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How foreclosure affects your credit score

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 24th May, 2006 07:15am
When you fail to pay back the mortgage and you're not offered a workout plan to continue payments, chances are that the property may be foreclosed. Foreclosure involves the lender taking away your property and selling it off at an auction in order to recover the unpaid mortgage debt.

However, if the market isn't good enough and the sale price comes out to be lower than the balance you owe, then you may have to pay the deficiency (difference between the sale price and what you owe).

How does foreclosure affect credit?


When it comes to foreclosure, most people are concerned about how foreclosure affects on credit rating. This is because until and unless one is able to rebuild credit after foreclosure, he will not be able to get credit/loans at better rates of interest. If the financial markets are not good enough, one may not even be approved for any type of credit or mortgage.

Moreover, if your credit isn't good, you won't be able to secure a job in case you're looking for a new one. Therefore, prior to a foreclosure, you should be aware of how foreclosure affects your credit score.

Foreclosure affects your credit score by 250 points. That is, if you have a credit score of 680, it will drop down to 430. So, it's better to avoid a foreclosure and request the lender for a loss mitigation plan so that you're able to keep the home or if at all you can't keep the home, then at least see that your credit doesn't get a big hit.

Foreclosure: How long will it affect credit?


Like any other negative item, a foreclosure stays on your credit report for 7 years. However, foreclosure affects your credit score predominantly for the first 2 years. But, once you start rebuilding your credit, it gets better with time, though it'll take almost 2-4 years to get a mortgage after foreclosure, that too at comparatively better rates of interest.

How can you repair credit after foreclosure?


Here are 3 tips to help you repair credit after foreclosure.
  • Prepare a budget: Look at the way you spend your money. Plan a budget and try to follow it. Understand why your home was foreclosed. If there's anything that you could have avoided, try to fix it now. Track if you are spending extra and adjust your budget accordingly. Use the Simple Budgeting tool and prepare a well-planned budget.


  • Pay your bills on time: Keep paying your bills and debts in time and make sure your creditors report them to the credit bureaus. If required, take help of a credit counselor or avail debt management plan in order to reduce your debt burden. This is because high debt load will affect your credit score and bring it down. Don't ignore small expenses as otherwise they can be sent for collections.


  • Get a credit card: You can apply for credit cards and use it to make small purchases. But pay off the balance in full every month. This will reflect that you can manage credit responsibly thereby borrowing only what you can afford and paying it back in time. However, go for a credit card only if you have adjusted your expenses.
Even if foreclosure affects on credit rating, you can manage your finances wisely and rebuild credit after foreclosure. All you need is to stick to your budget, make debt payments in time and avoid overspending.
Posted on: 24th May, 2006 07:15 am
If you were quit claimed on to a property and are not on the loan. If the property get foreclosed on will this effect your credit? Will a forecoseure show up on your credit report? And how do you find out if the other person on the title who does carry the loan has missed payments and may be near a default?
Julie,

Since you are not on the loan, therefore the foreclosure won't affect your credit.
Posted on: 21st Oct, 2007 03:58 am
Welcome Ejk.

I think you should have a talk with the seller, the lender who was present in the sale and the one who will be foreclosing the property on account of the first lien. As it is, you won't be able to avoid the forthcoming sale. But this seems to be a kind of fraud. Didn't the seller or the lender inform you about the first lien? Then you could have avoided the purchase of such a property.

The best thing that you can do at the moment is to contact the lender who's going to foreclose the property. You are not responsible to pay off the loan but suppose if the lender asks you for the deficiency amount in case, he doesn't get the sale price as much as it isenough to cover the loan balance, then what do you do. So, it's best to consult him right now. Ideally the sale shouldn't affect your credit but you will lose the home definitely.

Thanks.
Posted on: 21st Oct, 2007 04:13 am
i bought my house in 2005, not understanding what jumbo loan is. it has now been two years, and my mortgage rate has increased under this jumbo loan with adjustable rates. after 6 months it increased again. on jan 2008 my new rate will kick in and i no longer can afford the pay. i have never been late with my payments, i have never skipped a payment. I tried to refinanced but i have been turned down 4 times bec. my property does not have equity, and on top of that it is appraised below market price. now i am thinking of applying for a DIL. are there any fees involved? how long can i stay in my property while the process has not been finalized? i hate to lose my house but i'd rather give it up before i am literally kicked out. pls help with answers. thanks, girlie
Posted on: 23rd Nov, 2007 02:58 am
Hello Girlie,

If you are unable to make payments due to the reset of an adjustable rate mortgage, you may try for a refinance with an FHA Secure loan. I think you may talk to your lender about this option.

