This buyer and Realtor aren't alone. Many, if not most, people in the real estate world don't know what CAIVRS is, yet it is something that can kill a sale without warning. To help prevent that from happening to you, let me fill you in on just what this deadly little acronym is.
One Dangerous DatabaseCAIVRS stands for Credit Alert Interactive Voice Response System and it is a database maintained by the federal government that lists people who have defaulted on a debt owed to the Federal government or who have had a government insured/guaranteed mortgage foreclosed on within the last three years. It also lists people who are currently delinquent on a debt owed to the Federal government.
Examples of Federal debts covered in this database include previous FHA or VA mortgages, Federal student loans and Small Business Administration loans. For a borrower that had an FHA or VA mortgage foreclosed on, that borrower is not eligible to get another FHA mortgage until three years after the date that HUD paid the insurance claim to the lender. The buyer will show with an open 'hit' in the CAIVRS database until that 3 year window has passed.
The 'Paid Date' ProblemThe thing that trips most people up with this is that CAIVRS uses a different date for when that three years begins. Buyers, Realtors and even many lenders assume the magic three years starts with the date of the sheriff's sale. For general loan approval guidelines, it does. For CAIVRS findings, though, it does not. The date used in CAIVRS is three years from when HUD pays the insurance claim.
These two dates are often far apart. While a foreclosure is typically viewed as 'final' when the sheriff's deed is filed, HUD may not actually pay the claim for months or even years after that point.
Case in point - I had a client recently who had a foreclosure in 2009 but continued to pay on the mortgage for two years afterwards even though he wasn't legally obligated (nice guy). Sadly, HUD didn't pay the claim until he stopped paying on the loan so his three year waiting period to buy a new home turned into five years all because his name was still showing as active in this database.
What To Do, What To DoThe question then comes up, what if a potential home buyer is showing up with a hit in that CAIVRS database? If the information in CAIVRS about a borrower with an FHA loan is incorrect, it can be fixed. FHA will correct the information if the person sends the appropriate documentation showing the correct information to the FHA Homeownership Center that covers their area. They can locate the correct FHA Homeownership Center by going to the following website and clicking on the applicable state: HUD Home Ownership Centers.
If, however, the information in CAIVRS is right and the claim was just paid later than expected for some allowable reason, there is nothing the buyer can do but wait. Until the three years has passed and their name is no longer showing in that database, they are unfortunately not eligible for a new FHA mortgage.
What should a Realtor do? Realtors often know when a home buyer has had a foreclosure because buyers often share this information. If you know that your client had a previous FHA or VA foreclosure, ask the mortgage lender early on if they have run the client through CAIVRS yet. Don't be surprised if they are confused. This is often a back office step that the upfront person may not be aware of. Some lenders hold this step until closer to closing and that is dangerous for your buyer. Ask the lender to run CAIVRS right away to make sure there wasn't a delay on this HUD payment.
If possible, you'd be even better of getting them connected with a lender who is well aware of CAIVRS and will run their name through it before even giving you that pre-approval letter. That's now my standard procedure with anyone having a foreclosure on their credit report. I'd be happy to take that additional, important step for you and your buyer.
Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office. One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University. You can connect with Lori Hiscock or apply online here.