HOW STOPPING YOUR FORECLOSURE CAN GIVE YOU BETTER THAN NORMAL CREDIT
Everyone is obviously worried about their future credit after a possible Foreclosure. If you are in Texas, Georgia, Alabama, Tennessee, Virginia and Missouri ….there will not be a “Foreclosure on your credit record until after the Trustee sale by the lender. In all other states this formal “Foreclosure” takes place at the court hearing where the Judge grants the plaintiff (the lender) the foreclosure. Until this takes place you are in Pre-Foreclosure. This means that you are in the process of Foreclosure, but you do not have it on your permanent credit record yet.
At this point your credit record will show late payments, derogatory, on your mortgage such as:
90 days past due 2 times
60 days past due 3 times
30 days past due 4 times
This is not good however; this is vastly different from a “Foreclosure” on your credit report. Working with an investor who is willing to negotiate with the Lender, Attorneys, and Courts to get the house sold by various means and thus “Paid Off” before it becomes a full “Foreclosure” is generally the best way to protect your credit.
Many people in your position would like to refinance. This is possible only if you already have a substantial amount of equity in the house. In other words, if the house is worth substantially more than you owe on it.
Amount owed - $120,000.00
Equity = $ 80,000.00 this is a 60% Loan-to-Value (LTV)
Or $120,000.00 is 60% of the $200,000.00 value.
In this case there are lenders who will give a mortgage loan on a house based on the LTV only. They do not care about credit or any other factor other than the house. This does sound good until you find out that these lenders generally charge 3 to 7% of the loan amount in upfront fees and 10 – 14% annual interest. Also your payments are likely to increase significantly, this can be a quick, temporary fix for some people however; most homes do not qualify due to the LTV and when they do, the payments on such a loan are usually 1 ˝ to 2 times the amount of the current payments.
Some will tell you that you can refinance with a conventional lender. The problem here is that when you are currently in the foreclosure process conventional lenders will not give any type of loan due to the credit record and payment record on the house. This whole idea of a refinance is somewhat the same as you having a car repossessed today by Ford Motor Credit Corp. Then this afternoon you walk into a Ford dealer and try to purchase a new car through Ford Motor credit, it is not going to happen. This is the same concept at play here. You are asking a lender to loan you money to pay another lender who is foreclosing on your current loan. It is not going to happen.
The good news here is that by working with an experienced, reputable investor you can potentially minimize the scar on your credit record. When a future lender looks at your credit they will see those late payments as described above however; since that time you sold the house and got rid of that debt which you could not afford, then you kept the payments on your other debts up to date. They actually may look at you as a better credit risk than someone with a 700 FICO score. The reason for this is that the person with the high credit score may never have had any financial problems. Lenders realize that financial situations happen to good people. They will look at this situation and wonder what will happen to the person with the high credit score if they ever have financial problems. Will they run and hide or work to fix the problem. Who knows?
With you they will see that you had these financial problems but instead of running or sticking you head in the sand, you stood up, did everything you could preemptively to fix the situation and then continued to keep on a right path. This many times makes you a better credit risk that the other person.
So…….this is not the end of the world or of your credit worthiness. If you work properly to fix the situation you can turn it into a future positive. Nothing will make it just “Go away” but you are on the best path.
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