Romance and Credit Scores

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In addition to getting the best employment and the lowest interest rate on everything financed, including credit cards, home and auto loans, the prime potential partners in the dating pool are quickly thinned of those with inferior credit.

This is clearly highlighted in a post made by the Credit Slips summary of a Washington Post article which examines the working paper recently published by the Federal Reserve titled Credit Scores and Committed Relationships.

Barron’s Market Watch recently published an article titled, Nearly 40% of Americans want to know your credit score before dating. In part, this phenomena was summarized by University of Kansas Communications Professor Jeffrey Hall who stated,

By showing an interest in these three digits, people are probably being smart rather than shallow, says Jeffrey Hall, associate professor of communications at the University of Kansas. “Finances, education, and job prospects all factor into the value of a potential mate,” he says. “Assuming that people can actually interpret a credit score meaningfully, it makes sense they would think a credit score is useful in evaluating mate value.”

“…In fact, the higher your credit score, the less likely you’ll separate from your partner — and a lower score often means you’ll be less lucky in love, researchers at the Federal Reserve Board, the Brookings Institution and UCLA recently concluded.”

Your credit score has become such a popular character-meter that there are dating services based on them. A 2015 academic study found that “quality in credit scores, measured at the time of relationship formation, are highly predictive of subsequent separations.” The research suggested “credit scores reveal an individual’s relationship skill and level of commitment.” How More Americans Are Getting a Perfect Credit Score Bloomberg Suzanne Woolley, August 14, 2017.

I think it’s safe to predict that more and more people in the dating pool will become savvy to the benefit of checking one’s credit score before entertaining the possibility of a committed relationship.

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Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | Published November 13, 2015 – Updated August 16, 2017

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

The Chapter 13 Payment

www.aperfectworld.org

That which matters is when your payment is posted to your account in the moth it is due. For example, if the payment is due in December, it must be posted in December.

While your Chapter 13 payments are not reported to the credit bureaus, when you apply for a mortgage (refinance or purchase) while in a Chapter 13 Plan or within two years of your bankruptcy Discharge, your Chapter 13 payment history will be reviewed by the underwriter. This review will consider your Chapter 13 payment with the same weight as a mortgage payment.  Just one 30-day late payment will disqualify an otherwise approvable loan applicant.

Exactly What Is A 30 Day Late Payment?

To illustrate, let’s say your payment is due on December 25th. Your payment has always been made on the 25th. In fact, your November 25th payment was received by the Trustee and posted in November as it was since your first payment. However, your December 25th payment was not posted until January 2nd. Oops, you now have a 30-day late payment.

The Payment Was Sent the Same Day as Always

We understand. However, the underwriting guidelines do not understand accidental, postal or electronic delays. Indeed, the system can be harsh. Being armed with this knowledge allows you to plan for the unexpected.

Rehabilitation Expectation – Minimum of 12 Months On-Time Payments

A minimum of twelve consecutive months of on-time payments immediately prior to applying for mortgage credit is essential for approval. This supposes that all payments have been posted on time with the Trustee’s office. However, there can be an exception of a 30-day late during the payment period so long as that isolated incident is not within the last twelve months. The exception of a 30-day late payment or an interruption of on-time monthly payments must be documented and sourced as completely outside the control of the debtor.

The Blizzard Made My Payment Late

A few years back, one of my prospective Chapter 13 home buyers diligently worked to get into a position to be approved for a new home loan. By way of background, at the time he lived in a cabin at St Mary’s Glacier. That year, there was a particularly severe snow event which left my prospective client snow-bound for several days. Still, his payment to the Trustee was only one day late. We argued that this was an Act of God and entirely out of my prospective client’s control. This held no sway with the underwriter and my prospective borrower was not approved. In the interest of full disclosure, this prospective client had another 30-day late payment about 15 months prior to the blizzard. The ‘Act of God’ defense might have worked had the previous late payment not been of record.

Automatic Bill Pay – Be Aware

Those of us that use on-line bill pay through our credit union or bank love the convenience. No stamps, no envelopes and no checks are but a few of the nice features. While in a Chapter 13 bankruptcy repayment plan, set your payment date early enough so there is sufficient time for the Trustee’s office to 1) receive your payment and 2) post your payment. Be aware of Federal holidays and back your payment date up a couple of extra days to make sure you never have a Chapter 13 late payment.

