The Basics

• A civil lawsuit involves bringing a case upon someone for causing physical or emotional injury, according to CrimeVictimLaw.com. Plaintiffs file the lawsuits seeking damages against offenders or responsible parties, regardless of any criminal prosecution. The mortgage process is initiated with a Uniform Residential Loan Application know as Form 1003. Because lenders must know every aspect of a borrower's finances to determine whether they are financially viable candidates for a loan, the 1003 must be completed thoroughly and honestly.
  
  

Identification

• Pages 3 and 4 of the 1003 consist of a "Declarations" section consisting of nine "Yes" or "No" questions regarding each applicant's financial status. The questions concern past or present court judgments and delinquencies involving mortgages or other obligations that might affect the ability to repay a new mortgage, such as family support payments or foreclosures. Item D asks, "Are you a party to a lawsuit?" An applicant involved as either plaintiff or defendant in a civil lawsuit must always answer "Yes," then provide the lender a written explanation using page 5 of the 1003 known as the Continuation Page.
  
  

Function

• Lenders become concerned if an applicant is pending litigation because the outcome could affect their ability to make a monthly mortgage payment. If found guilty, the defendant will owe monetary damages to the plaintiff, and the judgment could increase their debt-to-income ratios; that is, the amount they owe each month in relation to income. It is important to thoroughly and accurately explain the details of the civil lawsuit so lenders know up-front what risk they run in lending to the applicant, if any.
  
  

Considerations

• An applicant who files a civil lawsuit is more likely to be approved for a loan over a defendant in a pending case. A plaintiff stands to lose little financially in a civil case. Although they are financially responsible for the cost of litigation, "Most attorneys handle victim cases on a contingency basis," according to CrimeVictimLaw.com. If the plaintiff wins, the attorney fee is deducted from the award, and if they lose, the victim usually pays nothing.