BluefoxToday blog : Questions That Must Be Asked ............ Declarations Section VII Of Loan Application #2

Questions That Must Be Asked ............ Declarations Section VII Of Loan Application #2

Yesterday I began a series "Questions That Must Be Asked ............ Declarations Section VII Of Loan Application" which is a follow up to a blog I did on Tuesday about the need for Buyers to be Pre-Approved for a loan "Mortgage/Loan Programs with Low or No Downpayment Still Available In Connecticut ..... Pre-Appoval Letter", and the process that should be followed. In Pre-Approving a Buyer it is EXTREMELY IMPORTANT that the Loan Officer not just look at Credit and Income, or even collect documentation to verify the information that they were given, they have to complete a full Loan Application (1003). Without completing a FULL APPLICATION, mistakes are very likely to happen, because each page of the 1003 has questions if not answered can create surprises and huge problems later on.

As I stated yesterday one of the pages of the Loan Application (1003) that unfortunately does not get the full attention that it deserves, and taken for granted by many Loan Officers, is the Declarations Section VII of Page #4.  Each question on the Declarations Section VII Of Loan Application only requires a YES or NO answer, and maybe that is why it does not seem to be given the same level of attention as other parts of the Loan Application.

Today I will start to go through each questions and explain why these Questions Must Be Asked On The Declarations Section VII Of Loan Application and there importance. The first question on Declarations Section VII Of Loan Application states:

  • a.  Are there any outstanding judgements against you?

Even though judgments will show up on a Credit Report, they maybe reporting wrong, and need to be corrected.  A case may also exist that a Borrower just acquired a judgment, and it has not reported on the Credit Report yet.

In the first case it is important to correct a judgment that is being reported incorrectly immediately with the three Credit Bureaus (TransUnion, Equifax, and Experian), because no loan for a Mortgage can be done if the Borrower has an existing judgment.

In the second situation it is equally important for the Borrower to be honest and upfront about any recent judgments that might not be reporting yet on their Credit Report.  Just because it is not being reported on their Credit Report yet does not mean that it will not be discovered in the course of the Loan Process, or worst yet just before they are set to Close on the loan.  If it is discovered that they have a judgment and did not disclose it, not only will the loan be denied, but they could face criminal charges for lying on the Loan Application.  At the bottom of Page #4 Borrowers have to sign attesting to the fact that all of the information that they have provided is the truth to the best of their knowledge.

The second Question That Must Be Asked On The Declarations Section VII Of Loan Application is:

  • b.  Have you been declared bankrupt in the past 7 years?

As in the case of judgments being reported on the Borrowers Credit Report, so are bankruptcies.  However, they are not always being reported correctly as to their status or discharge dates.  If a bankruptcy is reported on the Borrowers Credit Report, or the Borrower acknowledges a bankruptcy, it is important to immediately get a copy of their bankruptcy and discharge papers.  This is the only way that the actual dates can be verified, and documented.

If a Borrower has had a bankruptcy within the last 7 years, a loan can still be done, but the guidelines for this vary from FHA to Conventional Loans. for example:

  • FHA requires that 2 years have past from the time a Chapter 7 Bankruptcy was discharged, and 1 year form the time a Chapter 13 Bankruptcy was discharged.
  • In the case of a Conventional Loan (Fannie Mae or Freddie Mac Insured) the time period is 4 years for a Chapter 7 and 2 years for a Chapter 13.

The above time periods are from the time of application for a loan, and not when the loan is expected to Close.  It is very important to keep that in mind because a loan could be denied for a matter of a few weeks, if the application process is started to early.

There are exceptions to these guidelines but that will be the topic of another blog that will just focus on bankruptcies.  For now I will not go into detail on this matter, because the exceptions are few, and are far from the norm.

Just as in the case of the first question a Borrower could face criminal charges for loan fraud if they do not answer this question truthfully as a result of them signing at the bottom of Page #4 that all of the information that they have provided is the truth to the best of their knowledge.

