What is foreclosure and bankruptcy seasoning?

Answer 1

Foreclosure is basically the act of foreclosing, especially a legal proceeding by which a mortgage is foreclosed. Here in California, for example, a lender can foreclose on the deed of trust if you don't pay your mortgage. The bank or note holder goes through an extensive process to sell the property at public auction to the highest bidder. Some foreclosures require court action, others do not.

Your reference to bankruptcy seasoning is a little unclear. Creditor attorneys will sometimes refer to a lien as "seasoned" if the lienw as created outside of the preferential transfer period in federal bankruptcy law. Federal bankruptcy law allows a debtor to recover certain payments or "preferential transfers", that were made to a creditor a short time before the filing of the debtor's bankruptcy. A judgment lien can be a transfer and can be a preferential transfer if the lien arose within the 90-day time period prior to the filing of the bankruptcy.

Foreclosure and bankruptcy seasoning is commonly used in the mortgage industry referring to the time period that must elapse before a borrower is eligible for a loan. ie. To purchase a home using an FHA loan the foreclosure seasoning requirement is 3 years, therefore 3 years must have elapsed since the previous home was foreclsosed. Unless the foreclosure was due to extenuating circumstances such as the loss of the primary wage earner or a situation beyond the borrowers control. It must be a really good reason before a lender will reduce the 3 year restriction. The bankruptcy seasoning requirments are 2 years from the discharge date for a chapter 7 and 12 months for a chapter 13 bankruptcy with court approval on an excellent payment history on the trustee payments. The seasoning requirments for conventional loans are much longer in the midst of these volatile lending conditions. Please consult your mortgage advisor for details.