How to Recover from a Foreclosure

Kate Robinson
Greater Nevada Credit Union

Most of us remember when “foreclosure” wasn’t a household word. It has always been a painful reality, but until a few years ago it wasn’t one that impacted so many of our friends and families. I don’t own a home, but many of my friends and acquaintances do, and two of my closest friends have lost their homes in the last five years. The process of losing your home and your good credit is difficult, scary, and embarrassing at best.

But there is life after foreclosure. I asked Greater Nevada Mortgage Vice President of Mortgage Lending, Nick Serrano, what he would say to people trying to get back on their feet. Nick’s advice focused on two key areas:

The Proof’s in the Pudding

Everybody has hard times, and everyone experiences events that are out of their control. The key to recovering from an event like that is to immediately re-establish a pattern of responsible debt repayment. Nick said one of the primary things a lender looks at when evaluating a situation in which a foreclosure took place in the past is how that person has handled credit since then.

“You have to show the lenders that what happened to you was an event, not a habit,” he said. If, when you are ready to try for homeownership again, you have established a solid pattern of living within your means and paying bills on time, that tells the lender you really are a trustworthy borrower, and diminishes damage done to your reputation by a past foreclosure (or any other derogatory event, such as bankruptcy).

When you start talking to a lender again, be prepared to be open and honest about your story, Nick said. Tell the whole story and be willing to abide by any documentation requirements the lender has. Remember that they’re trying to help you get a home, he advised.

Understanding Your Waiting Period

Of course there’s a required waiting period after foreclosure before you can buy another home. The length of the waiting period depends on the type of loan, as you can see here:

It seems pretty simple at first glance, but this part of the process can cause a lot of confusion, Nick said. Sometimes paperwork can get crossed and a loan may appear as a foreclosure when it was actually a short sale, or vice versa. There’s a certain amount of due diligence that has to be done to establish what waiting period applies to your situation.

Even more confusing for some borrowers is establishing the start date of the waiting period. Many borrowers assume the waiting period starts when their house sales, but it actually starts when the final paperwork on that sale is complete. In some cases there may be a several month difference between date of the sale and the date that the sale is recorded in full with the county. Nick said it’s a good idea to start talking to a lender even before you’re ready to start house-shopping. Many lenders (including Greater Nevada, of course) offer free consultations to help you work through these details and get a firm understanding of what your options are. The lender can help you establish your waiting period parameters and start putting together qualifying ratios for you so that when you’re waiting period is over, you’re already prepared to get the ball rolling on homeownership.

Have you recovered from foreclosure, bankruptcy or other hardship and want to share your story? Feel free to comment and tell us about it!

10/06/2014