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Working with Bankruptcy

Mortgage and Lending with Mortgage Intelligence Mortgage Consulting

I know, I have said the B word.  Most realtors run when they hear those words and for good reason.  It means that in the past, someone was not responsible with money.  If you run, you will miss out on a fantastic opportunity.  Here is what I mean.  The client's which will praise you the loudest are the ones who see you going above and beyond.  So some good PR at the risk of wasting a few hours of your time.

Step 1) re-establish credit.  Any person who goes bankrupt will have a terrible credit score and will have no credit cards or really any avenue to build credit.  So step 1 is obtaining a secured credit card.  The client will have to prepay an amount and then will recieve a card with a predetermined limit.  As long as the client makes the payments on time and uses the card (every month, even a $10 purchase, ie. just gas), the client will start to build a better credit rating.

Step 2) down payment.  Now down payment is an issue for people with bad credit, as most lenders will only lend 75% loan to value on a weak beacon score.  Encourage your clients to start saving.

Step 3) time.  Some lenders will consider a mortgage immediately for a client, but they want a larger down payment and offer higher interest rates.  After 2 years, most people with a discharged bankruptcy can get bank rates again for a mortgage, but they must have at least 2 tradelines reporting for at least 1 year.

As a realtor, you may have been told not to work with anyone not purchasing within 100 days, but I encourage you to think long term with your clients.  Remember, your personal contacts with any client can turn into a referral with friends and family of the individual. 

Good luck out there.

Steve Bucher, Mortgage Consultant


David Phelps
The Roofing Company, Inc. - Portsmouth, VA

Very good information Steve. These clients are also the ones who give the best referrals!

Feb 20, 2009 10:37 AM
Tom Ikonomou
Tom Ikonomou - eXp Realty - Vancouver, BC
Innovated Marketing Specialist

Great info Steve, I have worked with many clients who have been bankrupted. They are not rare breeds these days. I cannot remember the stats but the percentage of bankrupts in Canada is very high. I welcome the opportunity to work with buyers however, if they have been bankrupted i do prefer to introduce them to a mortgage broker before we go out and view houses.

Finding the perfect home and then finding out one cannot qualify immediately is only a setup for dissapointment. If I don't advise them of the right steps to proceed, I am the cause of that dissapointment.

Feb 23, 2009 06:46 PM
Annie Pinsker-Brown
Stage to Sell - LA Home Staging - Los Angeles, CA
Stage to Sell, Los Angeles Home Stager

Steve, this is a great point. It's also good to consider the geographic area you're working in. I have a rental property outside of Memphis and my current tenant had a bankruptcy. I was concerned when the property manager brought her up as a possible tenant, but he said that in that area, about 50% of people had a bankruptcy in their past. It's apparently one of the highest rates in the nation. So he said that doesn't necessarily mean she will be a bad tenant. Good things to consider.

Feb 26, 2009 06:25 AM