Rebuilding credit will take a few years

Ilyce R. Glink
Inman News

Q: I am in a tough financial situation. My primary residence was foreclosed on, and after that happened, I moved to my investment property. Once that mortgage adjusted, I realized I could not afford to pay that mortgage either.

My guess is that I’ll go into foreclosure on this property by April.

I am thinking about filing for bankruptcy. Will it be harder for me to get another home loan with two foreclosures on my credit history, or will it be worse if I have two foreclosures and a bankruptcy? Please help.

A: Well, I have to commend you for staying positive. Not many people would be thinking about buying another home while facing foreclosure in their primary residence. I actually think it will be pretty tough to get someone to give you a home loan after you’ve been foreclosed upon twice, whether or not you file for bankruptcy.

So let’s worry about what’s happening to you now, and not what may happen in the future.

Is there any way to save your current house? Can you rent it? Can you rent part of it and continue to live there? Can you sell it? Can you agree to hand over the deed to the lender and complete a deed-in-lieu of foreclosure? Have you discussed what is happening with the lender to see if there is any way to rework your loan?

I’m sure you thought that buying an investment property was an easy way to make some money, but as you’ve discovered, the reality of investing in real estate can be messy.

If you earn any real money at all in your day job, it’ll be tough for you to file for bankruptcy. But if you feel as though this is the only way out, then consult with a bankruptcy attorney.

In the meantime, do what you can to keep current on all of your other bills. When it comes time to rebuild your credit, that’s what you’ll need to focus on — paying each and every one of your bills on time, every month.

Once you have two to four years of clean credit, you can think about buying another piece of real estate.

Q: I searched for a year to find a home I liked so I could downsize into a smaller space. After seeing about 12 houses, I bought one that seemed as though it was in great condition.

During the first year I lived there, it became obvious that the house had lots of problems. These problems were skillfully covered up to get the place sold.

What can I do? Can I sue the seller for doing such a thing?

A: It’s extremely difficult for the average home buyer to walk through a property and spot potential problems. The days of walking in and seeing a brown water spot on the ceiling are long gone. Sellers have become adept, as you’ve discovered, at staging their homes to look like showpieces.

That’s why it’s so important to have a professional home inspector go through the home looking for the telltale signs of trouble. Did you pay for a professional home inspection? If you did, and the inspector missed some major items, then I’d go back to the home inspector and ask for your money back.

But if the sellers went to great lengths to cover up significant issues, such as a leaky roof and mold, then you should take a look at your seller disclosure form to see what they actually said about the property in writing.

Sellers are required (in most states) to disclose any material issues that are hidden to the naked eye. So, they wouldn’t have to tell you that a four-lane highway is about to come through your front yard (that’s a matter of public record, and you need to check that yourself), but they should tell you if they’ve had a perennially leaky roof.

To bring a successful seller disclosure lawsuit, you’d have to prove that the sellers knew, or should have known, about the problem. That means you’ll have to talk to neighbors and possibly find the contractors that worked on the house. The smoking gun? A signed, paid receipt for work that was completed.

Here’s another wrinkle: Did you buy the property in “as is” condition? If you bought the house in “as is” condition, and that was stated on the sheet, then I’m afraid you might have bought the house with all of its problems.

Talk to your real estate agent or real estate attorney about this issue if you can’t find the listing agreement or your contract to purchase. And for a longer discussion of your legal options, talk to a litigator with expertise in real estate.

Finally, all houses have problems, even newly constructed properties. Even if you took every possible precaution, sometimes home buyers just have bad luck. Just because the hot water heater dies the first night you lived in the house doesn’t necessarily mean that the sellers covered something up. Sometimes, unlucky things happen.

Copyright 2008 Ilyce R. Glink