Thursday I began this series "Questions That Must Be Asked ............ Declarations Section VII Of Loan Application" which is a follow up to a blog I did on Tuesday about the need for Buyers to be Pre-Approved for a loan "Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut ..... Pre-Appoval Letter", and the process that should be followed. In Pre-Approving a Buyer it is EXTREMELY IMPORTANT that the Loan Officer not just look at Credit and Income, or even collect documentation to verify the information that they were given, they have to complete a full Loan Application (1003). Without completing a FULL APPLICATION, mistakes are very likely to happen, because each page of the 1003 has questions if not answered can create surprises and huge problems later on.
As I stated Thursday one of the pages of the Loan Application (1003) that unfortunately does not get the full attention that it deserves, and taken for granted by many Loan Officers, is the Declarations Section VII of Page #4. Each question on the Declarations Section VII Of Loan Application only requires a YES or NO answer, and maybe that is why it does not seem to be given the same level of attention as other parts of the Loan Application.
Yesterday I covered the first 2 question on Declarations Section VII Of Loan Application, and today I will cover the next 2 questions, and continue to explain why these Questions Must Be Asked On The Declarations Section VII Of Loan Application and there importance. The third question on Declarations Section VII Of Loan Application states:
- c. Have you had property foreclosed upon or title or deed in lieu thereof in the last 7 years?
This question may seem easy to answer at first, but it is not as simple as it may appear. The reason why it is not as easy as it appears is because many people who are foreclosed on consider not owning the house from the point that they were evicted from the house. This eviction can place many times when the bank holds a Foreclosure Auction, but this not the date of the foreclosure, so technically the owners still own the house. In fact they are considered the owners of the house up until the bank completes the foreclosure process which could be several months later. Even the date on the "Foreclosure By Sale Committee Deed" is not the date of the foreclosure. This date is just the date that the Foreclosure Committee (usually a committee of one) approved the foreclosure, but it is not the final date of the foreclosure. That date could be 3 to 6 months later, and it is at that point that the owners of the house have been foreclosed on and no longer own the house.
So as you can see a question that seems easy to answer is not so easy after all. Because of the confusion that this process can create, it is important to fully investigate all foreclosures if the Borrower answers YES to this question.
FHA requires three years from the time of the foreclosure before a Borrower can qualify for an FHA Loan again, and Conventional (Fannie Mae & Freddie Mac) requires five years. If a Borrower honestly believes that three years have past since they were foreclosed on, because that was when they were evicted form their house, and foreclosure documents are not requested in the beginning of the loan process, everyone could be in for a big surprise at the end.
The forth question on the Declarations Section VII Of Loan Application states:
- d. Are you a party to a lawsuit?
I always thought that it would have made more sense to have this question as the sixth question after the next two questions which continue to deal with foreclosures and delinquencies on mortgages. But higher powers then me determined that it should be placed at this point.
This question like all the others, if answered incorrectly can create major problems late in the loan process. A Borrower can quickly go from being in great financial shape, and their Debt-To-Income Ratios falling in place, to no longer qualifying because their Debt-To-Income Ratios are now to high. Just like foreclosures, more questions need to asked if the answer to this question is YES.
If the Borrower is the one who has brought a lawsuit against someone else, it needs to be explained, but it most likely will not create their Debt-To-Income Ratios to change. But if they are the ones that a lawsuit is being brought against, there is a risk of an additional financial obligation that could easily put the Borrower over the qualifying Debt-To-Income Ratios for a Loan Program. The potential risk will in a lot of cases cause a loan to be rejected, and it is something that is better explained sooner than later.
Just as I stated before about previous questions, if a Borrower answers NO to this question and it is discovered they do have a lawsuit pending against them. not only will the loan be denied, but they could face criminal charges for lying on the Loan Application. This is because at the bottom of Page #4 Borrowers have to sign attesting to the fact that all of the information that they have provided is the truth to the best of their knowledge.
I am going to end this blog with these two questions because the next question "e. Have you directly or indirectly been obligated on any loan which resulted in foreclosure transfer of title in lieu of foreclosure or judgment?" of the Declarations Section VII Of Loan Application will require a lengthy explanation of the problems that it can create.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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