The Trustee’s Staff Said a Late Payment Is OK

We understand. While a single late Trustee payment (or two) will generally not cause for a Chapter 13 to be problematic or Dismissed, keep in mind, the Trustee is not your mortgage loan originator or mortgage lender.

The Trustee said it is ok do pay my Plan payments ahead of time. Talk to your attorney, this could be a problem.

What Is the Take Away of This Post?

For those with payments due to be in the Trustee’s office near the end of the month, we strongly suggest that you mail your payment a few days early every month to help ensure the payment is posted in a timely manner. Better yet, set the bankruptcy payment to be made via payroll deduction. If payroll deduction is not available, schedule an automatic monthly payment via your on-line banking.

Unpaid Mortgage Payments Can Cause a Discharge to be Denied

As discussed above, on time mortgage and Chapter 13 payments are essential to a successful plan. Let’s say one is nearing the final month or so of their Chapter 13 Payment Plan and the Trustee learns the mortgage payments, which were to have been paid outside the Chapter 13 Plan, were not paid as agreed. The Discharge can be denied and instead after all this time, the case is Dismissed. A Dismissed case is a failed Chapter 13 from a mortgage underwriting standpoint.

We wish you success with your Chapter 13 Payment Plan!

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Financially Speaking™  James Spray, RMLO, CNE, FICO Pro  | CO LMO 100008715 | NMLS 257365 |December 2, 2013 | Updated January 10, 2018 | Copyright 2013-2018

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part provided you give complete attribution to James Spray.

Zombie Mortgages

The Note's Dead - The Lien Lives

The Note’s Dead – The Lien Lives

FACT: This article has nothing to do with the zombie fiction currently populating bookstore shelves.

FACT: I am not an attorney; I do not provide legal counsel. In addition to being an expert witness, I am an expert credit advisor as well as an expert on refinancing home loans following Chapter 7 Bankruptcy and while in Chapter 13 Bankruptcy.

What is a Zombie Mortgage?

Zombie Mortgage Notes are the Promissory Note(s) of home mortgages which have been Discharged in Chapter 7 Bankruptcy and continue to be paid (or not) on a purely voluntary basis by the debtor. In many cases, I see folks paying both the Discharged 1st mortgage as well as the Discharged 2nd mortgage. I am prompted to expand on this subject due to the number of recent callers who do not understand that the Note(s) was(were) legally nullified. Regular readers’ likely recall that I first wrote of this phenomenon in December of 2010 in an article titled Living Underwater After Bankruptcy.

Zombie Notes Do Not Credit Report

Given that the Note is, umh… dead, the credit reporting agencies have nothing to report. There is no credit instrument against which the creditor can report. And, this is a biggie, if the Discharged mortgage servicer were to report the mortgage as still paying late, that could be considered as attempting to collect a Discharged debt. This is a big legal no, and no or no. Should you discover such on a valid credit report, you may wish to consult your bankruptcy attorney for a referral to a consumer protection attorney.

Can A Zombie Note Be Refinanced?

Yes. However this depends on several limiting factors which are discussed in my blog titled Refinance After Chapter 7?.

Question – Can this be done by any licensed, bonded and insured mortgage loan originator?

Answer – Not realistically. You need a specialist. This will require a highly seasoned lender who knows how to document, package and process a Zombie Note for a  rate/term refinance loan approval. There are no cash-out refinances of Zombie Notes.

Living With A Zombie Note

Those in Zombie Note situations must really like love where they live. There are no home improvement loan opportunities available. If there is no equity, there is no opportunity to refinance, so you should truly prize your current monthly housing payment. An ordinary sale will be difficult if not impossible so, in effect, one is frozen into their present location and housing. For some, this works. For others, it is merely prolonging the end of a cycle, and avoiding the opportunity of gaining a new beginning. And perhaps it is simply about keeping up the “image”, as though no one else in the country is in trouble financially. Good grief.

Caution: One of the highest needs is to make sure the personal property, real property and liability are insured against loss. Openly discuss your situation with your insurance agent. Understand you may need a specialty insurance agent due to the particulars of living with a Zombie Mortgage.

