Foreclosure FAQ

This lens will answer some of the most common questions that homeowners have about foreclosure effects on their financial lives.

Q: Can records of a foreclosure be removed from my credit report after the lender has taken back the property?
A: No, a foreclosure will stay on your credit report for 7 years. After that you will probably need to submit a written request to the three major credit reporting agencies that it be removed.

Q: Should I get a foreclosure loan?
A: Beware of "lenders" who contact you, offering help, especially if they require you to deed the property to them. Once the lender has the deed, he owns your property, and you have no more control over the situation than a tenant would.

For fast help, here is an excellent guide explaining steps you can take right now to avoid foreclosure: 6 Simple Steps

More Foreclosure FAQ s:

Q: What will be the foreclosure effects on my credit score? How much will it drop after a foreclosure is added?
A: Credit scores compute ALL the information in your credit report each time it is calculated. Changes in your ratio of debt to available credit, late payments, collection accounts, and when these things occurred are all considered. The most weight is given to what has taken place in the last twelve months, (factored a full 35%). If the foreclosure occurred earlier than that, it would have less impact on your credit score.

Q: If my loan was reinstated after foreclosure proceedings were started will it show negatively on my credit report?
A: Yes. In most states, foreclosure proceedings do not begin until you are a few of months behind in your payments. That will have a negative impact on your credit report.

Q: Is it possible to get my home back once it has been foreclosed on and sold?
A: That depends on the state. Check on your state's laws on "redemption period".

Q: What is a deed in-lieu-of foreclosure?
A: It is an agreement between the mortgagor (borrower) and the mortgagee (lender) to voluntarily deed the property to the lender to avoid a foreclosure action. It is sometimes referred to as a "voluntary foreclosure".

Q: When your home goes through foreclosure do you still have to pay off the loan?
A: Foreclosing (or forcing the sale) is a time consuming, expensive process. If the lender doesn't recover enough to repay all the legal costs, interest, fees, etc. (a deficiency) he may try to seize some of your other assets too.

With a deed in lieu of foreclosure you're saying "I agree to cooperate and hand over the property now, as payment in full for my debt". In this scenario the lender agrees not to force the sale of other assets.

Q: When does the lender start foreclosure proceedings?
A: This depends upon the specifics of the contract, the mortgage, or promissory note and deed of trust that you signed at the time of closing.

Generally, once an account is 150 to 180 days past due, that is when action begins. In trust deed states with power of sale, the process happens much more quickly.

Q: What will the foreclosure effects be on my ability to buy another home?
A: The foreclosure will appear on your credit report for 7 years. However, some lenders will approve you for a home loan sooner than that.

Q: Which is better for your credit- a short sale or a voluntary foreclosure (deed in lieu of)?
A: Voluntary foreclosure might be better because it only involves 1 hit on your credit report instead of having to go 180 days past due.

Q: How do I know that my home is in foreclosure?
A: Your lender will notify you that foreclosure proceedings have been filed. All states have very strict laws on how notice of foreclosure is given.

Q: Will a foreclosure appear on my credit report when the lender initiates the process or after the foreclosure sale?
A: Foreclosure notations may show up twice on your credit report, in different areas, both when proceedings have begun and after the foreclosure has been completed.

Q: If I have been served a foreclosure notice and it has been published for a Sheriff sale can I stop the sale from happening by filing bankruptcy?
A: A Chapter 7 bankruptcy will usually only delay a sheriff sale (but that may give you time to refinance the property and buy it out of foreclosure). Chapter 13 can stop the sheriff sale permanently without having to refinance as long as you structure the Chapter 13 Plan to cure the delinquency on the mortgage. In most states, though, the Chapter 13 must be filed BEFORE the sheriff sale or the house will be lost.

Q: How long can I remain in my home after foreclosure proceedings have begun?
A: It depends upon the laws of your state. Most states allow 30 days after the foreclosure is final. For specific information, contact the clerk of the circuit court in the county where your home is located. In California, the new owner could serve you with a 3-Day Notice to Quit at any time after the foreclosure sale.

Q: Comparing foreclosure vs bankruptcy, which is worse for my credit?
A: Bankruptcy and foreclosure will both have a major impact on your credit standing. You should consult with a knowledgable attorney regarding all the implications before proceeding with either action.

Bankruptcy has a 10-year statute of limitation. It should clear away all outstanding debts and may (in some states) preserve important assets, including your home.

Foreclosure has a 7 year statute of limitation. Having a foreclosure on the record, you would find it extremely difficult to get mortgage financing for much of that 7 year period. To a mortgage lender, a recent foreclosure is the most negative indicator of risk when evaluating you as a potential borrower for a home loan.

Q: Does having private mortgage insurance change the foreclosure proceedings?
A: Private mortgage insurance, commonly known as PMI, protects the lender in case of a loan default and there is a deficiency. That deficiency would be paid by the insurance company. It does not have an effect on the foreclosure proceeding, but only on your liability for a deficiency.

Q: If my home is up for foreclosure how do I get out of the foreclosure and keep my home?
A: If the foreclosure process has begun, you need to take immediate action! A reputable foreclosure prevention service generally offers a free consultation to help you to decide what options are the best for you. Some of these options include forebearance, loan modification, deed in lieu of foreclosure and of course bankruptcy.

Note: If it's just too late for you to avoid foreclosure, there's an excellent ebook that can help you get through it, called How To Survive Foreclosure, available for instant download.

While every effort has been made to provide accurate information in these foreclosure FAQs, the author is not an attorney, and there is no substitute for competent legal advice.

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