Eight years later, bankruptcy still on lenders' minds

Q: I am buying a house as a co-borrower. I declared Chapter 7 bankruptcy more than eight years ago. I have provided my lender with a copy of the petition and the discharge, along with every other document he requested.

Do lenders still have the right to ask for the copy of my bankruptcy paperwork?

A: Probably. First, a bankruptcy filing can stay on your credit history for up to 10 years. So at eight years, it probably hasn't fallen off of your credit history, which is why your lender asked about it.

Meanwhile, just because you declared bankruptcy more than eight years ago doesn't mean the bankruptcy was finalized within a year of the filing. You (or other borrowers in your situation) may have had an active bankruptcy for a year or more after the initial filing.

In some bankruptcy filings, obligations remain that are resolved or finalized at a later time. If you agreed to pay off a debt later, the current lenders want to know what those debts were and whether they were settled.

If everything was settled and discharged seven years or more ago, you will find as time goes by that fewer and fewer lenders will need to review the documentation from your bankruptcy.

Q: My house payments are six months behind, and a sheriff's sale is scheduled. The house is also on the market.

Out of the blue, a full-price offer came in. The mortgage company is telling me that the transaction would still be considered a short sale due to my delinquent payments. It has also told me that the only way to delay the sheriff's sale is to submit my full-price offer as a short sale.

Is this true? Why would the lender want to consider an offer that would cover my debt as a short sale?

A: While it's great that you got a full-price offer, the amount the buyer is willing to pay is not necessarily related to the amount you owe the lender.

If you bought the house for $200,000 and obtained a loan for $180,000 and you have now received an offer to sell for $180,000, you are probably short on funds to pay off the lender.

If you haven't paid the lender for six months, you need to add all of those payments to what you owe the lender. You may also need to add things like late fees and payments the lender has made on your behalf for real estate taxes and homeowners insurance.

To know for sure that you have a short sale, compare what the lender says you owe with the amount you would receive from the sale of the home. Remember, you'll have other costs in the sale: the listing agent's commission, local transfer taxes, title and escrow company fees, etc.

Those other costs and fees can really add up. Let's say the lender says you still owe $180,000 and you receive a full-price offer of $200,000. You could still be short of funds at the closing because of all of the fees involved in selling.

If your lender has given you an accounting of what you owe, and if the sale price will more than cover all of those fees plus all of the other costs from the sale, the lender should have no reason to treat the sale as a short sale, other than to try to hurt your credit. If you pay the amount owed on the loan in full, the lender should report the payment as a payment in full on the loan.

Your credit will already be hurt as a result of the previous late payments, but at least your credit history shouldn't show a short sale, foreclosure or deed in lieu of foreclosure.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.com and http://www.expertrealestatetips.net.