Zombie Note Equals “Renting” Without Benefit Of A Landlord

In many cases, one choosing to live with a Zombie Mortgage has, in effect, become a tenant without the benefit of a landlord. Should the water heater need replaced the resident is responsible for all upkeep and maintenance as an out of pocket expense. How would you feel about replacing the HVAC system to benefit the bank or the next owner?

A Fresh Start – How Now?

So now we know, the rest of the mortgage (the Deed of Trust) still needs to be reckoned with. It is still attached to the property, and requires legal resolution before one can begin mortgage credit recovery. The longer it takes for the foreclosure or short sale to occur, the longer it takes for your credit to heal. There may come a time, so to speak, to remove the life support system of voluntary payments on Zombie Notes and allow the natural financial/legal actions to occur.

Update March 2, 2016 – When the Bank Discontinues Foreclosure Proceedings per the FDIC.

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Financially Speaking™ James Spray, CNE, FICO Pro | October 1, 2011
CO LMO 100008715 | NMLS 257365 |

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Renting after Bankruptcy and/or Foreclosure

House For Rent

It’s a fact, many homeowners are being foreclosed leaving them to rent while recouping and rebuilding. Having a recent foreclosure can make renting hard because landlords fear you might have a problem paying rent or late paying the rent. Fortunately, you can still rent after a foreclosure and/or bankruptcy.  Many landlords are undeterred by foreclosed former homeowners as long as other types of credit are good. Many landlords will understand the need of a bankruptcy and such eliminated most other debt leaving the prospective tenant a lesser burden to pay the rent.

Still, you need to be selective on your prospective landlord, too. Follow the tips in this guide and you will certainly have your first line of defense against fraud reasonably well covered.

Find No Credit Check Apartments and Houses

Large apartment complexes are typically owned by companies that have strict corporate approval criteria. Ask the manager if they exclude folks that have had a foreclosure or a recent bankruptcy. Again, you, too, need to do some screening of your potential landlord.

You’re more likely to get a credit check at one of these complexes (and denied if you have a foreclosure) so don’t apply where you know you are going to be denied. Why suffer the brain damage and humiliation?

Instead, look for houses, condos, townhomes, duplexes, and small apartment buildings that are owned by a single landlord. These types of landlords are less likely to do credit checks. Look for these types of residences:

  • Check for signage by driving or walking the neighborhood you like.
  • Ask friends and family. Ask social media friends.
  • Check craigslist but be very careful as there is a great deal of fraud in the public arena. Here is another excellent fraud detection toolsite which will help you verify the average price of rentals in different markets

Bring a Co-Signer

You can get approved for an apartment, even one of the larger apartment complexes, if you have a co-signer or guarantor. Keep in mind your co-signer will be responsible for any unpaid rent or damaged done to the apartment when you move out. I am one of those who refer to cosigning as financial ‘suicide by pen’.

Offer a Larger Deposit

Depending on the rental market conditions, offering a larger deposit could make your application more appealing to the management or landlord.

Purchase a Lease Guarantee Insurance Policy

On January 4, 2017, the Washington Post reported on a new business which underwrites an insurance policy guaranteeing the renter will pay the lease payments. The WAPO report is titled How to secure an apartment when you have bad credit. The subject of the report is a company named LeaseLock,

Keep Paying Your Other Bills

A foreclosure or bankruptcy might set you back, but it won’t ruin you, unless you let it. Continue paying your other bills. People with foreclosure often have more 90-day late pays to explain on their credit reports than those who haven’t gone through foreclosure. Those late payments make you even riskier in the eyes of a landlord. If you can prove to a landlord that defaulting on your mortgage was an isolated incident, you may be able to rent despite your foreclosure.

Rent To Own

 Sounds too good to be true?

Sounds too good to be true?

As I’ve previously written about this subject, this is very often a terrible idea. With very few exceptions, I have never seen a financially advantageous rent or lease to own contract. This is not to say they don’t exist. This is to say you need an experienced real estate attorney to review the document(s) for you prior to your entering such an agreement. I have seen back to back fraudulent lease-to-own situations. Use care, you do not need to buy someone elses problem unless it is good for you.

