How to Buy a Home with a Judgment Lien?
December 23, 2020 - 6 min read
A judgment is the worst credit tradeline any consumer can have on their credit report. A judgment means a creditor took the necessary steps legally and took the debtor to court. The court found the case in favor of the plaintiff and issued a judgment on the defendant. It is not up to the court to enforce the judgment. However, with a judgment, creditors can pursue further legal collection proceedings often referred to as enforcing the judgment.
Judgment creditors will do their own investigations and due diligence on how to enforce a judgment. Judgment creditors will not pursue a consumer that is insolvent and has no assets. These people are often referred to as being judgment-proof. Judgment proof is when a debtor has no assets for a judgment creditor to enforce the judgment. What good is it for a judgment creditor to go after a debtor who has no assets and/or nothing to collect?
A judgment is a decision made by a court of law. The judgment is the court’s final determination of the rights and obligations of the parties in a lawsuit. A judgment may be entered after a trial or hearing, or it may be entered by default if the defendant fails to appear or defend against the plaintiff’s claim. A judgment may be entered against a defendant who owes money to the plaintiff, ordering the defendant to pay the plaintiff a sum of money.
A judgment may also be entered in favor of the plaintiff, ordering the defendant to take some action, such as transferring property to the plaintiff or performing some other duty. Judgments are typically enforced by court orders, which are issued by the court and served on the parties. If a party fails to comply with a court order, that party may be held in contempt of court and fined or imprisoned.
Judgment creditors can go about enforcing a judgment through bank levies, wage garnishments, or placing liens on personal property and/or assets. Homebuyers with outstanding judgments can become eligible to qualify for a mortgage with outstanding judgments if and only if they get a written payment agreement with the judgment creditor.
The borrower needs to make three timely payments to the judgment creditor before they become eligible to qualify for a home mortgage.
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How To Get Approved For A Mortgage With A Judgment
If the judgment has been issued quite some time ago, the only way to satisfy a judgment is by filing bankruptcy, paying the outstanding judgment, settling with the creditor for less than the face value, or entering into a written payment agreement with the judgment creditor.
If you file bankruptcy to vacate the judgment, there are mandatory waiting period requirements after bankruptcy to qualify for a mortgage. Capital Lending Network, Inc. offers non-QM mortgages one day out of bankruptcy and foreclosure with a 30% down payment. However, not many homebuyers have a 30% down payment to put down on a home purchase. Therefore, if you file Chapter 7 Bankruptcy, there is a two-year waiting period after the discharge date to qualify for an FHA and VA loan.
USDA loans require a three-year waiting period after the Chapter 7 Bankruptcy discharge date. Fannie Mae and Freddie Mac require a four-year waiting period after the Chapter 7 Bankruptcy discharge date to qualify for conventional loans. Most judgments can be discharged in Chapter 7 and Chapter 13 Bankruptcy discharge unless the judgment was issued due to fraud and/or is government debt.
Consumers can try to settle the judgment for pennies on the dollar. However, that depends on the negotiation with the judgment creditor. Or most folks who need to qualify for a mortgage with outstanding judgments enter into a written payment agreement with the judgment creditor. The older the outstanding judgment is the easier it will be to negotiate. The debtor will need to make three timely payments to the judgment creditor for them to become eligible to qualify for a mortgage.
Judgments Not Reporting On Credit Reports
Statutes of limitations on judgments depend on the state in which the judgment was issued. Most judgments are good for ten to twenty years depending on the state. However, credit bureaus only post judgments for seven years. After seven years, judgments fall off consumer credit reports. However, the judgment is still good as long as the statute of limitations is good in the state the judgment was originally issued.
All lenders will run a third-party national public record search through a vendor like Data Verify, or Lexis Nexis. The third-party national public records search company will snag any public records such as judgments that are not on consumer credit reports. Make sure you tell your loan officer about outstanding public records that are active but not reported on your credit report.
This is a sure-proof method by lenders. Public records and judgments not reporting on consumer credit reports will get discovered. It is better to address public records not reporting on credit bureaus now than during the middle of the mortgage process and get your loan denied.
