Whether financial distress leaves you unable to continue making mortgage payments or you opt to strategically default on your mortgage loan, your failure to adhere to the terms of your loan contract appears on your credit report as derogatory information and damages your credit score. The consequences of your mortgage default and your lender's policies can sometimes impact how long the negative information remains within your credit history.
Missed Payments
Each lender maintains its own standard regarding how many missed payments constitute a mortgage default. Regardless of how many payments you missed before and after your lender declared your loan in default, each missed payment remains a part of your credit history for seven years. In addition, missed payments have a more significant derogatory effect on your credit rating than any other single factor.
Losing the Home
If your mortgage default resulted in a foreclosure, the legal record reflecting the foreclosure appears on your credit file for seven years from the date the foreclosure occurred. Because foreclosure occurs after you miss several loan payments, you can expect a foreclosure record to linger within your credit history for slightly longer than missed payment records -- even though the record adheres to the same seven-year reporting period.
Mortgage Deficiency
If your home is worth less than your lender can recover at the foreclosure auction or through a private sale, you still owe your lender the difference between the sale price and your loan balance. Depending on the statute of limitations for debt collection lawsuits in your state, your lender may have up to 10 years to sue you for this deficiency. After it wins the lawsuit, a record of the court judgment connected to the original default appears on your credit report for an additional seven years. Because a court judgment's reporting period begins on the date the judgment was awarded, your credit report could reflect evidence of your defaulted mortgage for much longer than seven years after you stop making payments.
Credit Reporting Exceptions
If your lender agrees to work with you and allow you to redeem your defaulted mortgage, it may also modify any previous negative reports to the credit bureaus. Although many lenders refuse to modify consumer credit reports, some lenders will agree to do so in exchange for payment. It is more cost-efficient for a lender to allow you to redeem your home rather than seize it through foreclosure. In addition, if you successfully dispute negative information related to your mortgage default with the credit bureaus and your lender does not verify the information's accuracy, the Fair Credit Reporting Act states that the credit bureaus must delete the disputed information from your credit history -- resulting in derogatory reports related to the mortgage default disappearing before the reporting period expires.
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