Blog

Sep
27
Chapter 7 or Chapter 13 Bankruptcy and obtaining a Mortgage in Maine
By Travis Penny

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Portland, ME - Vision Mortgage, LLC

A couple of questions I get from clients on a regular bases is, "Can I get a Maine FHA Mortgage with a bankruptcy?", and, "Are there different guidelines for Chapter 13 and Chapter 7?"

The answer is yes, and yes.

A Chapter 7 bankruptcy requires that you wait 2 years from recorded discharge date for a Maine FHA Loan, and 4 years for Conventional programs. They will require that you have not missed any payments after the BK, and you are in a favorable postion to continue.

Chapter 13's are a little different. Here are some extracts from HUD Handbook 4000.1 that governs Maine FHA loans:

“A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA- insured Mortgage, if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed.”

As you can see, there is a 12 month seasoning period; But FHA loan rules say just waiting out the 12 months isn’t enough–the lender’s participation is required and the borrower must seek approval from the bankruptcy court:

The borrowers will need to document with a case report, or with a letter from the trustee, that all payments for at least 12 months have been made in a timely manor (no over 30 day lates). They will also need written proof that the court will allow the borrower to obtain the new debt.

“The Mortgagee must determine that during this time, the Borrowers payment performance has been satisfactory and all required payments have been made on time; and the Borrower has received written permission from bankruptcy court to enter into the mortgage transaction.”

The lender is also required to do some further checking to verify the facts in the case and to insure the circumstances which caused the bankruptcy aren’t likely to happen again.

“If the credit report does not verify the discharge date or additional documentation is necessary to determine if any liabilities were discharged in the bankruptcy, the Mortgagee must obtain the bankruptcy and discharge documents. The Mortgagee must also document that the Borrowers current situation indicates that the events which led to the bankruptcy are not likely to recur.”

Borrowers who have further questions on this issue should reach out to me, I'm always happy to help

Travis Penny
Loan Officer
Vision Mortgage, LLC - 352 Warren Ave, Portland Maine 04103
(207) 835-9087 - I return calls and texts until 8pm nightly

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Vision Mortgage, LLC 

352 Warren Ave, Unit #6

Portland, ME 04103

NMLS ##1286953   

Vision Mortgage, LLC 

352 Warren Ave, Unit #6

Portland, ME 04103

NMLS ##1286953   

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Travis Penny, Maine Mortgage Game Planner  

NMLS #1649161

Travis Penny, Maine Mortgage Game Planner  

NMLS #1649161

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Serving Maine since 2004

Serving Maine since 2004

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