Can we please get a "Sticky" for this question???

[Catia]

One question that I keep seeing over and over again, in every area of this forum is about how a foreclosure is listed on your credit report if you go through BK.
I myslef have seen so many different and conflicting answers to this very question, that I am requestion that we make a sticky that people can refer to for just this question.
Can someone who truly KNOWS state and sticky
"How a Foreclosure will appear on your credit report", and list different variations?
Such as how it is reported if the home is surrendered in BK?
And how a foreclosure is listed if you do not surrender home or reaffirm, debt is discharged, but you allow foreclosure???
and any other variations of this sort. I'm not the only one here confused! Help!

Rebuilding credit is a huge responsibility after BK and FC--So many conflicting answers is confusing. How are we supposed to know when to fight the credit reports and when not to? We really do need this info as a 1st step to understanding how to deal with it.
Thanks!

[poorme]

Sorry you're confused. If you've read the many posts on this topic, as seems you have, then you can appreciate that there's no one answer. The variations are a result of how the lender reports it, and the CRA's inabilities to get them straight. There probably won't be a standard way it will be seen by everyone. The best you can hope for is to get the mortgage loan/fc removed from your report - but most people are happy to see the mortgage listed with a zero balance, nothing past due, and the notation "included in BK". That, along with a discharged notation on your bk listing is about as good as it gets.

Surrendering doesn't do or add anything to the reported item.

Your question "And how a foreclosure is listed if you do not surrender home or reaffirm, debt is discharged, but you allow foreclosure???" doesn't make sense. You can't 'allow' or 'disallow' foreclosure. You're moving - one way or another, in this scenario, right? The disposal of the debt is the primary factor in all of this - the foreclosure sale and eventual surrender or move out are simply legal events that must unfold and have nothing to do with your cr. report.

[HHM]

When you walk away from a home, regardless if you do so within a BK, foreclosure is a reality and will be reported on your credit report. Also, since foreclosure is public record, it is very hard to get it removed from your credit report because it can be so easily verified.

In these threads, when we discuss how foreclosure and BK are "viewed" by lenders, we are talking about the "subjective" evaluation a lender will do when analyzing your credit report. Generally speaking, if a foreclosure occurs within a 4-6 month time frame of a BK, lenders realize that the BK and foreclosure happened concurrently.

Also, many people over-emphasize "rebuilding credit" and by doing so, end up skewing their decision making. Credit gets rebuilt with TIME.

I need to come up with some catchy phrase or word for this condition, the condition is a type of denial or paralysis. I can't tell you how many people I have seen that use the "rebuilding of credit" as an excuse to put off the inevitable (i.e. filing BK, house being foreclosed, etc).

In the end, foreclosure is how banks/lenders legally reacquire title to real estate, so foreclosure is going to happen whether you surrender in BK, or simply let the bank foreclose. What BK does for you is you get the balance wiped to zero (which is good), and you get a notation that the account was included in BK (IIB), which is better than having a lingering deficiency, or delinquincy entry, and shows that the foreclosure and BK happened concurrently.

[BKcrazy]

That was an excellent explanation. (I already knew this anyway) I think that should sort out the issue for a lot of people. The media is really good at putting a spin on this, and it really confuses some people.

[Catia]

Yes, there is some 'weird paralysis' that goes on when trying to figure this out, and people do (i myself included) get their decision making skrewed up.
There are so many fine details, and no set way that lenders are required to report.
Here is where I see confusion:
I have seen many people here discuss whether or not it is better to include their home in BK and allow forclosure by surrendering the home, so that BK and FC are viewed as "1 event"--this is the most confusing to me, because there is no 'real' way for it to be 1 event--foreclosure is a process the lender takes to regain posession of their collateral, a seperate process from BK. What could be misconstrued as 1 event is that the possible deficiency would be discharged in the BK, but that the FC still needs to occur as it's own event.
To make it more confusing is the possibility of lender accepting "deed in leiu of FC"...
and others who include their home in BK but continue to make payments, without affirmation agreement, then decide to stop pymts later and fo into foreclosure.
Not sure if I am tying this clearly, as I am confused myself...clarity is definately needed.

