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How Deed in lieu of foreclosure affects credit score

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 10th May, 2006 01:22pm
If you're not able to pay your mortgage and you can't sell the home or get a work out plan, a deed in lieu of foreclosure is your third option. This option allows you to transfer the property to your lender in exchange for being released from your mortgage.

Does deed in lieu of foreclosure affect credit score?


When you go for deed in lieu of foreclosure, it affects your credit score. Your score will drop by 250 points or so and will stay on your credit report for 7 years. After 7 years, you can have the deed in lieu removed from your credit report and start to rebuild your credit. At the end of the 7th year, you can request the bureaus to remove it from the report.

How long after deed in lieu can you buy home?


Because a deed in lieu has a negative impact on your credit, lenders won't offer you a mortgage for the first 2-3 years. In the meantime, if you try and rebuild your credit the chances are that you may be approved for a loan after the 2-3 years has expired. After that you can buy a new home.

Related Forum Discussions:
Posted on: 10th May, 2006 01:22 pm
my wife and i along w/another couple bought a 2 family with an agreement that one resident would buy the property in one year, he defaulted and left us with a ton of damage and bills. long story short we ended up doing a deed in lieu on the property. our wives were the primary lendees on the mortgage as a result we are seeing a major hit on her credit score taking it down to a 660 or so. lenders can't use her on a loan if we want to refinance or anything because they say the hit disqualifies her. we did not enter this deal to go into the hole, we worked real hard for many years to keep our credit very very good and this one property seems to have wrecked us, we don't have a ton of money, we work hard and have a small home of our own that we would like to refinance, i am getting no's from lenders. i really need some help and i feel hopeless at this point. i just don't want to see all that my wife and i are working for shot because of one bad deal that we only entered into because one tenant wanted to buy the place and take care of it and then we got stuck with it. it took thousands out of our pockets before the deed in lieu. as i said other than that we have had excellent credit, mine is over 740-750. please offer any advice, it is truly truly appeciated. i feel that we are good hard working people and we just don't want to feel hopeless.thank you so much, matt long
Hi Matt,

I can understand your problem. Did you try to refinance it in your name solely? That might work for you.

A little more shopping around will probably enable you to find a lender who agrees to refinance.

James
Posted on: 10th May, 2006 01:28 pm
Yes I've tried that but I don't have enough income. I was wondering if there is anyone out there who knows who I could talk to or lenders that would have experience dealing with these types of issues. thanks for the feedback
Posted on: 10th May, 2006 01:32 pm
Hi Matthew,

Welcome to MortgageFit Forums.

I feel sad about your misery caused by some other whom you believed. Sometimes this sort of problems comes under the situation you went through.

I would suggest you to look for some more lenders or brokers to help you with this situation. Never get worried if you are rejected by one or a few of them, there will some who will agree to refinance under this condition.

At least a deed-in-lieu is far better than a foreclosure but you will have to explain clearly the reason behind the default.

Another option is to refinance it in your name if possible. Your credit score is a good one to qualify. We need to look at your income as you are saying it not enough to qualify.
Our Community can also help you in this matter. There is a wide network of lenders under this community and your requirement may be put forward to them. Don't get worried, refinance under these circumstances is not impossible if not easy. :)

Feel free to ask if you want to clear up some more things.

God bless you.

For MortgageFit,
Samantha
Posted on: 10th May, 2006 01:39 pm
Thank you, do you know of any names or numbers in particular I could call that may have people to help...I truly appreciate the help. !!!!!!!!!!
Posted on: 10th May, 2006 01:58 pm
Hi Matthew,

Welcome again.

You can sign up here for your request. Kindly sign up with a different e-mail address this time.

This will directly forward your request to our loan department who will contact you within a very short period and discuss your requirement with you.

If you find any difficulty you can post it here.

God bless you.

Thanks,
Samantha
Posted on: 10th May, 2006 02:26 pm
how soon can you get a new mortgage after you apply for a deed in lieu of foreclosure?
Posted on: 15th Jul, 2006 05:15 pm
When applying for a new mortgage you will be asked if your property was foreclosed on or if had given title in lieu thereof in the last 7 years. So, this information will stay on your credit report for 7 years.
Luke
Posted on: 15th Jul, 2006 05:46 pm
Hi,

It is possible for you to get a new mortgage in as little as three years.

But the major obstacle in getting approved for a new mortgage is your credit rating. You should concentrate on rebuilding your credit in order to get approval for a new mortgage.

And for that you should try to make all of your payments to your remaining creditors in a timely manner.

James
Posted on: 15th Jul, 2006 06:12 pm
I'm not understanding something! I thought if you did a deed in lieu of foreclosure that it didn't show up on your credit report. Most mortgages companys go straight for the credit report for a new mortgage.so what am I missing? Just call it dumb blonde syndrome! LOL
Posted on: 16th Jul, 2006 10:43 pm
Hi,

A Deed-in-Lieu does get recorded in your credit report and acts as an evidence of the fact that the borrower has conveyed all his share in the property on being unable to pay off his mortgage. But a recording of this process doesn't have as negative an impact as a foreclosure.

Know more on Deed in Lieu from the information available on this topic.

Thanks,

Caron.
Posted on: 16th Jul, 2006 10:56 pm
So really the only one who benefits from a deed in lieu is the mortgage co. because it doesn't cost them like it would for a foreclosure! Because in a foreclosure you still have to wait for three years to get a loan again.
Posted on: 17th Jul, 2006 05:13 pm
Hi Roberta,

Yes, in one way you gain by avoiding a foreclosure as that can have more severe effects on your credit. But deed-in-lieu does appear on your credit report and next time you approach a lender he is going to take that into consideration.

The lender agrees to a deed-in-lieu only if he finds that you don't have any other options to repay or you are compelled to change the house as a result of a job transfer.

Also he may agree to avoid the time and money associated with a foreclosure.
Posted on: 17th Jul, 2006 05:20 pm
Okay, now I've got it! Thanks so much for your help!
Posted on: 18th Jul, 2006 03:29 pm
I'm retired military and have relocated to a location that offered me and my wife employment. We bought a home in an area that at the time had no housing at all so we bought a manufactured home and placed it on a lot. I was transfred to this location in 1997 by the Army. Iwas transfered out after 4 years. The home was then rented and occupied until june of 2006. At this time we put the home up for sale. We had a buyer that signed a contract, to buy, but rented it until she could get financing. This person the was fired and backed out of the contract and move out of the united states. We place the home back on the market, but the town of 1200 people has had a drastic ecnomic decline and we can not find renters of anyone that can get financing for the home due to the fact that it is not on a perminate foundation. I am living in a home and the payment are always on time, I am looking at doing a deed in lieu of before the lender starts foreclosure proceedures. My wife and I have had a great payment history on the manufactured home but with little or no prospects to rent or sell we feel that we should give up the property. What kind of paperwork history should we compile to assist us in the event of possibly buying a new home in the future?
Posted on: 22nd Sep, 2006 02:02 pm
Hi,

If the lender allows, deed in lieu will be much better option than a foreclosure. But it will also affect your credit score, though not as much as a foreclosure.

Tim
Posted on: 22nd Sep, 2006 03:59 pm
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