This is a question I receive a lot from people. Please understand these are generalities. Everyone’s credit will be affected differently depending on other factors. I’m also not a credit expert or credit repair expert. However, I’ve done enough of these to know generally what happens.
When helping a homeowner I’d like to be able to intelligently explain the effects of all these options below. What effect does the following options have on ones credit report? Are there any other things a homeowner should be concerned about when considering these methods to avoid foreclosure?
– short sale
– forbearance
– loan modification
– mortgage refinancing
– deed in lieu of foreclosure
– foreclosure
– bankruptcy
Answer:
Any option is better then just letting the property go to foreclosure, however, you must understand that no matter what happens, the homeowners credit has already been hit because of late payments.
All of the options listed above generally don’t occur unless the homeowner has been late on payments except for maybe mortgage refinancing. That you can still do without being late.
A credit score will be affected based on how many late payments are missed. If only one is missed, credit score is affected just a bit. As more late payments occur, credit score will be affected more.
A lot of times, if homeowners are not making mortgage payments, they may not be making other payments as well, which also affects their score.
A mortgage refinance generally needs be done early in the process because they look at your credit score more than anything. So if the homeowner can do a mortgage refinance, this will not have any impact on their credit as long as they are current.
A forbearance usually happens sometime after a payment or two is missed. The lender will agree to add on what was missed to the back of the loan. So credit is affected slightly, but should recover soon.
Loan modification, again, homeowner has probably missed some payments, needs some help and the lender agrees to lower the interest rate and modify the terms to help the borrower. Credit is affected because of missed payments. Again not a huge credit concern.
Deed in Lieu, the homeowner basically walks away, gives the house back. Credit will be affected a little bit more but should recover with time and as long as they are current on other obligations. It may show up on credit report as a settlement.
A short sale is another type of settlement. Both parties agree on a certain price which settles the debt. Depending on how it’s settled, credit is usually affected for a year or two.
Foreclosure is not a good option. Neither party gets what they want and the effects on credit can be 3-7 years. Try to avoid this as much as possible.
Bankruptcy is the worst. This will stay on their credit for 7-10 years and make it very difficult to have borrowing power for some time. It will be a derogatory mark against them for a long time. Try to avoid this as much as possible.
In late 2011 PNC foreclosed my home in Michigan and took it, leaving a $250K Citibank HELOC without resolution. Citi sent the debt to 2 different collection agencies but they both apparently gave up when I asked, by letter, for the signed promissory note.
Three years later, Citi continues to report the debt as charged off or as bad debt / placed for collection, depending on the bureau. In all three bureaus the account shows as closed, but with that big $250K balance and, mainly, with monthly reports of KD – Key Derogatory status.
Other than impossibly paying it off, what should I do to get rid of this debt and its stain in my credit report?
Note: I now live in California.
Thanks!
Sounds like you just need to settle with them or they may file judgment against you which could eventually lead to BK. Offer them 5% of the loan amount as full payment and see if they will cooperate. My guess is that they will because more than likely this is more than they will get otherwise.
Had home foreclosed in 2009 but had home equity of 11,000 that didn’t get paid.
Home equity has been hitting my credit report since 2009 showing late.
I’m trying to purchase new home but they say I can’t until I get Shellpoint (company that bought debt) to stop reporting it as late. How can I do this and is there a lsw that I can call them and state I don’t dispute the debt but demand they stop posting late on my credit each month? Must resolve this issue. I live in Tennessee.
Thanks
There is a statute of limitations where they are required to force some legal action against you or simply write it off. You’ll have to look and see what that is for your state. After that time is gone, they shouldn’t be able to report it as late anymore. You would then want to talk to a credit repair agency to get that taken off.
My question is more credit related. And a bit complicated!
About two years ago I filed Chap 7 BK. Not much personal debt but owned a business and was personally liable for many leases, etc..
At the time I filed and discharged. I also had several rental properties. None of which were reaffirmed but tenants staid and rent was paid. One particular property in poor condition where the tenant moved out I have not made the payments and it is set for Sherriff sale in 2 weeks. I’ve attempted a short sale but the bank is unrealistic regarding the value of the house. So foreclosure seems looming.
The lender has no reaffirmation on file. I’ve checked all 3 credit bureau adn they show the debt written off w BK and no late payments.
I have 2 questions:
Why would I attempt to keep this out of foreclosure if the debt was not reaffirmed and they are not reporting to the credit bureas?
And on your credit rating, there’s a section for public filings. Would the foreclosure show up there and still damage my credit?
You guys are the best! Thanks for helping out!
If this particular property was not mentioned in the bk, then it probably just hasn’t shown up yet on your credit report as being late. If it does go through the foreclosure process, and you are responsible for the loan, it will show up on your credit report and it will damage your credit. So yes, anything to keep it out of foreclosure is wise.