FHA, Bankruptcy & Foreclosure Lending Guidelines

Yes, FHA is available 2 years after Chapter 7 discharge  ( Bankruptcy) EXCEPT that if there is a foreclosure even if it was “Deed in Lieu”, the rule is 3 years after the foreclosure is complete – meaning generally 3 years from the date of transfer of the deed to the next owner (could be a buyer or the bank if they hold the property).  So people with a foreclosure face a longer wait even if their credit has been reestablished.

This can be confusing as many buyers who have filed bankruptcy and wrapped their home foreclosure “Deed in Lieu” into their bankruptcy BELIEVE that they have not fallen under the 3 year Foreclosure law for lending.  This is not the case.



I believe the 3 year rule was put in place to discourage “strategic defaults”, those are where the homeowner decides it makes business sense to walk away from a property that is underwater, subject to a crushing interest rate adjustment, etc.



Recently, one of my clients were initially given the ok to purchase a home  as they were out of bankruptcy for 2 years, credit was great and they had a good paying job. When the paperwork was filled out they had rolled their “foreclosure” into the banruptcy agreement and did not realize that it would still appear on their records .  So when they asked if they ever had a foreclosure, they answered    “NO” and it was initally missed by mortgage broker. THEY THOUGHT IT WAS “NO” as they were told by their bankruptcy lawyer it was part of the bankruptcy package.  They were told to do this as they were moving out of State and the Real Estate market was slow.  Do not wait to sell just hand your home back to the bank.  

It seemed easy at the time……

Remember….. If it doesnt sound or feel right, take a second look.  Get another opinion.

Can imagine how excited the couple was to be able to now look for a home. This lasted about a week until it appeared to theie new ender that this bankruptcy included a foreclosure. They could not now proceed to look at homes until this was at least 3 years out.

Most would agree that 3 years is short time to qualify for a loan and they should feel lucky to not have to wait 7 years or more. 

When filling for Bankruptcy, Short Sale or Foreclosure,  is so important that you know exactly what you are getting into.  So often people are not educated  on ” Deed in Lieu “and do not realize the future impact.  Before making any decisions make sure you do your homework.  

3 years is not a long time to wait however it can be devastating to a buyer who thinks they only have to wait 2 years.


                                     KNOWLEDGE IS POWER


About NapervilleBroker

Tamara Schuster is 3rd Generation Broker and RANKED NATIONALLY IN THE TOP 7% OF REALTORS by her company and multi million dollar producer annually. She is part of for the award winning Berkshire Hathaway Home Services Elite Realtors Team based in Naperville, Illinois and serving the WESTERN SUBURBS of CHICAGO. As a Real Estate Consultant I provide top level REAL ESTATE expertise and to Buyers and Sellers. Your home is one of the most expensive purchases most people make and I guide you through the process of buying and selling to ensure that the entire process is rewarding and exciting and stress free. Real Estate is my Passion and it shows. Areas of expertise include superior negotiating skills, unsurpassed customer service, innovative ideas for both buyers and sellers THAT ARE CUTTING EDGE. My Business Degree from Central Michigan University includes a Marketing Degree and finance background. Knowledge is power in this market. Full Service, Full time dedicated broker with over 30 years experience.
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