Ways Of Getting Rid Of Judgments
If you’re looking to remove a judgement from your credit report, there are a few things you can do. Judgments can stay on your report for up to seven years, but there are ways to get rid of them sooner. You can try negotiating with the creditor, working with a credit repair company, or filing a dispute with the credit bureau. Removing a judgment from your credit report can be a difficult process, but it’s not impossible. With some time and effort, you can improve your credit score and get back on track.
Fortunately, the process for removing a judgment from your credit report is relatively simple. You’ll need to contact the court that issued the judgment and request that they provide proof that the judgment is valid. Once you have this documentation, you can then file a dispute with the credit reporting agency.
Most creditors will sue anyone who has larger outstanding collection accounts and/or charged-off accounts. Many creditors are hoping for debtors not to show up to court when they sue consumers. If consumers do not show up for their court hearing from the creditor and/or collection agency, the judge issues a judgment in favor of the judgment creditor.
If the consumer disagrees with the collection account, they can as the court to vacate the judgment and/or lawsuit. If the courts find the cause of the legitimacy of the judgment, the judge can drop the lawsuit and not issue a judgment. If the judgment is vacated but the judgment still reports on consumer credit reports, you can provide the proof of the judge’s vacate order to the credit bureaus and they will get it off all consumer credit bureaus.
Some reasons for judges to vacate judgments are procedural and/or clerical errors, not providing the consumer proper service/notice, errors on the amount and interest due, or winning a court appeal. There are no rules or regulations on vacated judgments when it comes to qualifying for a mortgage. Borrowers will qualify for a mortgage with a vacated and/or dismissed judgment.
When To Pay A Settlement On Judgment
As mentioned earlier, you can settle an old judgment for pennies on the dollar. If you are in the middle of the mortgage process, you need the settlement letter from the creditor.
You need the paperwork showing the settlement agreement and the verbiage that states by paying the agreed amount on the settlement, the defendant no longer owes the debt.
A judgment release needs to be recorded by the creditor. The payment of settlement can be paid prior to or at the closing. The judgment will still report on all three credit bureaus. However, the settlement verbiage will be posted. Therefore, it is a settled judgment with no liens against you and/or your assets. Mortgage underwriters will ask borrowers to write letters of explanation on all judgments and other derogatory credit tradelines.
Make Payment Arrangements With Judgment Creditors
Lenders will accept a written payment agreement with judgment creditors. You need to have made three continuous monthly payments. You cannot prepay the whole three months of monthly payments upfront to meet the mortgage agency guidelines in qualifying for a mortgage with judgments. Not all lenders have the same agency mortgage guidelines when it comes to being able to qualify for a mortgage with judgments.
Many lenders may have lender overlays that you need to have paid your judgment in full prior to being able to qualify for a mortgage. However, Capital Lending Network, Inc. has no lender overlays on government and conventional loans. We just go off the minimum agency guidelines on judgments on government and conventional loans. Remember that judgments are the worst derogatory credit tradelines you can have on your credit report. However, judgments should not deter you from getting a mortgage loan approval at CLN Mortgage Group, Inc.
Monica Winner
I currently reside in Texas, and trying to move back home to Kentucky. I have found a home near all of my family that I am trying to purchase. My credit is horrible but I am in the mix of fixing it.
Sara Conway
Good evening,
Me and my fiancé have been repairing our credit for the past year or so with the intention of purchasing our first home. We both have some things that do remain but before we get a hard inquiry on our credit I just wanted to verify that we are in a good spot.
Fico 8 Scores are 664-674 middle scores ( not sure of mortgage score) and rising
We both have charge offs (repos) from our ex spouses that are over two years ago
I have late payments on my vehicle but it is now 12 months on time as of this month. This same vehicle has less than 6 payments that remain.
Medical collections but I only have one and he has a 2-3.
Both have long term job history.
We have located a property online which is why I am not waiting another month or so as was my original plan to save additional funds and receive our 2020 W2s.
Please let me know if you can assist..