FHA Loans After Foreclosure

“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.