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Remove Foreclosure From Credit Report

Remove Foreclosure From Credit Report

Foreclosures happen, and they’re a lot more common than most people realize. In 2020, there were 214,323 active foreclosure cases nationwide. Foreclosure is unpleasant both emotionally and financially, and most people would like to move on from it as soon as possible. The simple truth is that, usually, a foreclosure will fall off your credit report in seven years. Now, let’s look at if there’s anything you can do to make it happen faster.

What is a foreclosure?

A foreclosure is a legal process in which a lender repossesses a mortgaged property. Foreclosures occur when the borrower has stopped making their payments or violated their contract in other ways. When this happens, it’s known as a borrower “defaulting on their mortgage.” Lenders have the right to take back the property in an effort to regain the balance owed on the mortgage loan. Often, lenders will force a sale of the property to recover their losses.

How many missed payments or contract violations that can result in a foreclosure varies from state to state and per each mortgage contract. However, most lenders issue a notice of intent to foreclosure after 90 days of missed payments.

How long will a foreclosure stay on my credit report?

A foreclosure can stay on your credit report for seven to ten years, starting from the date of the first missed mortgage payment that resulted in the foreclosure.

A foreclosure will always impact your credit score as it’s seen as a significant negative item on your credit profile. However, how much it will affect your credit depends on where your credit score stood before the foreclosure. Unfortunately, the higher your credit score was before the foreclosure, the more it will be impacted.

Generally speaking, most people see a drop in their score of over 100 points. Each of the missed monthly mortgage payments leading up to the foreclosure will result in your credit score dropping. By the time the foreclosure appears on your report, you’ve already dropped many points, and this new negative item could drag you down further.

It can take between seven and 10 years for your credit score to recover entirely from the foreclosure. A foreclosure on your credit report will often keep your score down for many years even if you make on-time payments to all your other lenders. This is precisely why a foreclosure is so damaging to your credit and can take so long to recover from.

Additionally, even when your credit score eventually recovers, having a foreclosure on your credit report may impact your ability to get approved for a new mortgage.

Can I get a foreclosure removed from my credit report?

In most cases, an accurate foreclosure can’t be removed from your credit report. However, there are some specific exceptions to this rule.

1. Mortgage lender goes out of business

If a mortgage lender goes out of business, the foreclosure can potentially be removed from your credit report. This process isn’t automatic, so you’ll have to find out if the lender went out of business on your own and, if so, request a review of your credit report.

2. Voluntary dismissal of the case

Your foreclosure can be removed from your credit report if the lender voluntarily dismisses the foreclosure lawsuit. This is most common in states where the homeowner can propose a voluntary foreclosure, also known as a deed in lieu of foreclosure. A deed in lieu of foreclosure is when a homeowner voluntarily transfers the property title to the bank to be released from further mortgage obligations.

3. Lacking documentation

Any information on your credit report that can’t be verified with supporting documentation can be removed, including foreclosures. If you start a dispute and the credit bureaus can’t find the documentation, they might consider removing the foreclosure.

How to deal with an inaccurate foreclosure

If you have an inaccurate foreclosure on your credit report, you must act promptly.

1. Identify any errors on your reports

Order a free copy of your credit report from all three major credit bureaus. Check each report to see if there are any errors in the foreclosure balance, the dates, the lender or the account number. If you find any inaccurate information, be sure to write it down.

2. Start a credit dispute

Start a credit dispute to address any errors you find. If there are errors on all three credit bureau reports, you’ll want to file a dispute with each bureau.

Write a dispute letter to the credit bureaus in question that includes information on why you’re challenging the data, provides proof and makes a clear request for the information to be updated or removed. The Federal Trade Commission has a sample letter you can use if you don’t know where to start.

After you start a dispute, the bureaus will have 30 days to verify the accuracy of the entry and respond by correcting it or removing it from your credit report. This timeframe can sometimes be extended an additional 15 days.

3. Contact your lender

If the credit bureaus don’t remove the foreclosure from your credit report, your next approach should be to reach out to the lender. All lenders are obligated to investigate disputes. Write the same detailed letter you did to the credit bureaus and ask the lender to remove the entry from your credit report due to inaccuracies. Make sure to give them a 30-45 day deadline to do so.

If they can’t verify the information or don’t want to spend the time verifying, they might choose to simply remove the entry.

4. Or work with a credit repair company

Removing foreclosures from your credit report requires filing a dispute with each of the three major credit bureaus. These credit bureaus have the right to dismiss any disputes they deem frivolous. The credit bureaus examine each dispute’s communication and proof before deeming it worthy of being considered. As a result, it’s essential you write disputes carefully, in a way that will resonate well with the bureaus.

To help with this, many people choose to work with a legitimate credit repair company. These organizations have dealt with the credit bureaus countless times and know how to navigate their processes to have the best chance of getting a dispute request reviewed.

How to recover from a foreclosure

If you can’t get the foreclosure removed, there are steps you can take to recover from it.

1. Work to improve your spending and create a budget

You might not be able to undo the foreclosure, but you can keep up with your other existing lenders. Make sure you pay all your lenders on time and in full whenever possible.

Additionally, look into budgeting and see if it’s right for you. A budget can help you control your spending and better stay on top of your finances.

2. Use a credit advisor or credit repair company

Waiting around for seven to 10 years for the foreclosure to fall off your credit report can feel like a long time. But in that time, you can be proactive and choose to improve your credit in other areas. There are professional services, such as credit advisors and credit repair companies that can help you fix your credit where possible. 

3. Track your credit scores and reports on a regular basis

Every 12 months, you’re entitled to a free copy of your credit report from each credit bureau. Because a foreclosure drags your credit score down, you’ll want to make sure nothing else keeps your score low. You should check your credit reports regularly so you can watch out for errors or new negative items.

Your credit score is also a good indicator of what’s going on with your credit report. If you notice a sudden dip in your score, it likely means a new negative item has been added to your report.

How to avoid a foreclosure

If you haven’t gone through foreclosure yet, there might still be hope that you can avoid it. Consider these steps:

1. Use HUD resources

The U.S. Department of Housing and Urban Development (HUD) has many resources that offer recommendations on avoiding foreclosures. Additionally, the HUD gives access to counselors who can also give advice.

2. Reach out to the lender and ask for options

Many lenders don’t want to complete a foreclosure because there’s a risk they’ll sell the home for less than the remaining balance on the mortgage. If you feel you can’t pay your bills, reach out to your lender and ask what your options are. You may be able to refinance for a longer loan term, bringing down your monthly payment. Your lender will especially be willing to work with you if you approach them before you have any missed payments.

3. Respond to lenders when they reach out

Your lender will give you a notice of intent to foreclose when you’ve missed a certain period of payments. As soon as you receive this noticeor even earlier when your lender reaches out about missed paymentsmake sure to respond to them. A lender can’t work with you on finding a solution if you stop communicating with them.

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