Don’t Lie

“Don’t ask, don’t tell” is a good philosophy to follow when it comes to renting after foreclosure. However, lying about it will probably cost you a rental opportunity. If you’re asked if you’ve ever had a foreclosure, be honest. Explain the situation and focus on how you’ve turned your finances around. Make sure the landlord understands that what caused the bankruptcy and/or foreclosure won’t cause you to be late on your rent.

Take a proactive stance by explaining your situation, be brief and forthright with the property owner or manager. You can also sign up for a service such as Transunion’s SmartMove . “Your credit rating is completely unaffected. The screening process is quick, easy—and all online. Only limited information is provided to the Landlord – your SSN and account numbers are not provided.”

Rental Payments And Credit Reporting

Rental Karma, a Denver based company will report your rental payments to two of the three national Credit Reporting Agencies. Pinch is an app which reports to all 3 bureaus and is no cost to the renter.

As of June 2016, Experian RentBureau affiliated with Yardi, a real estate software solutions provider, to initiate an interface which will allow renters to build ‘credit’ history by having their rent payments reported. The converse is also true.

What You Can Expect To Pay

Landlords and tenants may use the free software provided by RentMetrics to get a sense of market rates by entering an area or an address and reviewing reasonably accurate pricing information of comparable units in the address’s neighborhood.

Better To Rent Or Own?

I must start with the answer: It depends. It depends on your employment, income, goals, expectations and many financial factors not all of which are related to the cost of housing. How certain are you of your ability to earn the same or more money if your employer relocates or closes? What are the long term aspects of the housing market where you wish to live? On May of 2014, the New York Times published an article in The Upshot section which contains a very useful and easy calculator. This is the link to their Rent or Own calculator.

I am not paid by nor do I endorse any business or website referenced in my posts.

For Rent Image Credit

Too Good To Be True Image Credit

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | September 2, 2011  | Updated 05/22/18
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Rent to Own After Foreclosure/Short Sale?

I frequently hear questions like this: “We just short-sold our home and we have to move. We want to rent to own, or get a lease option to purchase.” 

My answer is, no, you really do not want to do this and following are some of the reasons why.

In most cases, the earliest one will be eligible for a new mortgage following the conclusion of a short sale is three years, and it may be as much as four. Some think that FHA will begin to lighten the regulations on purchasing after short sale, but to date, this has not happened. Conventional lenders aren’t allowed to fund a new mortgage for a minimum of five years (up from four last year) following a short sale. I will continue to discuss this topic periodically until the housing finance market opens up to more sensible underwriting standards.

In spite of well intentioned information to the contrary, a short sale, by any other name, is still one’s failure to complete the terms of a contract.

 Be very cautious about ‘Lease to Purchase’ or ‘Rent to Own’ offers. Many are frauds, and some, while not outright frauds, may be based on false premises. Check the fraud alerts section of your State Attorney General’s office and do your due diligence via the Better Business Bureau as well as the Bad Business Bureau. Do not sign a lease/purchase or rent to own contract without having your own attorney bless the transaction. Paying a legal fee of a few hundred dollars on the front end can save you thousands on the back end – as well as providing a certain measure of assurance and a great deal of savings on your emotional investment.

Cases of inadvertent or initially unintentional fraud are not uncommon. By way of explaining, a client came to me after not one, but two back-to-back lease to own frauds. Emotionally, she felt she had to own a property to assure herself she was a truly worthy person. In both cases, she entered contracts to purchase at a later date, paid her deposits and advance lease payments. In both cases, the landlord or pseudo-seller defaulted on their mortgage payments and in both cases the client was evicted following the foreclosures on her former landlords. The moral of this story is to perform your due diligence. You may wish to hire your trusted local Realtor to look into the public records of the particular property you are thinking of leasing.

Particularly following a short sale or foreclosure, aside from being on a short term hiatus from obtaining your own home loan, it is perfectly fine to be a renter. As stated by one of the most successful Realtors in the USA, Larry Nordine a/k/a The Big Kahuna, “There is a lot to be said for renting.” Finally, keep in mind what Vincent Daniel says: “A home without equity is just a rental with debt.”

