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Columns: Bankruptcy Adviser
Justin Harelik   Expert: Justin Harelik
Bankruptcy Adviser
Who will refinance a home when bankruptcy is discharged?
Bankruptcy Adviser

Refinance after bankruptcy
 

Dear Bankruptcy Adviser,
I just got my bankruptcy discharged in May. I have been trying to get a refinance on my home for over a year now and was told once it was discharged I'd be able to get it done. Is this possible? Do you have any suggestions on whom to go to for such a loan? I have been jerked around for almost six months by one company that kept promising me it would happen and it never did. I spent money on an appraisal and an appraisal update, which ended up costing me almost $1,000, and I have yet to get a refinance.
-- Ruby

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Dear Ruby,
I would be very hesitant to refer you to any lender at all. Many, if not most, of our clients are dealing with the exact same insurmountable situation. Many people want to refinance, but no one will approve them.

Furthermore, lenders are telling clients that loan modifications are not possible unless the borrower is delinquent on payments. The borrower is left with the untenable decision: Continue trying to make the mortgage payment or fall behind and risk foreclosure plus credit damage.

Recently, a prospective client said he worked with a nonprofit organization that had a direct contact within one of the largest mortgage lenders. He was delinquent on his payments, but this organization was able to qualify him for a loan modification and helped him get caught up on his mortgage. While this is not a common story, it is possible to find someone to assist you.

This is not your exact situation because you have already filed bankruptcy. However, going forward, you need to understand that you cannot and will not get a loan-refinance guarantee. Mortgage agents and brokers are in the business of saying, "yes, we can" only to tell you soon after, "no, we can't." The last 10 years, the "yes, we can" attitude has ruled. Unfortunately, that attitude has not changed, but the results -- and hundreds of unreturned phone calls -- are obvious: No, they can't.

I know there are lenders, agents and brokers who will be frank and upfront. And I would love to hear from any readers who have successfully refinanced their home after filing bankruptcy. Those with equity in their home probably were the most likely to qualify, but very few are qualifying for refinancing with little or no equity. At this point, you need to understand that all your efforts can go for naught, but you must continue to make the effort.

I don't know who told you that you would definitely be able to refinance your property after bankruptcy. I hope it was not a bankruptcy attorney, because that is just bad legal advice. I never tell a client that he or she will be able to refinance his or her home loan after the bankruptcy is over. When a client has equity in the house -- which is becoming less frequent with bankrupt clients -- then there are options available. Because most clients who qualify for bankruptcy have little or no equity in their home, it is almost impossible to qualify for a refinance.

In brief, you need to be your biggest cheerleader and call every single lender you can find. Unfortunately, there are fewer out there, as many of the subprime lenders are out of business. Options are limited, but those options are even fewer if you fail to make the dozens of phone calls. Most everyone will tell you "yes, we can," but keep calling and do not rely on one agent or broker. Right now, you need as many working for you as possible.

Bankrate.com's corrections policy -- Posted: July 8, 2008
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