas that was covered under the CARES Act was mortgages and a moratorium on foreclosures that were backed by the federal government.  The CARES Act did not apply to privately held mortgages.

Foreclosure and the Coronavirus Pandemic

There were three main provisions in the CARES Act that dealt with mortgages and foreclosures. 

The most commonly-used aspect was a forbearance period, which allowed homeowners to pause the monthly payments on their mortgage for as much as one year. During the forbearance period, lenders were not allowed to charge late fees for missed payments, and also couldn’t report homeowners to credit agencies.

Mortgage forbearance didn’t forgive monthly payments, but rather allowed homeowners to skip them for a temporary period of time so they could use the money on other everyday essentials.

There were also provisions for foreclosures, sheriff sales and evictions.

Foreclosure Provisions of the CARES Act

To receive a forbearance on your mortgage, you had to request it directly from your mortgage servicer. All mortgages that were backed by the federal government in some capacity were eligible for this forbearance. That includes loans obtained through the VA, FHA, USDA, Freddie Mac and Fannie Mae.

The CARES Act stated that you only had to make this request and verbally declare that you were impacted by the Covid-19 Pandemic, and didn’t have to provide any documentation regarding your financial hardship.

While lenders weren’t able to charge late fees for any missed payments for loans that were in a forbearance period, they were allowed to choose how those missed payments would be handled once the period ended.

They could charge a lump sum payment — meaning that all missed payments would come due in one large lump sum once the forbearance ended. They could prorate the payments, evenly dividing the amount of all the missed payments by the number of missed payments, and then adding that amount on top of the regular monthly mortgage.

A third option would be to extend your loan so your missed payments were just tacked on at the end. The lender wasn’t required to allow borrowers to choose the repayment method, though they could certainly work together on it.

Sheriff sales and foreclosures judgment under the CARES Act

During the pandemic, homeowners who were being foreclosed on or were facing foreclosure got some major relief. Any lender working with a mortgage backed by the federal government wasn’t allowed to move for a judgment of foreclosure, initiate any foreclosure process (non-judicial or judicial), seek a sheriff sale, or execute an eviction related to a foreclosure or foreclosure sale.

The moratorium was put in place for three months initially, but then was extended multiple times. The only exceptions to the rule was if a property was abandoned or vacant.

Eviction restrictions

Homeowners facing foreclosure were not allowed to be evicted from their homes during the moratoriums. This basically put a pause on all foreclosure proceedings for a temporary period of time.

Foreclosure and your mortgage payment

The foreclosure process differs from state to state, based on the local laws that are in place. Typically speaking, mortgage companies are not allowed to initiate foreclosure until a certain number of days after the first missed mortgage payment.

From that point, there are many steps that must be followed.

Foreclosure process: How does foreclosure work?

In the state of Michigan, foreclosure can either be judicial or by advertisement. The timeline for each is the same, but there are some slight differences for how the process plays out.

Foreclosure timeline

In Michigan, the payment delinquency timeline actually begins on the second day after a missed mortgage payment. All payments are due on the first of the month, and will then be considered delinquent on the second. 

The mortgage company then has a process that they must follow to pursue foreclosure, which generally requires at a minimum 90 to 120 days of missed payments.

Missed mortgage payments

Once a mortgage payment is missed, late charges can be assessed. The lender or servicer of the loan is required to make live contact with the homeowner to inform them about options for loss mitigation.

On Day 45 after the missed payment, the lender or servicer has to assign a single point of contact to the homeowner and also provide a written notification of options for loss mitigation and the fact that they are delinquent.

The lender and borrower can work on a loan workout, modification of the loan or other option for loss mitigation. You can also make a partial payment if the lender allows it.

Foreclosure counsel and notice of default

At Day 121 after the missed payment, the foreclosure process can begin, if all other attempts at resolving the outstanding debt are unsuccessful.

At this point, an official notice of foreclosure will be recorded at the local courthouse. A date for a sheriff sale will be scheduled and published in a county newspaper for four consecutive weeks. That notice will also be posted at the property within two weeks of the first publication.

At this point, it is very important for homeowners facing foreclosure to enlist the services of an experienced foreclosure law firm to determine if the foreclosure process was followed correctly and if all options under the CARES Act were provided.

Other Foreclosure Provisions

In Michigan, the redemption period begins at the date of the sheriff sale through six months after it, though it could also last for 12 months in certain circumstances. The homeowner is allowed to live in the property during the redemption period and is not required to make payments as long as they maintain the property, utilities and insurance.

The borrower can redeem the property by paying the amount bid at the sheriff sale plus all interest and fees.

Judicial Foreclosures Vs. Nonjudicial Foreclosures

A judicial foreclosure requires the lender to take the borrower to court to get an official judgment. A non-judicial foreclosure includes a sheriff’s sale that must be advertised in a local newspaper with additional required notices such as placing a notice of foreclosure sale on the home itself.

Judicial Foreclosure States

There are 21 states plus the District of Columbia that predominantly use judicial foreclosure. They include Wisconsin, Vermont, South Carolina, Pennsylvania, Oklahoma, Ohio, North Dakota, New York, New Mexico, New Jersey, Maine, Louisiana, Kentucky, Kansas, Iowa, Indiana, Illinois, Hawaii, Florida, Delaware and Connecticut.

Nonjudicial Foreclosure States

The other 29 states predominantly use the non-judicial foreclosure process.

FAQS

Should I Have Filed Bankruptcy During the Pandemic?

The CARES Act and other economic stimulus packages passed during the pandemic provided some relief to people experiencing financial hardship. That being said, some people still needed to file for bankruptcy during the pandemic.

Do I Owe Money if the House Sells for Less than I Owe?

If your home is sold at sheriff’s sale for less than you owe on the loan, the lender can still go after you for the unpaid amount, which is referred to as the deficiency.

Can I Keep the Profits from a Foreclosure Sale?

In most cases, the borrower can keep any profits from a foreclosure sale. There may be other claimants to that profit, though.

How Will Foreclosure Hurt My Credit Score?

A foreclosure will typically lower your credit score by 100 points or more, and will typically last for about seven years. Over that time, your credit score will improve.

How Can I Stop the Foreclosure Process?

In Michigan, you can stop the foreclosure process by working directly with your lender to make up for missed payments, or by redeeming the property following a sheriff’s sale.