Want to possibly buy a new house instead of refinance current one

[wildebeast]

We were discharged from chapter 7 almost 3 years ago and our home was included in the bankruptcy. I make the mortgage payments each month on time. We have a 1st and 2nd mortgage. When we first bought our home, we had 0% downpayment so the amount we owe is 199,000. Currently our home appraises for $173,000 due to the housing crash.

So we had always talked about trying to refinance eventually but we are not even happy in our home. Would it be possible to just "abandon" the home we have and qualify for a new mortgage at some point? How does that work since technically we aren't liable for the debt?

I'd rather get the house we want and need for our family instead of refinancing a home that we don't want to stay in and then we'd be stuck here even longer.

[Logan]

You'd have to wait three years from the day of foreclosure to qualify to buy a new home.

[Charlie777]

This is how the housing market is terribly broken.

You would need to sell as a short sale or abandon the home, either event counts as a foreclosure and restarts the three year clock as Logan points out.

You don't say how much you paid for the home, or what your interest rate is, but since you say you put zero down and mention two mortgages I'm guessing an 80/20 loan, same lender or different lenders? You owe 122% of the estimated current value. So you have some real obstacles to refinancing. The new Obama refinancing plan, when the details come out, and if it actually works, may help with the obstacles posed by having a second mortgage, and possibly either PMI, or lender placed MI. You need to find out who actually owns the loans now.

Your best option may be to try to refinance with your current lenders, keep the payment where it is, lower the interest rate, and hope that the increased principal payments and a modest eventual recovery in housing will get you to the point where you can sell.

Your other options would be to try to play hardball with the lenders to restructure (may need to consult an attorney on lender liability issues), or stop paying, accumulate funds, and when they finally foreclose, rent for the three years post-foreclosure.

It's frustrating, your "fresh start" doesn't seem so fresh as the economy and housing markets are still tanked. Ask yourself why you originally kept the house, and what has changed to make you unhappy with it. Is it the really the negative equity and feeling trapped in it?

[rmcmorran]

I believe if you walk away and have a second mortgage you are responsible for that 2nd mortgage. It doesn't go away, like the first mortgage. You may want to talk to a BK lawyer if that is what you are thinking about doing. We had to declare bankruptcy due to our second mortgage.

[keepsmiling]

Discharged is discharged, first, second, third, whatever.
I'd stop paying, save up as much as you can, and think about paying cash for the next house if you can get a great deal on a foreclosure elsewhere, or a land contract as others have done.

[Freddy03]

FYI: If you refinance you are taking on a new loan that you are responsible for. If you are not happy in that home I couldn't stay IMO.

[Freddy03]

I believe if you walk away and have a second mortgage you are responsible for that 2nd mortgage. It doesn't go away, like the first mortgage. You may want to talk to a BK lawyer if that is what you are thinking about doing. We had to declare bankruptcy due to our second mortgage.

OP stated BK has been discharged for 3 years. They are not responsible for either the 1st or 2nd.

[HHM]

OP stated BK has been discharged for 3 years. They are not responsible for either the 1st or 2nd.

Correct, they are not responsible for any deficiency; however, if they refi, those are new loans and the OP will lose the benefit of the discharge.

If you end up short selling or foreclosing, it will be another 3 years before you can buy a house (unless you do a non-defaulted short sale, which means you don't miss any payments, then it is one year....but good luck getting a bank to agree to a short sale if you are not in default).

[BobMango]

As HHM indicated, a short sale will be difficult in any scenario with the only real advantage over foreclosure is that you know when the 3 year clock will start then.

Alternatively, have you thought about renting out your current house? Don't know if that will come close to covering your mortgage payment, but it could get you out of a house you hate and potentially into a (rental) house you like more.

After a year as a landlord, you may be able to qualify to purchase a new home, you'll probably need six months reserve for the rental house, but that may be a faster way to get into a better house.

I relocated shortly after filing and rented out my house. I've been renting for two years now and plan on looking at the market next summer. That will be 2 and 1/2 years post discharge and right at 3 years since my foreclosure (rental property). I plan on keeping the house that is currently rented as it's cash flow positive. I've been informed that I'll need savings to cover 6 months expenses for that house and something like 3 months for the house I want to buy.

All of that is of course dependent on the market. The other advantage I have is being eligible for a VA mortgage. I've previously used my VA entitlement, but recently requested a reinstatement and got that completed this summer.

Good luck.

[mountanddo]

I am flabbergasted at the fact that you can file BK, keep your home as long as you want and continue to pay and then just walk away from it unscathed? I somehow just can't wrap my brain around THAT one. You get the luxury of owning and the convienence of renting. You would think that if you were allowed to keep your house that somehow you would be responsible for it. Not only that but if you do abandon it you are allowed to buy something new just 3 years afterwards? It doesn't make sense to me.

[BobMango]

I am flabbergasted at the fact that you can file BK, keep your home as long as you want and continue to pay and then just walk away from it unscathed? I somehow just can't wrap my brain around THAT one. You get the luxury of owning and the convienence of renting. You would think that if you were allowed to keep your house that somehow you would be responsible for it. Not only that but if you do abandon it you are allowed to buy something new just 3 years afterwards? It doesn't make sense to me.

Not sure I understand your post. Bankruptcy really has nothing to do with it. In my case I keep the house because I continue to honor the agreement I made with the bank. I'm current on the mortgage, insurance and taxes. I was never late and the mortgage was never in default. The bank is better off with me renting it out because they are getting paid on a property that has lost a ton of value. It's true that I can stop paying and the bank cannot pursue any deficiency, but that doesn't equate to getting out unscathed. If I let it go back I have the issue of a foreclosure to deal with. In many states (non-deficiency) there is really no difference between a foreclosure with bankruptcy and a foreclosure without bankruptcy.

The 3 year window is related to foreclosure and underwriting guidelines, the fact that a bankruptcy was filed does not impact that timeline at all. Do you think anyone with a foreclosure should never be able to buy another house, or maybe have to pay back any deficiency before they can buy again? Believe it or not, if you research the history of bankruptcy laws you'll find they were enacted not just to get people out from under massive debt or allow time to restructure debt, but because they have proven to be a net benefit to the economy.