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Credit Repair After Foreclosure

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How Does Foreclosure Affect My Credit?

Foreclosure devastates credit–the only greater “derogatory” on a credit report is a bankruptcy. If you follow your FICO scores, you would tend to see a drop in the 120 to 150 point range. The amount of the drop will vary depending on the other items on your credit report. A person with good credit might fare quite well, while a person with average or low credit will likely find himself in the high 400s or low 500s–the “radioactive” zone.

However, a credit score is an estimate of one’s creditworthiness today, and so as derogatories (a major blemish on a credit report is called a derogatory in credit parlance) pass into the past, the effect of derogatories lessens. Your score will tend to rise over time.

So, before a foreclosure happens to you, you should do some pre-foreclosure credit planning–you may likely not have borrowing power in the two year period following your foreclosure. So, if you absolutely must borrow to buy a car in the next year or two, you’ll get a better rate before the foreclosure goes on your credit report. In fact, after a foreclosure, you might not be able to borrow for a car loan at all. Of course, good fiscal health dictates that one should never borrow to buy a car–but that’s another topic.

How To Improve Your Credit After Foreclosure

Foreclosure is a big hit to a credit report–don’t compound it by creating other derogatories. Keep everything else clean on your credit report. That means paying bills on time, and avoiding requests for new credit. A request for new credit creates an “inquiry” on your report, which lowers your score by a small amount. Make a slew of inquiries, and you might lower your score by 20 points or so. A foreclosure will show up in several places on a credit report. First, it might show under the “public information” section as a legal claim or lawsuit. Second, a foreclosure will appear as an entry for one or more accounts (your mortgage loan account is an “account” for credit reporting purposes).

In the account section, a foreclosure will appear as several months of “late pays”, appearing as 60, 90, or 120, which indicates the number of days late you were. Finally, the final event of foreclosure will report on the account as “RF” for “repo, foreclosure” or “CO”, for “charge-off”, meaning the bank charged off the loan without making further attempts to collect. What one commonly sees in an account leading up to foreclosure is the following: 30, 60, 90, 120, 120, 120, RF–and then the account goes dead. That sequence of entries tells a very clear picture of a borrower falling 30 days, then 60 days, then 90 days late, etc., then losing the home to foreclosure.

Your Right to Challenge Entries in Your Credit File

Credit reporting agencies are allowed by law to report your payment history on a credit report. You, however, have the right to challenge, and to have removed, derogatory information that is not accurate. Now, a short sale is not a foreclosure; similarly, a deed in lieu is not a foreclosure. As such, those foreclosure alternatives should not be reported as foreclosures. Similarly, the late pays must be reported accurately.

Now, there are credit repair agencies that can improve or remove derogatory entries, but they don’t really do anything that you can’t do yourself. You pay credit repairers for the convenience, and not because they are the only ones who can do it.

Credit can be repaired. Check out the forums at “Credit Info Center”–you can google that phrase. The forums will give you good guidance on how to improve or remove credit entries. The best inquiry dispute letter we could find anywere is here: Sample Credit Inquiry Dispute Letter, and the best letter to challenge incorrect derogatory information is this Sample Letter For Credit Repair | Credit Repair Sample Letter. When you challenge a derogatory with a credit reporting agency (Transunion, Equifax, or Experian), the agency must investigate or remove the item within 30 to 45 days.

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Legal Form | Credit Repair: Method of Verification Demand

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-This is a sample “MOV” or “method of verification” letter. It’s an advanced tool in a consumer’s credit repair arsenal. Before using it, you should read about Method of Verification.

Experian

701 Experian Parkway

Allen, TX 75013

RE: Fair Credit Reporting Act Request under § 611(a)(0)

To Whom It May Concern:

Time is of the essence with regard to this request. You have made an error in my credit reporting that is harming my ability to secure employment and credit. I have documented your errors, and I will continue to do so. I will avail myself of my rights under the Fair Credit Reporting Act if you continue to violate my rights.

This letter is a request under the Fair Credit Reporting Act §611(a)(7) following a request for investigation that I made under the section just previous in the FCRA, specifically §611(a)(6). I have received the results of my 611(a)(6) request, thank you for that. Please do not interpret this letter as a request for further investigation under 611(a)(6).

As you well know, the FCRA governs your handling of my personal information. And, my request today is my statutorily-granted right to learn the method and description of the reinvestigation procedure you utilized. Section 611(a)(7) states:

(7) Description of reinvestigation procedure
A consumer reporting agency shall provide to a consumer a description referred to in paragraph (6)(B)(iii) by not later than 15 days after receiving a request from the consumer for that description.

The specific entry for which I request a description of reinvestigation procedure is the following entry:

CountryWide Account No.: 5262****

You have already ignore a previous request for a description of the investigation procedure. In my original request for investigation, I state the following:

“Be advised that the description of the procedure used to determine the accuracy and completeness of the information is hereby requested as well, to be provided within 15 days of the completion of your reinvestigation.”

I received no response to my request.

I am sure that you can tell from this letter that I am familiar with my rights, and I am familiar with the Fair Credit Reporting Act. I am also familiar with my statutory right to damages if you conduct your stewardship of my personal information in a manner inconsistent with the clear dictates of the FCRA.

As such, I have already documented the errors you have made, and I will continue to do so. You must conduct your business not only in a manner that is convenient and economical for you–but also in a manner that comports with the FCRA. And, if you wish to farm out your responsibilities to CSC Credit Services, I will still expect that you meet the timelines imposed by the FCRA.

