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How differrent Foreclosure issues affect your Credit

June 26, 2007

We speak to thousands of clients each week... all of them have similar questions about how foreclosure can affect your credit scores. We have done some research and have this to report to you:

If you allow your home to be foreclosed or if you sign a Deed-in-Lieu of Foreclosure:
Both of these solutions affect credit the same. Home owners will take a hit of about 250 points on their FICO score. This means if a their FICO score before foreclosure was 680, it could dip as low as 430. A home owner who wants to buy another home after foreclosure will end up waiting about 24 months before a lender will offer any kind of interest rate that makes sense. During that time you must have a near perfect credit.

If you choose to do a Short Sale on your home:
The affect of a short sale on a home owner's credit report is much less damaging. The negative on credit may show up as a pre-foreclosure in redemption status, which will result in a loss of around 80 points from the FICO score. It can also simply show up as the loan was paid off and not affect your score at all. This means a short sale with a previous FICO of 680 could possibly see it fall to around 600 or it could remain the same.

Deficiency Judgments:
The bad news is a home owner could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. Many states have laws regarding personal guarantees, which could also result in a deficiency judgment if the home owner is personally liable for loan repayment.
The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. Our experience has been even if a Deficiency Judgment is allowed it almost never pursued by the Mortgage Company.

If a home owner is trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging your credit is the main advantage to doing a short sale.

These are only a few items relating to credit and Foreclosure we could find. The results from our clients have been similar but each case is unique.

Please contact us or leave a comment if you would like some more information on this topic.

Posted By Darin at 01:54 PM
Comments (34) | Categories: Deed In Lieu of Foreclosure, Short Sale, Credit | Tags: credit issues foreclosure fico

Comments

I'm currently subletting an application w/ the help of my agent to do short sale.My agent mention to me that in CALIFORNIA there is a law that you don't need to pay the deferences as long as your agent inform the lender from the very beginning of the process for short sale.Is this true?how this will affect on my credit
report?how long it shows?It is shows as deficiency judgment or what?

Posted By angele on July 21, 2007 at 04:10 PM

if your on title of the home but not on the mortgage does the the foreclosure on the home affect your credit and the possibility of purchasing another home

Posted By herman on August 13, 2007 at 05:02 PM

can they go after my other assets

thanks

Fred

Posted By Fred on August 21, 2007 at 02:56 PM

I divorced my ex-husband 4 years ago. The home was granted to me by the judge. I felt sorry for my ex and my other son so I sold him the home. We have this in writing. Now, I has been so far behind in payments that are suppose to foreclose, and I just found out Thursday. Will this still affect my credit, if I show documentation?

Posted By sonya on August 25, 2007 at 09:28 AM

I may be going through foreclosure in the next month I am divorcing and cannot pay the payment myself and neither will my ex. How long can I stay in the house after payments have been missed? Am I liable for property taxes? I pay extra monthly in my mortgage payment for them.

Posted By Heather on September 23, 2007 at 04:47 PM

Please let me know how does short sale work. If it's being short sale, how do the difference get paid off? Please reply ASAP because I can't afford my property tax any longer (10,000 a year).

Posted By How does short sale work? on October 18, 2007 at 12:38 AM

I am talked to my mortgage company about a Deed-in-Lieu of Foreclosure, but they said that they do not negotiate that. Are some company policies like that, or are they just trying to sway me into foreclosure? Also, their representative told me that if I let my mortgage go into foreclosure, they will pursue a deficiency judgment. Are they trying to scare me into making payments? I told them that I can't afford to make my mortgage payments anymore already.

Posted By Ben on October 18, 2007 at 07:32 PM

We relocated to another state and have been keeping our ARM mortgage current. The ARM is resetting. We had house on market for 6 months and it didn't sell. Our mortgage company says they will allow us to short sale. How will that affect our credit? How low can we short sale? How do we get started?

Posted By Redmond Davis on October 28, 2007 at 04:03 PM

We were sold a home in 2000 and just discovered a damaged wall (by removing an existing paneled wall) to the tune of over $76K to repair. WE were told by engineers and contractors to leave the premises. We purchased another home and tried to work with the lender and the VA to accept a deed-in-lieu. They would not. It was appraised at $25,000 and we cannot do a short sale. We cannot afford the payments on both homes and it is now going into foreclosure. How will this affect our credit? Will a letter to our credit card companies help? We have excellent credit and are sick about this. We have an attorney who is filing a law suit to the previous owners who have moved out of our state.
Thank you.

