Dear Credit Care,
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I went through a foreclosure about a year ago. I pulled my credit reports a few weeks ago, and I'm a little curious as to how some of the information on my report will be viewed in the future by creditors. I missed my first mortgage payment in March 2010. In June, I was notified by my lender that my account had been sold to another lender. I never made a payment to the second lender. The second lender noted on my report that no payment was made and the loan was foreclosed upon.
My first question is, do these notices count as two negative marks on my credit? (I have maintained my credit card payments, student loan payments and utility payments -- never having been late and paying more than the full amount on the credit cards.) Or are they a single negative mark since the non payments were for the same loan, just two separate entities?
Secondly, if these items count as two separate negative marks, doI have any recourse in getting one of these removed?
The items on your credit report would be considered one negative activity by potential creditors. The items are similar to an initial loan and a collections account. Your original creditor likely charged off the loan after90 days without payment and then sold it to the second lender. The second creditor then reported the loan to the credit bureaus. Even though the items appear as two separate entries, potential lenders will know that both items are for the same loan.
Both items included on your credit report are accurate. Therefore,they cannot be removed until the reporting period ends -- typically, seven years from the first date of delinquency. The original loan is most likely being reported as 90 days late and then charged off or sold. The second item may be reported as nonpayment foreclosure, which is also accurate.
What you do not mention -- and what concerns me -- is whether or not the second lender will sue you to recover the deficiency amount owed on the loan after the foreclosure. The deficiency amount is the amount that the lender is unable to recoup after a foreclosure. Here's how it works: Say you owed $200,000 on your house that the bank foreclosed. Then say the bank turned around and sold the house at auction for $125,000. The deficiency amount would be $75,000 -- and you might be liable for that.
Many lenders forgive the deficiency amount and don't try to collect it. That's not the case with all lenders, however. Depending on the type of foreclosure proceeding and the state laws that apply, it could be that you won't have to worry about the lender seeking repayment of the deficiency balance. Still,I would recommend that you watch for any communication from the lender. And whatever you do, don't ignore any correspondence you might receive.
If the lender did forgive the deficiency amount, you should have been protected from paying taxes on the amount forgiven under the Mortgage Forgiveness Debt Relief Act. That's the case as long as the loan was solely home-related -- no cash out to pay credit card bills, etc. -- and the amount forgiven was less than $2 million, or $1 million if married and filing taxes separately. To qualify for forgiveness, you need to file a form 982 with your tax return. If you did not file the necessary forms with the IRS for your 2010 tax return, consult with a tax professional to determine what you should do. You can also visit IRS.gov's page on the MortgageForgiveness Debt Relief Act to learn more.
As long as you are adding positive information to your credit reports each month, such as your on-time and higher-than-minimum payments on your credit card accounts, the mortgage loan's negative items will have less of an impact on your credit as time goes by.
Handle your credit with care!
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