Home > Credit Score > A Foreclosure Is Killing My Credit, What Do I Do?

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Foreclosures can do a number on your credit report, even for years after they happened. With the Great Recession causing an upheaval in the housing market and many homeowners behind on payments, the aftermath of foreclosures is still a reality for many Americans today.

One reader wrote into us, asking for help with a foreclosure on her credit report:

My home has been foreclosed but the second mortgage is still showing an outstanding balance on my credit report — should that be?  How do I remove this?  I expect “foreclose” status to remain for 7 years but not the amount. Am I right?

When a bank or mortgage lender forecloses on a mortgage, the loan will typically be reported as a “foreclosure” or “foreclosed” in your credit report. However, just because the mortgage has been foreclosed doesn’t necessarily mean the outstanding balance is automatically wiped out. Typically, credit reports with a foreclosed mortgage will show the entire outstanding balance, so the way the first mortgage is being reported is actually accurate and can’t be removed until it reaches the 7-year expiration timeline.

Foreclosure & Deficiency Balances

Foreclosure laws vary by state but typically when a home goes into foreclosure the bank or mortgage lender will then attempt to sell the home to recover their losses. If the sale price of the home doesn’t cover the outstanding debt, the remaining amount may be considered a “deficiency” and depending on your state laws, the lender may legally be able to attempt to collect on the deficiency amount or they may report the deficiency as “income” to the IRS if the debt is forgiven. This means you could end up receiving a 1099 (showing that the forgiven deficiency as income) at the end of the year.

Foreclosure & Second Mortgages

A second mortgage is separate from the first mortgage and even though the first mortgage was foreclosed, the second is not automatically included in the first mortgage’s foreclosure. This means the second mortgage will continue to be reported and the outstanding balance will remain. The second mortgage will not show “foreclosed” because it’s a separate loan and not part of the original/first mortgage, unfortunately.

For more detailed information about foreclosures, second mortgages, deficiency balances and your rights, here are a few resources that will provide much more detail:

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  • Harman

    i had a foreclosure started on us in the middle of a mortgage company re-mod. After receiving notice that the Foreclosure was started, we had a cash buyer in 72 hours. I have all the docs from the cash sale and the statement from the county recorder. How can we have the “FS” comments removed from our credit report? We are looking at entering into home ownership January 2016, and we were told that after 3 years of making our last home payment (Dec. 2012) that we will qualify for being first time home owners, under the new government laws. Please advise. Thank You So Much

  • Nancy Jeter

    Hello. Need help please? I’m trying to decide if I should pay an attorney to get a foreclosure removed from my credit report. My house was foreclosed on by Bank of America in Las Vegas in 2011. They approved me for a home loan modification and at the exact same time, foreclosed on my house. I was unable to stop it and I’ve been told it was illegal. Because myself and a great number of Nevadans had the same experience, the Nevada State Attorney General’s office negotiated a settlement & I received a check for $1484 as part of the ‘National Mortgage Settlement’. I still have the papers signed by the Attorney General. Also, federal banking regulators and Bank of America in connection with an enforcement action related to deficient mortgage servicing and foreclosure processes did an ‘Independent Foreclosure Review’ & sent me a $300 check.

    I’ve struggled for 4 years because the foreclosure has affected my credit score drastically and I need to get a consolidation loan but either get turned down or offered APRs that are not feasible. I tried to dispute the Foreclosure with one of the credit bureaus and they said they checked with B of A and it was a valid. Should I pay an attorney to get the foreclosure removed? What are my options?

    • http://www.Credit.com/ Gerri Detweiler

      First, I recommend you dispute it with each bureau separately. The answer from the others may be different than the answer you received from one.

      Secondly , for any that remain you could try filing a complaint with the Consumer Financial Protection Bureau.

      And finally if that doesn’t work, talk with an attorney to find out what they would charge. You’ll have to decide whether it’s worth it, but if you end up paying a higher rate for a mortgage or other loans it could be money well spent. See our Lifetime Cost of Debt calculator

      • Nancy Jeter

        Thanks, Gerri. Interactions with credit bureaus are not very “user friendly” and I’ve been dreading it but it because the this is a complicated situation and you don’t actually speak live to a person. But I will follow your suggestions and appreciate the advice.

        • http://www.Credit.com/ Gerri Detweiler

          Understand. Keep good documentation of your disputes. In writing or online (with confirmation) is probably best.

  • Colleen Mitchell

    When my house was foreclosed I was 10 payments behind. It took three years of missing a payment here or there to get to that point. Well, actually we were only 9 payments behind. We had just made a payment (our payment and the foreclosure notice must have crossed in the mail!) and they sent it back saying that after a house is foreclosed they can not accept any payments on it! So when I pull up my credit report it says we were 39 months behind on our mortgage – not 10! My guess is they kept counting each payment as late until they sold the house as it sat for a while before they got around to selling it. My question is this – how can they say we were late on 39 payments when they sent my money back and told me they couldn’t accept my money???

