The Foreclosure and Credit Score Connection

Foreclosures can happen to the best of us and this is what lenders seem to be enjoying. A foreclosure is not the end of your world. You might have lost some property in the deal but don’t lose heart. You can always buy another. But you should know that credit scores are dependant on foreclosures. If a foreclosure happens then your credit score is going to plummet by a lot of points which ripples a score depreciation of a greater magnitude, if you were to follow the words of the co-chief of Bills.com (a major financial online hub) Mr. Andrew Housser. According to him a foreclosure might lower your credit points by 200-300 which will lower your score by 300 units. Now that figure’s a matter of concern. Without a FICO score of 340 you won’t be able to do much. It will set limits on your capacity to purchase a new property, or vehicle or even to get recruited. You will be denied loans on credit. You also cannot avail any insurance offers that are made to you. So, it becomes imperative for you to either prevent foreclosure or find out ways in which you can finance yourself without taking further loans.

Make yourself Immune to the Damaging Effects of Foreclosure with These Techniques:

• Be in the good books of the credit agencies

Here, take this advice from financial expert, Housser, who opines that the damaging currents of the foreclosure flood should not be allowed to permeate your other financial spheres. Keep the waves confined to its domain. Build a wall of good credit payment history around your other financial spheres and you’ll see that your credit score will again rise back almost to its normal stature in a couple of years. Generally with a foreclosure, you have a credit restriction for about 7 years. But if you have good credit profile in other areas, your FICO scores will again bounce back.

If you have a good credit history and foreclosure was a rare event, your lenders will be willing to give you another chance for a new mortgage after 5 years of the foreclosure. Take the words of Professor Alan M. White, Valparaiso University School of LAW, Indiana on this, whose opinion is reflected in the above lines. Pay up your credit dues well in time and you can be immune to the effect of foreclosure which is going to lose its grip on you with time. Always remember that you should always try to pay back the foreclosed amount. You should be able to pay up the normal mortgaged amount.

The best way for you would be to avoid foreclosure. Now, how can you do that?

• Bargain for time from the lender – Before you agree for mortgaging any of your property, talk out the terms for the loan with the lender. Recently, I suffered a huge business loss owing to recession and I had to mortgage my house. I talked out the terms with my lender. I told him that I might have to delay payments for a specific period of time owing to my financial crisis. He agreed. If you have a problem, its better to notify the lender, otherwise, he might get the wrong message that you are actually not having the money for repayment and he should attempt foreclosure. These days, one might be in financial problems due to a lot of reasons such as recession, unemployment, high medical bills, personal trauma etc. and lenders can be expected to be more empathetic towards your problems.
• Go for a mortgage forbearance agreement – Lenders are human after all. Even if they are not, law will ensure that they behave like humans. If you’re having a problem just ask the lender to go for a forbearance agreement with you, which will enable you to postpone or eliminate payments for a pre-agreed period of time. The lender should not touch your property till the given time, but he can think about foreclosure later. In the meantime, you should improve your financial status and start making payments.
• Loan modifications- If it suits your lender, there is no better clause for mortgage than this. This relaxes your loan repayment terms. You can either pay less or extend the loan period for a longer time. As this is an attractive feature of growing the money lending business, many lenders are using it as a tool to rope in more clients.
• The mortgage deed-in-lieu foreclosure – This is another good option. The lender can take possession of your property, but that will not help because you’ll be in bad credit history for about a decade. However, you’ll be given the facility of keeping your current account clear and if you maintain a good record, your credit score will hike up rapidly.
• Mortgage refinancing is another strategy that you can use to modify your mortgage payment to a lower interest/ lower monthly payment one. If you already have defaulted payments then this relaxation is not given. The interest rates remain high and monthly payments are lower. You can always use online rate comparison tools to know about which refinancing scheme is suitable for you and which company is offering it.
• Mortgage Short Sale Facility is one where you pay lesser than the actual amount you had agreed as a part of the mortgage deed owing to the depreciation in the property value. If this happens during foreclosure, the foreclosure and monthly payment details will show up in the credit report and you’ll still be barred for 10 years from taking any financial loans.
• Mortgage Chapter 13 Bankruptcy can be resorted to when you fail in negotiations with the lender and you have to move court for justifying your economic poverty. This allows you to continue with your mortgage payments after sometime. The arrearage can be paid as per the 13 bankruptcy norms.

You might be able to appreciate now that though we fear foreclosure, there are many ways to cope with it. There is no need to panic or misunderstand the entire process. If you can, always try to avoid foreclosure, otherwise use these strategies to deal with it.