I look forward to receiving the description of the investigation procedure.

Yours truly,

Larry David

For the purposes of verification only, and not for correction, my personal information appears below: Larry David, 12/20/1984, 040-55-5555Current address: xxxxxxxxxxxxPrevious address: xxxxxxxxxxxx
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Method of Verification – Credit Repair Device

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At least one major credit repair website touts “Method of Verification” as a “secret credit repair tool.” Well, not exactly. Method of Verification, or “MOV,” refers to a statutory right that consumers enjoy to demand that a credit reporting agency (transunion, equifax, etc.) supply upon request the method of verification when a consumer asks that an entry on their credit report be reinvestigated. MOV is powerful, though, but as we’ll see, you’ll need to push pretty hard to get the CRAs to honor your request.

To truly understand MOV, lets take a step back. A consumer enjoys the right to demand that a credit reporting agency reinvestigate incorrect information that appears on the consumer’s credit report. We discussed this and supplied a tried-and-true sample letter for credit repair. This right, as well as a demand made pursuant to the right, is abreviated as a demand to “confirm or delete.”

CRAs, being corporations that must turn a profit, hardly raise a finger when a demand for confirmation or delation is made–the CRAs don’t really investigate, they use a computerized system called eOscar that “verifies” the credit report entry without true human intervention. Essentially, the CRAs do just enough not to be sued for failing to follow the statute.

Following a confirmation by a CRA, the consumer does enjoy a little-known right: the right to request the method of verification undertaken by the CRA. The right is found in the Fair Credit Reporting Act (FCRA) Section 611. It states “A consumer reporting agency shall provide to a consumer a description referred to in paragraph 6Biii [the section requiring reinvestigation] by not later than 15 days after receiving a request from the consumer for that description.”

Is it magic? Well, it would be if the CRAs made a common practice of complying with the law. Most times the CRAs simply deny that they have a responsibility to provide the method of verification. The statute is plenty clear, though, and it’s always a good idea to make the request. Certainly, you’d need to make the MOV request before suing for non-compliance with the FCRA.

For a sample form, visit our Sample Method of Verification Letter.

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What Happens After Foreclosure

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Foreclosure is the process by which a bank or lender takes possession of collateral used to secure a loan. Put another way, foreclosure happens to a homeowner when he or she doesn’t pay their mortgage.

Two Types of Foreclosure

There are two types of foreclosure: judicial foreclosure and trustee’s sale (non-judicial) foreclosure. Some states use one or the other, and some states use both (the lender can usually choose which manner of foreclosure in states that allow both). Judicial foreclosure is just like it sounds: it is a lawsuit by a bank against a lender to secure a judgment of foreclosure. This means paperwork, court proceedings, motions, orders, appraisals, and a formal auction. As such, judicial foreclosure is more expensive for a bank, and takes longer. For information on foreclosure specific to California, read California Foreclosure Law.

A trustee’s sale is a speedy procedure for a bank: The trustee names in the deed of trust (mortgage) simply needs to record a public notice of default to initiate a non-judicial foreclosure against the owner. No court intervention is required. If the owner doesn’t pay in a certain amount of time, the trustee can schedule a public sale of the property.

After a foreclosure, a deed is recorded in the county records showing the new owner as a purchaser of the property in the foreclosure action.

Eviction After Foreclosure – How Long Can I Stay in My Home?

Foreclosure terminates the right of a borrower to remain in possession of a property. However, that does not mean that a borrower must leave immediately upon foreclosure. A lender repossessing a property, or a buyer in a foreclosure, must still honor eviction laws following a purchase in foreclosure. What that means is that if and when a bank repossesses a home in which you were the borrower, and you are still living in the home, the bank cannot send the police, thugs, realtors, or anyone else to unilaterally kick you out–the new owner of the home must follow the legal procedures set forth in your state to evict you.
See the next article in the series: What Is a Deficiency Judgement in a Foreclosure | Debt After Foreclosure, and then Credit Repair After Foreclosure.

What that means in terms of time will differ from state to state, but at the very least–even if the new owner works terribly quickly–you might remain in possession for a few weeks; in practical terms a few months is more realistic. But, keep in mind that following a foreclosure, the clock is ticking fairly quickly, and the day of reckoning will come–you will eventually be evicted from your home. Most folks simply leave either before or upon foreclosure, but some unfortunate folks have nowhere to go, so they linger at the home, hoping to use the extra few weeks to get a foothold at a new job and save a few dollars for the next steps, which are never easy.

Keep in mind that when one remains in possession of a foreclosed house, you are essentially a “squatter”–and when you are sued for eviction (and you eventually will be if you don’t either leave or contact the new owner), you will also be sued for the rental value of the home in the post-foreclosure period. An eviction proceeding is a court case, with the filing of a complaint, service of the complaint, court dates, and ultimately a trial. Most jurisdictions have a speedy procedure, but it’ll still takes weeks or months. Letting such a case go all the way is hardly prudent though, but this reality gives you a good bargaining chip to get a reprieve of a few weeks.

A prudent approach might be to contact the new owner (they might actually contact you to find out if you intend to leave voluntarily) and ask for a few weeks before leaving. Most owners would agree to something reasonable rather than go to court to evict you. Keep in mind that an eviction proceeding is a separate legal proceeding from the foreclosure proceeding. It’ll be a different case, before a different judge (most likely), and might even be in a different court. It’ll also hurt your credit independently of the foreclosure, so tread lightly and communicate with the new owner.

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