You may do a deed in lieu if your lender agrees to accept that but you will lose your home.
Posted on: 23rd Nov, 2007 04:37 am
hi girlie,

welcome to this forum.

i would suggest you to talk with your lender asap. see if he can provide some options. if no options are available you should ask him for deed in lieu of foreclosure rather than foreclosure. dil will hurt your credit less. law varies from state to state.

but you may stay almost 130 days even after dil procedure.

thanks,
larry
Posted on: 23rd Nov, 2007 05:40 am
we have a land contract on our house, and the land contract holder is to pay the property taxes as they are included in our payment to be put in escrow to pay the property taxes. i just recieved a delquient tax notice and contacted the land contract holder to see if in fact it was a mistake and they were actually paid. she said " i wish i could say they were paid , but there not." the deliquient amount owning is $3100.00, with an additional current amount due of $3100.00 for a total of $6200.00. our land contract was for 18 months with a balloon balance to be due or financed at the end of the 18 months. the balloon is coming due next month and we have never been in default on any the terms on our behalf. my question is, what are my options in getting out of this property? being that they are in default for not paying the property taxes, can we quit claim deed the property back to them? the property is valued at $160,000.00 we put $5000.00 down with a balance on the land contract ballloon of $150,000.00 due next month, and i believe the land contract holders have a lein on the property through bank financing in the amount of $60,000.00. what to do?
Posted on: 08th Feb, 2008 06:33 pm
Hi Jenni,

Welcome to our community forums.

Since you have been making payments into your escrow account on a monthly basis, don't you have the receipts of such payments? In that case, you can show these to the contract holder and confront her. This is because if you have been paying for the escrow, why would the taxes be delinquent.

Moreover, are you ready with the balloon payment? If so, then why do you wish to leave the property for the delinquent taxes? If it is really delinquent, you can request for some time and then gather the funds to pay off taxes.

"can we quit claim deed the property back to them?"
It won't make sense if you quitclaim back because as it is you will be responsible for the payments as per the contract. And, the contract holder would not like to take it back also if he doesn't get the money. Moreover, a quitclaim doesn't transfer a loan.

Regards,

Jessica
Posted on: 08th Feb, 2008 09:42 pm
im in a partnership with a guy and we have invested in a property which is being foreclosed as this guy is unable to keep with the payments he might be filing for bankruptcy how do i find out if he has filed for one
Posted on: 19th Feb, 2008 08:48 am
The mortgage is in my name ONLY. My neice lived in the house and is on the deed with me. She was making the monthly mortgage payments for two years then decided to move out. I am now making mortgage payments on my own house and the one she left vacant trying to keep my credit together. I want to sell the house and she will not cooperate. What are my rights? (I put the 15 year mortgage in my name because she couldn't get a mortgage )She Promised she would pay and stay! S0 if I forclose what will the effect be on my OWN HOUSE, not even to mention my credit.
Posted on: 20th Feb, 2008 07:34 pm
Hi guest,

Welcome to forums.

If the bankruptcy is a federal case, then going to the state courthouse to retrieve the bankruptcy records will not be worth it. So, what you can do is, go to the website pacer.uscourts.gov and create an account there. Then login and search for the record with the party/case name. It may cost a few cents per page but it is comparatively much lower than the costs charged by courts to give you photocopies of the case records.

For bankruptcy case which is filed at the state court, one can call up the court at its VCIS number. This number allows you to call the bankruptcy court's computer system through a touch tone telephone and hear about the case read out by a computer synthesized voice.

The case information includes:
  • Case Number
  • Names of bankruptcy filers/debtors
  • Case filing date
  • Chapter filed
  • Name of debtor's attorney
  • Name of trustee
  • Name of judge
  • Status of the case
  • Discharge and closed dates
  • Any assets involved
  • Contact number of debtor's attorney
Refer to the US courts Pacer Service Center for the state-wise VCIS numbers.

Thanks
Posted on: 20th Feb, 2008 11:01 pm
Hi Liz,

Welcome to our community forums.

If you let the niece's house go into foreclosure, you will end up having a bad credit due to the foreclosure. Since your niece is not willing to co-operate with you, I shall suggest that you file a partition lawsuit to bring about a forced sale of the home. The mortgage can then be paid off using the proceeds.

Now, what's the condition of the home sales market in the area where the house is located? Are houses selling at a reasonable price? You may take help of a real estate agent to sell our property. And, for filing the Partition Lawsuit, you should contact a real estate attorney to guide you in this regard.

Know more about Partition Lawsuit from a previous discussion on this topic.

Regards,

Jessica.
Posted on: 20th Feb, 2008 11:14 pm
I quick claimed my house to a relative who was supposed to make payments on time. He is now a month behind. Can I sell the house without his permission?
Posted on: 04th Mar, 2008 11:09 am
whoever is on title can sell the house only.
Posted on: 04th Mar, 2008 01:48 pm
I agree with you banker, whoever has his name on the property-title can only sell the property even if the other co-owners don't agree and this can be done by filing Partition Lawsuit.

Now, here Clementine has already quitclaimed any share that he may have in the property. So, he is no longer on the title and hence he cannot sell it.

Clementine, if the relative isn't paying request him/her to talk to the lender about alternative options. Does the lender know about the quitclaim?

Regards,

Jessica
Posted on: 05th Mar, 2008 01:29 am
Sorry this has happened to both of you, you just try to help someone out and get the bad end of things, it just shows that people don't take ownership or responsibility, sad, hope they don't need your help again huh. Hope this all works out for both of you and that you can sell the homes and recover you money and keep your credit in tact. goodluck.
Posted on: 12th Mar, 2008 05:55 pm
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