    • http://www.Credit.com/ Gerri Detweiler

      I suspect what you suspect is probably correct. Once you fell behind, each payment after that was considered late since it was being applied to the previous payment. It sounds like you’re going to need to focus on rebuilding your credit.How to Rebuild Credit

      • Colleen Mitchell

        Already doing it thanks!

  • ScottSheldonLoans

    Hello Ray,

    You cannot discharge real property (real estate i.e. a house in any BK form) always ends up going to foreclosure. One caveat- if the value of the house was lower than the balance of the 1st, the 2nd could be stripped away much a like a consumer debt, but in your situation march 2013 is the foreclosure date due to the 1st. To get a new mortgage under your name -earmark march 2016 with FHA (3 YEARS post foreclosure). Perhaps another family member may be an option for you instead? Here’s an article that discusses this more in depthly http://blog.credit.com/2014/04/how-to-get-a-mortgage-when-youve-been-through-financial-hell-81821/

    Lenders look at the time lapse between each event in first in first out order.

  • http://www.Credit.com/ Gerri Detweiler

    Vanessa – I am so sorry to hear this. First of all, request a wage and income transcript on the IRS. It should provide more information. Then read this article on ways you may be able to avoid taxes on this debt. We have a series of articles on that topic in fact. we have a number or articles about this. 1099-C In the Mail? How to Avoid Taxes on Cancelled Debt

  • http://www.Credit.com/ Gerri Detweiler

    Denise – I wish we could help but you really need an attorney to help you figure out your rights and responsibilities here. If you can’t afford one, legal aid may be able to help.

    • Denise

      Thank you

  • http://www.Credit.com/ Gerri Detweiler

    If it is on all three reports, my suggestion is you start with the three credit reporting agencies. Get current copies of your free annual credit reports first to help expedite things. Then if the bureaus don’t fix it you can go to the creditor. At least that’s the way I would approach it if I were in your shoes!

  • http://www.Credit.com/ Gerri Detweiler

    No you shouldn’t have to pay someone to get it removed. File a complaint with the Consumer Financial Protection Bureau. Let us know what they say. My guess is it will be cleared up once they get involved.

  • http://www.Credit.com/ Gerri Detweiler

    I don’t know. Consider yourself lucky perhaps?

  • Lindsey

    I had SUCCESS in getting my 2nd Mortgage to show ZERO balance as of the date of the 1st Mortgage foreclosure in 2009. I live in California and there is a civil code that forbids the lender not only from going after you (suing) for the 2nd Mortgage that didn’t get paid off in the foreclosure, but ALSO forbids the lender from reporting the balance as a DEBT OWED! For years I thought I just had to ride out the recurring delinquency on the $48K balance until 7 years passed – but I did research, found California Code §580(b)
    and §580(e), wrote my lender (Chase), disputed with all 3 credit reporting agencies at the same time, and got a letter from Chase stating they are updating it to show ZERO balance as of 2009. I hope this information helps anyone in CA who still has a 2nd Mortgage reporting as an active delinquent account.

    • Berga

      Thanks for sharing. We just sent a letter off to Bank of America with the same information. I hope this works for us. Did you need to use legal counsel or just wrote the letter yourself?

  • http://www.Credit.com/ Gerri Detweiler

    The entry that says “foreclosure” will stay on your credit report for seven years from the date the foreclosure was recorded. The late payments prior to the foreclosure must come off seven years after you were late.

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  • Rob

    almost 4 years ago i was going through a divorce and we had to file bankruptcie and it included the house we had. since that day i got my credit score up to a 700. i just recently try to buy a house and was approved until they asked for info on the discharge and found that the date it was recorded by the state of maine wasnt until 2012. they said they had to go by this date and not the date of discharge. so because the lovely state i live in sucks at paper work i got screwed! the person i tryed to get my mortgage through said that it usually recorded 90 to 180 days after discharge, and of course the state is not helpful at all they just keep saying it is what it is. is there anything i can do?

    • Credit.com

      Rob — Who filed the paperwork on the discharge? I’d start there. If the information is being reported inaccurately, you should also dispute the error in your credit reports by filing a dispute at each one of the credit reporting agencies. By law, if the information is wrong they have to correct it under the Fair Credit Reporting Act. I’d also caution you to recheck the discharge date to confirm that dates you’re referring to. Most people confuse the statute of limitations on how long BKs can be reported and with Chapter 13s, the 7 year time clock doesn’t start with the filing date — It’s the discharge date that’s important. And for Chapter 13s, it usually takes three to five years to discharge — which would coincide with your reference to the BK filing “almost 4 years ago.”

      Hope this helps.

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