[HHM]

I suppose I should add, there is Deed in Lieu of Foreclosure, which is where the bank simply allows you to sign over the deed to the bank to avoid the hassle and expense of doing a foreclosure, but even with the Real Estate market was good, banks rarely did these, in today's market with all the upside down loans, DIL's are nearly impossible.

Also, DIL is still listed on your credit report and is a negative.

Finally, the bank has to accept the DIL, you cannot force the bank to do a DIL. So for all practical purposes, if you are behind on payments, or otherwise are going to surrender your home, a foreclosure will occur.

[HHM]

Keep in mind, a deficiency balance exists when there is negative equity, the deficiency is "liquidated" at the time of foreclosure, but the actual balance exists when the fair market value of the real estate falls below the amount owed. Thus, I think you are over-thinking the timing issue with FC and deficiency.

Here is about as simple an answer I can give you.

If you file BK, regardless if you reaffirm, foreclose, surrender etc, the Account entry on the mortgage will be IIB (included in BK). If the home is foreclosed or otherwise surrendered, the balance on the Account entry should be zero. (There is some debate about how a balance should be reported on a reaffirmed or non-reaffirmed account when the debtor continues to make payments (but since that is not your situation, we don't need to get into that).

And to be quite honest with you, these details are NOT going to make a lick of difference on your credit report after BK. Generally speaking, no one will want to touch you for 1-2 years for a home loan after BK, or foreclosure. Ultimately, time heals your credit.

It seems that you can no longer afford your house, and you cannot put off taking action, the house will be foreclosed eventually, and odds are, you will probably end up filing BK one way or the other. If the foreclosure is complete and a deficiency judgment entered, you will probably file BK at that point. Or you can get the ball rolling, file BK now and surrender the house. In both cases, the deficiency is wiped out, it really does not matter when you file.

[CindyLou]

hmmmm...I think if BK if filed and discharged and the house if not reafirmd then the lender can not go back and put anything else on the report except the BK.....same thing with a car. If you do a ride through on either they are both noted as IIB and that's it.

Am I totally crazy?

[woohoogirl]

Not to hijack this thread, but now I have a question this regard to this...if I don't reaffirm my house and ride through, in roughly 2 years after getting my credit life back in line, I go to purchase another house and let the bank have this one (depending on equity and market and all that jazz). What do you say to the new lender when asked if you rent or own or if you are selling your property...I'm really confused about this.

[HHM]

If you have a mortgage, you own...if you have a lease, you rent.

The failure to reaffirm does not affect any issues of legal title.

[woohoogirl]

I understand that...I was asking about getting the new mortgage. If I remember correctly, 2 years post BK a person could get a FHA loan, but it was more like 3 years with a foreclosure. What I am asking is if I walk away in 2 years or so, how will that appear to the new lender? I realize that's a foreclosure, but that would occur after the fact, but I'm trying to understand what options are out there. Sorry I am sounding confusing but I am confused!

[HHM]

Why would you walk away?

But, if you walk away 2 years after BK, that is Bad; no if, ands, or buts, about it. It would be a foreclosure, and since it is 2 years past BK, that foreclosure would reset the clock on your ability to get home financing.

If it is really your plan to walk away from you home in two years, do it now as part of your BK.

[woohoogirl]

The reason I would leave my home, is that is it has 3 floors. If my health goes the way it has been, I might be in a wheelchair in the near future. I'm not upside down on my house right now I'm at break even. So it would be in my best interest to sell it so I don't have a foreclosure when and if I need to...is that right?

[HHM]

Assuming you are not upside down (thus requiring a short sale); yes, you are MUCH better off to sell it.

[woohoogirl]

Thank you. I needed help to get my mind wrapped around the logic. As always, you are very helpful.