What are the guidelines for borrowers with a previous foreclosure or deed-in-lieu of foreclosure?

A Borrower is generally not eligible for a new FHA-insured mortgage if the Borrower had a Foreclosure or a Deed-in-Lieu of Foreclosure in the three-year period prior to the date of case number assignment.

This three-year period begins on the date in which title transferred from the Borrower.

If the credit report does not indicate the date of the Foreclosure or Deed-in-Lieu of Foreclosure, the Mortgagee must obtain the Closing Disclosure, deed or other legal documents evidencing the date of property transfer.

If the Foreclosure or Deed-in-Lieu of Foreclosure was the result of a circumstance beyond the Borrower’s control, the Mortgagee must obtain an explanation of the circumstance and document that the circumstance was beyond the Borrower’s control.

The Mortgagee may grant an exception to the three-year requirement if the Foreclosure was the result of documented extenuating circumstances that were beyond the control of the Borrower, such as a serious illness or death of a wage earner, and the Borrower has re-established good credit since the Foreclosure.

Divorce is not considered an extenuating circumstance, however, an exception may be granted where a Borrower’s mortgage was current at the time of the Borrower’s divorce, the ex-spouse received the property, and the mortgage was later foreclosed.

The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

For additional information see Handbook 4000.1 II.A.5.a.iii(I) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-02138