May 30, 2020

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FHA Loans After Foreclosure

133There are many foreclosure avoidance programs available for consumers struggling to make their mortgage payments; the Obama mortgage, the FHA HAMP program, mortgage loan modifications offered by the lender apart from government programs, etc. But in some cases foreclosure might be unavoidable.

The borrower in these circumstances may wonder how long it could take to recover from such a “negative economic event” and become a home owner once more. FHA loan rules specifically address this issue in HUD 4000.1.

Page 247 of HUD 4000.1 refers to situations that involve foreclosure or a deed-in-lieu of foreclosure. We learn:

“A Borrower is generally not eligible for a new FHA-insured Mortgage if the Borrower had a foreclosure or a DIL of foreclosure in the three-year period prior to the date of case number assignment.”

The three year waiting period must begin at a specific time, according to HUD 4000.1:

“This three-year period begins on the date of the DIL or the date that the Borrower transferred ownership of the Property to the foreclosing Entity/designee.”

Just as with many portions of the FHA home loan rule book, certain exceptions can be justified if the lender is willing to work with the borrower in these cases. What are these exceptions?

“The Mortgagee may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the Borrower, such as a serious illness or death of a wage earner, and the Borrower has re-established good credit since the foreclosure.”

That said, HUD 4000.1 does include some examples of situations that are NOT considered for this exception as extenuating circumstances:

“Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a Borrowers Mortgage was current at the time of the Borrowers divorce, the ex-spouse received the Property, and the Mortgage was later foreclosed. The inability to sell the Property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.”

As with similar FHA loan policies in HUD 4000.1, the lender has certain due diligence requirements:

“If the credit report does not indicate the date of the foreclosure or DIL of foreclosure, the Mortgagee must obtain the Settlement Statement, deed or other legal documents evidencing the date of property transfer. If the foreclosure or DIL of foreclosure was the result of a circumstance beyond the Borrowers control, the Mortgagee must obtain an explanation of the circumstance and document that the circumstance was beyond the Borrowers control.”

In all cases such as these, lender standards may also apply, so potential borrowers will need to discuss their needs with a loan officer to see what is possible at that financial institution.

Joe Wallace - Staff Writer

By Joe Wallace

September 7, 2016

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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