Boomerang Buyers Return to Market After Foreclosure

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Boomerang homebuyers Susan, Dave Edwards

By Les Christie

Borrowers who lost homes to foreclosure during the housing bust are starting to buy again. Since the housing bubble burst, 4.8 million borrowers have lost their homes to foreclosure, and another 2.2 million gave them up in short sales, according to RealtyTrac. While many are still struggling to recover financially, a growing number are starting to bounce back -- and they are looking for a new place to call home.

Susan Edwards and her husband, Dave, lost their Palmdale, Calif., home in 2010 after Susan's severe arthritis made it impossible for her to work her medical device sales job. The medical bills soon piled up and the couple could no longer afford their $2,300 monthly mortgage payment. In addition, their home's value had plunged 40 percent below the $325,000 mortgage balance.

"We were living under such pressure," she said. "We looked at the numbers and knew we had to default." After the foreclosure, Susan's credit score had taken a 70-point hit; Dave's score fell even further. By paying all of the bills on time, they nursed their credit scores back to health. And in December, two years after they lost their old home, the couple was able to buy a new home with a loan backed by the Veteran's Administration. VA-insured loans can be obtained just two years after a foreclosure, according to the Mike Frueh, director of the VA's Loan Guaranty Program.

The new house is a lot like the Edwards' old one, with one big improvement: The mortgage payment is $1,150 a month -- roughly half the amount they used to pay. "[After bankruptcy], foreclosure is one of the things that hits your credit score the hardest," said Anthony Sprauve, a spokesman for FICO. Foreclosures and short sales usually knock about 85 to 160 points off a credit score. Scores suffer less if you pay at least the minimum on all your other bills on time and only allow your mortgage payments to go unpaid, said Jon Maddux, the CEO of YouWalkAway.com, which offers advice to defaulting mortgage borrowers.

Once the damage is done, it can take three to seven years for a score to fully recover. But some lenders are willing to work with borrowers earlier than that. Mortgage giants Fannie Mae and Freddie Mac, for example, require defaulters to wait five years -- and have a minimum credit score of 680 and put 10 percent down -- before they can purchase a home again. If they don't meet that criteria, the wait is seven years, at which point the foreclosure is expunged from a person's credit report.

If defaulters show that extenuating circumstances caused the foreclosure -- such as a health issue that prevented them from working, a layoff, a divorce or other one-time event -- the wait may be reduced to three years. The Federal Housing Administration allows banks to issue FHA-insured loans to borrowers three years after a foreclosure or a short sale in which the borrower was in default.

Read the rest of this story on CNNMoney.

See more on CNNMoney:
Million-Dollar Foreclosures
Zombie Foreclosures: Borrowers Hit With Debt That Won't Die
Best Places to Buy Foreclosures

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Boomerang Buyers Return to Market After Foreclosure

Reality TV star Kristin Cavallari's family home in Laguna Beach, Calif., was foreclosed on earlier this year, according to public records.

See more photos of the 7,100-square-foot estate on Zillow.

Last July, Crain's Chicago Business reported that R&B singer R. Kelly faced a $2.9 million foreclosure lawsuit on his mansion in Olympia Fields, Ill. The complaint said that Kelly hadn't paid his mortgage in over a year. See the rest of the story on Zillow.

Actor Nicolas Cage got in trouble with the IRS in 2009 when it put a lien on some of his properties to make up for the $6 million that he owed on purchases made in 2007. His $35 million Tudor Mansion in Bel Air sold in foreclosure for just $10.5 million. See more on AOL Real Estate about homes sold by Nicolas Cage at a loss.

Comedian/actor Chris Tucker got caught big-time in the housing crisis. A central Florida lakefront house that he purchased for $6 million in 2007 -- right before the housing market crashed -- was appraised at just $1.6 million in 2011. The bank claimed that he owed more than $4.4 million on the home, putting his mortgage seriously underwater. Read more on AOL Real Estate about Chris Tucker's foreclosure crisis.

In September 2010, Grammy winner Toni Braxton filed for bankruptcy. She owed over $50 million, but her assets only totaled $10 million. To make up some of the debt, her $2.6 million home in Nevada was sold in foreclosure for a little more than $1 million. Read more on AOL Real Estate about Toni Braxton's financial troubles.

Former NFL star Terrel Owens is having a bad year when it comes to real estate. In May, he faced foreclosure on a condo that he owned in Sunny Isles Beach, Fla., because he had stopped paying his mortgage in the fall of 2011. Earlier in 2012, two of his Dallas properties fell into foreclosure. Read more about Terrell Owens' many foreclosed properties on AOL Real Estate.

NBA legend Julius Erving (aka Dr. J) defaulted on his mortgage for his 6,572-square-foot home in St. George, Utah, and faced foreclosure in 2010. Recent property records show that as of March 2012, he no longer owns the home. See more photos on AOL Real Estate of Erving's customized home.

In 2010, Mel Gibson was sued by the construction company that built three of his properties in Malibu, Calif. According to TMZ, Ramage Construction was asking for around $12,000, but, as an alternative, it also asked for permission to foreclose on the homes to satisfy the debt. Gibson listed one of the houses in 2011, so it is likely that he settled the debt and was not foreclosed on. The house is no longer on the market. Read more on Zillow about Mel Gibson's legal trouble.

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