Homeowners who have experience bankruptcy or who have lost their homes to foreclosure are now able to return to the buying market in as little as two years.

Waiting Period Guidelines

It's common for consumers facing bankruptcy, foreclosure, short sales, or deeds in lieu of foreclosures to question how long they’ll be suffering from the credit impact those events will have. Fannie Maw and Freddie Mac have set periods for how much time is required to bounce back from these events to get back to being able to borrow money. Those period guidelines have now changed.

Problems with Guidelines

According to loan officer William Rozek, there were problems with the existing guidelines. “When a borrower had his loan debt discharged in bankruptcy but, nevertheless, also had his property foreclosed upon in a ‘zombie foreclosure,’” he said.  A “Zombie foreclosure” occurs when a lender goes through the motions of foreclosure, but fails to do the final step and record the foreclosure trustee’s deed to transfer the legal title of the house from the borrower to the foreclosing lender. Because of this failure to take a final step the borrower’s waiting period never starts.

New Waiting Guidelines

But under the new guidelines, a lender is able to apply the bankruptcy waiting period (of two years) even if they have a “zombie foreclosure.”  “Borrowers can now get back in the home-buying game in as little as two years,” Rozek said, “so long as I can document their extenuating circumstances that their loan debt was discharged in the bankruptcy, that the bankruptcy and foreclosure are disclosed on their new loan application and appear on their credit report.”

Source: The Washington Post, House Lawyer: New federal loan guidelines ease the sting of ‘zombie foreclosures,’ September 26, 2013