Foreclosure Forgiveness as a Result of Relocation

Seasoning is key to foreclosure foregiveness.

Foreclosure is a serious derogatory event on your credit history. It remains on your credit report for seven years with the impact dissipating over time. Mortgage lenders are wiling to forgive a past foreclosure after a certain seasoning, or waiting period, elapses. They may also waive seasoning requirements if you prove extenuating circumstances caused the foreclosure. Lenders generally do not forgive foreclosure due to job relocation, as it is not considered an extenuating event.

The Basics

Foreclosure is the legal process by which a lender deprives a borrower of ownership rights, either by auctioning or repossessing the real estate that secures the delinquent mortgage. A foreclosure must be reported on the debtor's credit, and only an erroneous reporting or sufficient time can remove a foreclosure from the record.

Lenders adhere to certain seasoning guidelines when considering an applicant with a past foreclosure for a new mortgage. Fannie Mae, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) do not consider job relocation a reason to forgive, or waive, seasoning requirements after foreclosure.

Fannie Mae

Fannie Mae lenders forgive prior foreclosure after five years have elapsed from the foreclosure completion date. They can make an exception for borrowers who can document extenuating circumstances, requiring only three years' seasoning.

Fannie Mae defines such events as nonrecurring and beyond the borrower's control. They must result in the "sudden, significant and prolonged reduction in income" or cause a "catastrophic increase in financial obligations," according to the Fannie Mae Selling Guide. The borrower must prove he had no reasonable option but to default and go through foreclosure.

Government-Backed Loans

FHA insures mortgages for borrowers who have difficulty acquiring conventional loans due to income, credit or down payment requirements. The VA guarantees loans made to members of the military. Both protect lenders by reimbursing their losses in the event of default.

FHA requires three years of seasoning, but may waive the requirement at the underwriter's discretion with extenuating circumstances. VA requires two years, but will accept only one year of seasoning with extenuating circumstances. Job transfer or relocation does not qualify as such an event, according to Mortgage Currentcy.

Considerations

A deed-in-lieu of foreclosure, in which the borrower conveys ownership to the lender rather than go through foreclosure proceedings, is treated like foreclosure in terms of seasoning. A past deed-in-lieu due to a job relocation is not considered an extenuating event.

The death of a wage earner, unemployment or serious illness qualify as reasons for foreclosure forgiveness. Divorce is not considered an extenuating circumstance for government-backed loans but may be considered for Fannie Mae loans.

References

• MyFICO: How Long Will A Foreclosure Affect My FICO Score?
• Mortgage Currentcy: FHA/VA Derogatory Credit Chart
• FHA Outreach: Previous Mortgage Foreclosure
• Fannie Mae: Announcement 08-16
• NPHS Real Estate: Fannie Mae What Are Extenuating Circumstances?
• Fannie Mae Selling Guide: Extenuating Circumstances For Derogatory Credit