Was Your Bankruptcy or Foreclosure Caused by “Extenuating Circumstances?”

Extenuating circumstances- Woman in home with mortgage

Missed payments, foreclosures, and bankruptcies happen every day. In many cases, these unfortunate situations happen to some of the most dedicated, responsible, and hard-working individuals in the country.

But when a bankruptcy occurs, even if it’s not caused directly by your actions, it can create significant borrowing issues down the road. In some situations, someone will have to wait as long as seven years to get a mortgage loan, even if the missed payments, foreclosure, or bankruptcy was not necessarily their fault.

Many lending organizations recognize this fact. They see that countless negative situations occur not because the borrower was irresponsible or reckless, but because of out-of-control situations. With that in mind, they have created details in their guidelines that allow for easier terms after one of these negative situations.

Known as “extenuating circumstances” in the mortgage industry, these details provide greater leniency for your purchase. If you have gone through a foreclosure or bankruptcy in the recent past, you deserve to know about extenuating circumstances; you never know, it could help you purchase a top-quality home in the near future.

How to Get a Loan When You Have “Extenuating Circumstances”

What are “Extenuating Circumstances?”

Essentially, “extenuating circumstances” are specific situations where financial problems were created by factors outside of someone’s control. To explain in better detail, let’s back up a few steps and look at how a mortgage lender approaches each application…

A mortgage lender needs to establish someone’s overall ability to repay a loan. They can’t predict the future, but they can look at a borrower’s past to evaluate their statistical probability of repaying a loan. If someone has good credit, a low debt load, and a strong income, they are, statistically speaking, highly likely to make the payments. But if someone has a foreclosure, missed payments, or a bankruptcy on their record, they are (again, statistically) more likely to default.

But what if someone has a strong credit history, with decades of payments on auto loans, mortgages, and consumer credit but, for some reason, there was a sudden drop in income or a disappearance of payments? Clearly the financial problem was not a regularity, but an oddity. Perhaps it was a one-time occurrence that was out of their control. Perhaps it was an “extenuating circumstance.”

To help people deal with these one-time, out-of-control situations, many lenders and organizations have built in clauses that reduce the punishment (for lack of a better word) for these occurrences.

Extenuating Circumstances: Common Situations

Life is impossible to predict, and there are many different situations that may qualify as an extenuating circumstance in the mind of different lenders and organizations.

But some of the most common include…

Divorce: Splitting up is not cheap. According to LegalZoom, the average cost of an uncontested divorce is about $400 to $1,800, depending on what systems you use. If you hire an attorney, you may need a retainer downpayment as large as $5,000. Thumbtack claims the average cost of a divorce in 2019 was $15,000 per person. Clearly this is an expensive situation, and lenders recognize that the cost of a divorce can easily spiral into missed mortgage payments.


If you were burdened with heavy financial debts to a medical organization, it can significantly cripple your finances. An injury or unexpected illness (is any illness expected?) can bring tens of thousands of dollars in total debts; in some cases the cost can range into the hundreds of thousands.

asian family with kid portrait in front of their house
Showing extenuating circumstances could help you and your family purchase a home.


Being laid off is stressful, frustrating, and demoralizing, and it can be hard to bounce back from a well-paying job, especially if you can’t apply your skills to a new area. People who are laid off look for work, but in many cases they are unable to find a position that bring the same level of income, the income that was used to qualify for a mortgage.

Job Severance

A layoff implies the job may come back in the future (seasonal work, for example) but a “job severance” is often permanent. In this case, there is a permanent end of employment, which often includes a severance package that brings a small income, although not as large as the employment income, leading to financial difficulties.

This is just a short list of potential extenuating circumstances. If you have experienced a bankruptcy or foreclosure in the past, talk with your lender to see if your situation would qualify.

The Benefit: Changes Waiting Period on Conventional Loans

Okay, now to the payoff! Under normal circumstances, a negative credit event like a foreclosure would force you to wait a long time to get the loan you need. But if you can show that the situation was generally out of your control, this period can be reduced.

The most severe is a foreclosure. If there is no extenuating circumstance, you will have to wait seven years to use a conventional loan. However, this can be reduced to three years under certain situations.

If there have been multiple bankruptcies, basically you have to wait five years since the last bankruptcy. With extenuating circumstances, this can be reduced to three.

If there are single Chapter 7, 11, or 13 bankruptcies, the period can be reduced from four years to two years.

Additional Requirements May Apply

While the waiting period can be reduced, there are usually additional requirements. For example, after a foreclosure extenuating circumstances can reduce your wait for a conventional loan from seven years to three, but you may need a higher downpayment.

How to Prove Extenuating Circumstances?

To use these clauses, you will need to bring documentation the explains the specific situation. If your financial problems happened because of a divorce, you’ll need documentation of the divorce decree, as well as lawyer bills, court fees, and other forms of financial information. Documents from medical bills and reports, job layoffs, or severance can all verify your situation.

Don’t Let the Financial Past Ruin Your Housing Future!

You deserve a comfortable home with an affordable monthly payment. If you believe your past foreclosure or bankruptcy was caused by extenuating circumstances, contact our dedicated staff today!



“Chad and his group made the mortgage approval process smooth and understandable. Multiple updates and explanations during the process kept me informed of progress. Chad also provided great advice on other home services, in particular an insurance company that saved me thousands of dollars a year on home and auto insurance.”

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Outstanding experience

I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online