Posted By Wanda Crawford on December 06, 2007 at 09:18 AM

Why NOT let your house foreclose? If you stop paying on your mortgage, you'll have $1000+ extra a month to save. It takes 6-8 months for the foreclosure to finally hit the courts (8 more months of free living), and then after a default hearing, you'll have another 4-5 months before the Sheriff Sale. Thats a year a free living in a great house. All you have to do is pay the utilities.
Then, when your house finally does go up for auction, no one will buy it because there's thousands of homes up for auction and credit is tight. So... you can live for FREE in a mansion in Ohio... and only worry about the utilities. With the way things are, it is quite possible you can spend another 4-5 years in the house FOR FREE. Who knows, you could live for FREE forever. Ohio lets you live undisturbed, in a FORECLOSED house UNTIL the day it is sold. If it doesn't sell, you LIVE FOR FREE forever. In this case, it PAYS if you do NOT spend anything on upkeep. That way, you lessen the chances of anyone buying the house and make certain you'll live for FREE in your MANSION. What a great STATE. By the time 7 years rolls around, your credit is GOOD AS NEW. What a joke!

Posted By Art on January 10, 2008 at 11:39 AM

OHIO - the land of FREE mansions? Well, I checked into it. It's true.

Get a millionaire dollar home, in Ohio, refuse to pay on even a single mortgage payment or on your loan, and you can live for FREE - forever. The law prevents eviction. It even prevents prospective buyers from coming in to look around if they're interested in buying. So, I'm thinking, I might do this now too. Stupid banks are GIVING away houses this way. YEAH!!!

Posted By Jim on January 10, 2008 at 11:42 AM

Is this true in MN also? I live in a modest home that is about to be sold on auction with 6 month redemption. Have been trying to sell it for about 4 years. I have a second mortgage too so my selling price is higher now than it would be after the first mortgage owns all of it. I have no money to buy another house in the meantime and want to stay here as long as possible.

Posted By Richard on January 11, 2008 at 07:04 PM

I can't make any more payments on my property. It has devalued 100,000. It makes no sense trying to hold onto it. I own another property in the same county. The house I can't make anymore payments to is my rental. If I foreclose on this property how long will my credit be affected? and how many points will the foreclosure affect my score of 780 right now?
Also, I have a second on this property which we can no longer make payments as well. My wife lost her job and she has health issues?

Thanks for your response

Posted By jimmy on February 29, 2008 at 10:57 AM

If a house sells before the end of the 6 month foreclosed redemption period, what happens if the selling price isn't enough to cover the 2nd mortgage?

Posted By Rick on March 28, 2008 at 03:23 PM

I bought a home 2 years ago that I don't live in because of relocation. The home is worth 25,000 less than purchase price and we bought it with an 80/20 loan. Does having 2 loans affect foreclosure? Is it really better for us to keep making payments when the home hasn't sold and doesn't look like it's going to? I have a 800 credit score, how long will it take to recover?

Posted By Maranda on April 09, 2008 at 03:28 PM

I have been foreclosed on by Countrywide I tried to do the deed in lieu of foreclosure and they were not willing to accept because if they made a profit on my home they would have to give me the profit if I filed bankruptcy. The house has been empty for 2 years and was on the market for a year in a half. I paid as many payments as I could and then I called them and let them know my situation. I live in VT what is the statue of limitations that they have to file a deficiency judgment and do they normally do it?

Posted By Just want to know on April 14, 2008 at 04:59 PM

can they go after my other assets, like cars i own?

Posted By Fred on April 17, 2008 at 10:05 AM

if you are on title of the home but not on the mortgage does the the foreclosure on the home affect your credit

Posted By judy on June 25, 2008 at 12:10 PM

I live in a house I bought with my husband. I bought another house in another county that is rented and has an equity line on it. I bought it at the height of the market and now, I pay interest only and the mortgage is way higher than the house is worth. Should I let it foreclose? If so, how does the equity line get taken care of? What about overdue property taxes?

Posted By katy on July 07, 2008 at 12:21 PM

If my home is foreclosed on and all other accounts are current--will all other accounts be affected or cancelled??or will the interest rate be increased on all credit cards?

