What are extenuating circumstances to allow someone to buy another house after short sale or foreclosure?
During a presentation to our office, a lender gave us insight on the ever-changing rules about how soon after a short sale or foreclosure can someone buy a home? We thought:
- Oh, after a short sale, maybe 2 years or less.
- After a foreclosure, it could be 7-10 years.
The right answer is....”It depends”
He proceeded to share some information that surprised us. He told us about extenuating circumstances that actually allowed a person to buy a home mere days after a short sale.
What? How could that happen?
The story: He told us about a policeman who had a horrific accident that left him paralyzed. Because he couldn’t work, his household income dropped significantly leading to his family selling their place in a short sale. However, he worked his way back to the force and landed a desk-bound job which enabled him to earn a comfortable salary. Together, he and his wife made enough; therefore, for the sake of their kids, they attempted to get another house with handicapped accessibility.
Happy end note to this story: because of their extenuating circumstances, they qualified! So shortly after selling their house in a short sale, they succeeded in buying another house with a more manageable payment.
What was the extenuating circumstance? His accident, no fault of his own.
How they qualified? Their stellar credit history (they struggled tp make the mortgage payments up to the time they sold their house). Their successful attempt to make up for the lost income.
Definition of “Extenuating Circumstances”
Dictionary.com defines it as “circumstances that render conduct less serious and thereby serve to reduce the damages to be awarded or the punishment to be imposed.”
Wikipedia provides a distinction between Legal and Academic definitions.
In Academia, students are entitled to declare mitigating circumstances if their coursework or exam performance is affected by circumstances beyond their control. This may come about because of a clash in time table or even personal matters. If such circumstances are declared, the examiner can take this into consideration and factor this into their result. Mitigating circumstances are not limited to, but can include:
- Ill health
- a serious family emergency
- work commitments (Covering for someone who fell ill, for instance)
- transport difficulties (they arrive late due to a serious accident or cannot attend due to industrial action)
- bereavement
- Jury service (in common law jurisdictions)
- having to care for someone
- Hospital appointment that clashes with a deadline or examination
- legal problems
- force majeure (only in extreme cases)
Interestingly enough, these circumstances have a striking similarity to the hardships that could qualify a homeowner for a short sale.
FHA or Conventional Loan after short sale/foreclosure?
Both. But the rules and guidelines are different. It’s best that one consults a knowledgeable and experienced mortgage lender who can walk you through the qualifying guidelines.
And no...if one wants to do a short sale because market values have dropped, or because he wants to buy something better at less cost, that is not considered extenuating circumstances.
For others, there is hope!
What are extenuating circumstances to allow someone to buy another house after short sale or foreclosure?
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