As always do not hesitate to write back with comments or questions.  I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

Financially Speaking – James Spray, CCMB, CNE – June 25, 2011

Legal Notice: The content of this blog are copyright 2011 by First Place Development Corporation. All rights reserved – Reproducing any of this document is prohibited without express written consent from James Spray. Protected by U.S. Copyright Law – Title 17 U.S.C. Section 101 et seq., Title 18 U.S.C. Section 2319 – Violations can be punishable by up to 5 years in prison and $250,000

Reduced Income = Lower FICO’s? No.

myths highway sign

FACT: This headline is a myth. To be clear, it is wrong. There is no basis in fact.

FACT: Income has nothing to do with your credit scores. I have worked with folks making over $850,000 per year who’ve had really low scores and with folks making less than $20,000 per year with fantastic scores. Income has nothing to do with your credit scores.

FACT: Paying bills on time has everything to do with good credit whether the income is a million or more a year or a thousand dollars a month.

FACT: A significant key to good credit scores is the proper usage of unsecured credit – credit cards in particular. The more of the available credit in use the lower the credit score will be. Optimal credit usage is 10% of the available credit. Maximum credit usage is up to 30% of the available credit to maintain good credit scores.

Example 1: On available credit – let’s say you have four bank credit cards with a total combined credit line of $50,000. If you have only up to $5,000 in use, you likely have an optimal credit score, providing all other credit accounts are timely paid. If you have $15,000 or more in use, your scores will be acceptable, but they will not be the highest possible as you are deemed to be using more credit than is wise per the FICO 08 algorithm.

Example 2: On available credit – let’s say you have two bank credit cards with a total combined credit limit of $3,000. If you have $300 in use, you likely have optimal credit scores providing you are utilizing each credit card on and acceptable basis. If you have $900 in use, your scores will not be optimal but they will be acceptable in most circumstances. This is entirely dependent on the totality of the credit history. On the usage of unsecured credit, it’s a simple matter of use it or lose it. Use your unsecured cards at least every other month or so. Pay the balance the following month or carry a minimum balance and pay the minimum payment. Again, it is a matter of using the credit or losing the credit. A word of caution, think long and hard before closing a long established credit card. Do not do such in haste or anger as it may do you more long term harm than good. Remember, the longer you have an account established the better this reflects on your credit.

As always do not hesitate to write back with comments or questions. I read everything that comes back, even though I don’t always get a chance to respond as quickly as I would like.

 

Art Credit: Google Images

Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | February 26, 2011
 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

 

Tenants In Foreclosed Properties May No Longer Lose Their Leases

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Prior to May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease. This rule is known as first in time, first in right. Because most leases last no longer than a year, it is all too common for the mortgage to predate the lease and thereby destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the Protecting Tenants at Foreclosure Act of 2009. This little known legislation provided that leases would survive a foreclosure — meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days’ notice before having to move out.

In reality, this does not translate to the responsible tenant now living rent free. Rent should now to be paid to the foreclosing financial institution. Do not expect this to be understood by all parties. In fact, you will need legal counsel to make this work in your favor. Fear not, this is both manageable and affordable.

In Colorado and several other states, official notice of a foreclosure is both mailed to the occupant of the property with a separate notice posted on the property being foreclosed. Tenants receiving such notice are advised to seek legal assistance on at least two fronts.

The first reason for getting legal help is to avoid being evicted by a landlord that attempts to continue to collect rent on the property being foreclosed. Second to set up a trust account with the attorney so you can “continue” paying your rent on behalf of the proper party. The attorney can help you establish your track record of responsibility on behalf of your mortgage and lease credit. While this will not report on your credit it will allow you to document to third parties that you continued to pay your lease on a timely basis.

I suggest the tenant to discuss their options with a Real Estate attorney. If your attorney is not aware of the Protecting Tenants at Foreclosure Act of 2009, send them this blog. While on this subject, hiring an attorney is ever most likely far less expensive than the cost of moving and setting up a new lease.

As exerpted from this article, PTFA Has Given Tenants More Options When Facing Eviction: “Tenants who are facing foreclosure and are protected under PTFA have more options than they did before. PTFA, like much of today’s housing regulation, was created in response to the mortgage crisis of 2008. It was set to expire at the end of 2012 but the expiration date was extended to December 31, 2014 due to the passage of the Dodd-Frank Reform Act in 2010.”

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 Financially SpeakingJames Spray CCMB, CNE, FICO Pro | CO LMO 100008715 / NMLS 257365 | January 28, 2011 | Updated September 18, 2014
 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.