Posted By Helen Stone on August 02, 2008 at 09:25 PM

I have the same question posted above: if you are on title of the home but not on the mortgage does the the foreclosure on the home affect your credit

Posted By Tawny Fulleros on September 08, 2008 at 02:24 PM

I may have to foreclose on my townhome. I pay PMI and would like to know because the loan is insured and will be paid off by the insurance company will this affect my credit? I have a 780 fico.
Thank you

Posted By Lynne Pettinger on October 04, 2008 at 10:54 AM

My first and only house in Arizona has been on the market since March 2008. I have since relocated to Indiana and am considering foreclosing/deed in lieu, but don't know if I should. I've just barely been able to make each of my monthly payments, but money is tight, living from paycheck to paycheck. Any suggestions? Is it worth it to take a hit on my credit score, but live with more room financially?

Posted By Joshua Holland on December 28, 2008 at 04:11 PM

i have 2 mortgages with the same company.i live in one and the other is rental. because of bad economic situation i have no tenants in the rental and i struggled through 2008 the 2 mortgages. i am about to walk away from the rental property because i cant afford it anymore. what is the effect on my 2nd house and my credit. i have a credit score of 750 noe

Posted By cindy on January 01, 2009 at 03:12 PM

Where do I find the answers to the questions that people have regarding their possible foreclosures.

Posted By Lynne Pettinger on January 01, 2009 at 03:24 PM

My girlfriend and i have two children and live in MY house... her condo has been for sale for some time and it wil probably not ever sell for what she owes on it.. what effect will it have on her credit if she just lets it go in foreclosure.. And how long will it take for her credit to recover from a foreclosure???

Posted By Joel on January 07, 2009 at 01:47 PM

I made a big mistake by buying a condo at the Signature at the MGM Grand in Las Vegas this last year.
I thought that I was buying at the bottom of the market. While the rental income has continued to decline, the fees have continued to climb. The original $400/ month negative that I felt I could afford,has climbed to over $1300. While it is less than 1 year since I purchased this property, the value has plummeted by almost $150,000 as evidenced by the only offer I have received during a listing for sale period that has expired. I decided to take a loss and sell it but this offer mean that I would have to come up with $60,000. This does not include the over $100,000 I spent to purchase this property, again less than a year ago.
I am retiring and cannot continue to pay the negative with no decline in sight.
My question is: My credit score is vitually perfect with a FICO of 850.
What will it cost me on my credit, if I let this propery go. Since I retired, I have not been able to get a loan on two other properties because of lack of income, even though they are paid off and I have such a high FICO score. If I can't get a loan, what good is my credit? It will cost me over $16,000 per year to keep the Vegas property, which I no longer can afford, to protect my perfect credit. What will happen if I let this property go, if everything else remains creditwise, perfect?

Posted By Trigg Schaefer on January 21, 2009 at 11:19 PM

My husband and I are going through a divorce. We both went with a realtor to short sell our condo. We have a buyer and both morgage companies have agreed to forgive the rest of the debt. Now my husband has decided not to sign the deed and go through with the short sale. I believe it is to completely ruin me. Now the condo will go into foreclosure next month. Is there anything I can do or sign to relinquish me of this condo?

Posted By Sandy on October 23, 2009 at 07:59 AM

my sister owns two homes and one may go into foreclosure....she has alzheimers and the money she has in savings should go for her care.....does foreclosure affect her current savings? Also should we pay it off at a loss, we owe 40% more than it is worth....can we declare a loss on taxes?

Posted By gerry on January 26, 2010 at 11:33 AM

I am facing a law suit by a company who took over my second morgage. Countrywide finaced my house with two loans at the same time. I could never occupie the house because of utility bills not paid by the privious owner, thus putting me in a strain. The house were sold by short sale for the first loan and the second loan was transfered to Old Republic Insurence Co.

The house is in the state of Michigan. Being retired and living from month to month, do I need to file for bankruptcy?

Posted By James E. Cohill on February 05, 2010 at 09:09 AM

I have a timeshare that is paid in full. We have not paid the back association fees and assessments and received a letter from a lawyer that unless we pay the back money and his attorney fees of $3,000 foreclosure will begin in March 2010. Can this affect our credit even if we don't have a mortgage? What are our options?

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