The problems that these two questions create during the Loan Process, can be easily avoided if the Loan Officer does his/her job at the time of Pre-Approval, by taking a full application at that time and not ignoring the these Question That Must Be Asked On The Declarations Section VII Of Loan Application.

My next blog in this series Questions That Must Be Asked ............ Declarations Section VII Of Loan Application, we will cover questions c, d, and possibly e depending on the length of the blog.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

Comment balloon 11 commentsGeorge Souto • August 28 2009 04:30PM

Comments

George, good stuff, I'm going to forward to my lender, she awesome though.  You are so right on this stuff.  Seller and buyers sometimes withhold some information, it always ends up coming out.  I had a seller take a bail bond while lisitng his house, not good, it eventually came to the surface. 

Posted by Debbie Aldrich, Salt Lake City Realtor - Salt Lake County, Cottonwood Heights (The Watts Group Real Estate ) almost 9 years ago

George, this is a great series. As you are well aware, I stick with what I know, selling the homes, and always count that our mortgage person is on the ball, like you. But sadly, that is not always the case. A well informed home buyer can certainly get much from this series, and if they aren't getting asked these questions, time to move on. If they are lucky enough to be close enough to you, well... the loan should close no problem.

And just to give you some food for thought, I got a frantic email from a client, he was in a panic because his mortgage person told him the contract needed to be redone, we are 2 weeks out from closing. The lawn tractor and snow blower had been part of the contract. In CT, as you are aware, attorneys draw up most of the contracts, and the attorney should have known better. In hindsight, I will make sure when anything like that is part of the deal, I specify that this not be on the contract. I always keep personal items out of the offer to purchase, and these items were not, but somehow made it on the contract. We really need to stay on top of these type of things.

You rock!

Posted by Andrea Swiedler, Realtor, Southern Litchfield County CT (Berkshire Hathaway HomeServices New England Properties) almost 9 years ago

George this looks like it is going to be an outstanding series.  I am sure you will be doing quite a bit of educating here.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 9 years ago

George,

Well put!

One I've lost loans too is "d" consumers often say "no" when they've sued some one. Class actions and HOA'S OFTEN LIST EACH PLAINTIFF BY NAME AND IT COMES UP! I lost a $2,000,00 loan because the applicant one a $50,000,000 judgment, before it could be documented the plaintiff paid! My client said thanks, but no thanks!

Bill

Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) almost 9 years ago

Good Stuff George, I don't know all the rules for bankruptcy, nor do I care to know them. We do get buyers that make the calls, and even though I like to refer them to loan officers to get the info correct, at least I may know enough to not turn them away too quickly., assuming my mush head can retain it.

Posted by Ed Silva, Central CT Real Estate Broker Serving all equally (RE/MAX Professionals, CT 203-206-0754 ) almost 9 years ago

George,

Mortgage pre-approval should include a full application to be effective, including this declarations page correctly filled out.

Posted by Esko Kiuru almost 9 years ago

Debbie it always comes out.  It is very hard to beat this system with all the checks and balances.

Andrea that Loan Officer should have caught that right away, but even if he didn't catch it, it should have been picked up by his/her Loan Processor or Underwriter during the initial review which is done within two or three days once the loan comes in the door.

Bill I look at it as sharing, and when we share both the one doing the sharing and the one being shared with both learn.

Bill, OOOCH that is one that I think I would remember for a long time.

Ed, I think you retain a lot more than you would have us think :) :)

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago

Esko you must have been commenting at the same time that I was commenting.  Looks like we completely agree on that one.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago

George,

Good information.  Thank you for sharing.  How long does the series challenge last?

Ann

Posted by Ann Hayden, SelectAnn.com (Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri) almost 9 years ago

George, Great information. My lender has went over this with me before but it was about as clear as mud.  It is nice to see it in writing.

Posted by Marchel Peterson, Spring TX Real Estate E-Pro (Results Realty) almost 9 years ago

Ann the last series challenge ended on Wednesday.  This is just one that I am doing on my own.  No extra points for this one :)

Marchel, well I hope this series will make it a little clearer for you.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago

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