From bankrupt to bank-backed

Loans: People with bad credit history can secure mortgages, though lots of patience and paperwork are part of the deal.

May 12, 2002|By Hope Keller | Hope Keller,SPECIAL TO THE SUN

After bankruptcy, can there ever be a mortgage?

The short answer is yes. People with bad credit can always get a mortgage if they are willing to pay high fees and high rates.

But what about when bad things happen to people with good credit? What happens when someone who has always paid her bills on time is financially overwhelmed by an illness, a layoff or a divorce? Will she ever again qualify for a fair mortgage with an interest rate of less than 10 percent, or will she be consigned to the high-fee, high-rate sub-prime mortgage market forever - or to rentals?

That's what Claire Catherine Miller wants to know.

There are no short answers to that question. But mortgage industry professionals say people such as Miller, a Pasadena resident who filed last year for Chapter 7 bankruptcy protection - which eliminated her debts - after a brain condition left her permanently unable to work, should not despair. There are ways to get a market-rate mortgage after bankruptcy. But getting one can mean dredging up unpleasant memories and can require a lot of patience and paperwork.

"It won't be easy," said Tom Champion, a home mortgage consultant with Wells Fargo Home Mortgage in Lutherville. "But if people know coming in what they have to provide, it makes it a little more palatable for them."

"There's hope," Champion said. "There is reason to believe they can put things back together."

Miller, 58, was able to keep the three-story townhouse she bought in 1991, when she was a top-selling sales representative for D.M.R. Associates Inc. in Gaithersburg, which provides heating, ventilating and air-conditioning equipment and service to industrial and commercial companies. Her company's insurance paid for most of her medical bills.

Though her private and Social Security disability benefits amount to about half of her former salary, Miller can cover the monthly mortgage payment. But she is finding it increasingly difficult to manage the stairs in her house.

"I've ended up at the bottom more than once," said Miller, who wears a Novocain patch behind her right ear to numb the pain caused by a knotted brain artery that compressed her nerves. "At some point in time, I will have to get off of three floors and relocate to a single-level home."

In 1996, after Miller wound up in the emergency room several times with headaches so shattering that she would curl up on the floor, doctors at Johns Hopkins Hospital discovered that an artery in her brain had formed a knot and was pressing on nerves. Surgeons untied the knot as best they could, but a full recovery was impossible.

Miller has problems with her balance, vision and hearing, and constant, severe pain on the right side of her head. She tried to go back to work after the surgery, but the pain - and the pain medicines - made it unfeasible. She had to quit "the most wonderful career."

"I got on the [operating] table one person and got up another," said Miller, a 1961 graduate of Glen Burnie High School and the mother of two and grandmother of four. "[My condition] will never get better," she said matter-of-factly. "It can be made more comfortable."

Miller is not self-pitying, nor is she completely disabled. She drives to the grocery store and takes care of the house and her animals, an English Labrador and a cockateel that often perches on her head. Divorced, she lives alone but has a lot of family nearby. "I do have a life, and there are things that I can do with it," she said.

A more difficult life

Miller is not destitute, but life is much more difficult than it was when she was making nearly $80,000 a year. She can make her mortgage payments and payments on her small used car (the lowest interest rate she could get for the car loan was 25 percent), but she doesn't have a lot left at the end of the month.

Her private disability benefits will end in a few years, and she will be left with only Social Security and a few thousand dollars from a 401(k) retirement plan. She worries that she'll never be able to qualify for a low-rate mortgage for another house.

"Is the chance to own another home finished?" she asks.

No, mortgage industry professionals say. Miller can get a good mortgage despite her bankruptcy. The industry doesn't treat bankruptcies resulting from extenuating circumstances such as Miller's the same way it does bankruptcies caused by financial mismanagement. Miller's case is also helped in that she had perfect credit up until her bankruptcy filing, industry professionals say.

"A lot of people are under the misconception that if they have a bankruptcy, they have to wait seven to 10 years" before qualifying for a good mortgage, said Brian Sacks, branch manager of the Owings Mills office of Integrity Home Funding LLC, which is based in Paramus, N.J.

Miller "can have perfect credit again," said Sacks, who specializes in getting low-fee, low-rate mortgages for people with credit problems.

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