FORECLOSURE

Okay, so it is not the best topic for a blog, but is one that is essential to discuss.

The U. S. had more than 600,000 foreclosures in 2018.  That is the lowest number since the financial crisis of 2008 when you consider foreclosures peaked in 2010 to 2.9 million. 

As one writer stated, "Foreclosure is the flip side of the American dream."  The impact of foreclosure can erase your home equity, destroy personal credit for years, and can uproot a family from their neighborhood, family and friends.

So, what exactly is foreclosure?  It means the property owner has stopped making mortgage payments and the lender has given notice of default that unless the payment are brought up to date, the lender will take legal action to take the property from the owner.  The lender may file a notice of default when the borrower has at least two payments in arrears.

For those who have gone through a forclosure there are some interesting things you should know.  A recent study by Lending Tree researchers analyzed how credit scores trend after a foreclosure by assessing the loan terms offered to borrowers with a foreclosure on their record compared to those without.

 1. Foreclosure does not affect a credit score report forever, after seven (7) years they totally drop off the report.

 2. Initially, a foreclosure can cause your credit score to drop 150 points or more, but many borrowers still maintain a high score afterwards.

 3. Credit scores tend to increase by 10 points per year after a foreclosure.  More that 30% of consumers have a credit score of 640 or higher within a year of the foreclosure.

 4. Consumers were able to re-emerge as homebuyers in as little as two years, though they tend to pay a premium.

The Lending Tree research concluded, "The foreclosure dominates your credit score in the first two years after.  This is evident from interest rates not correlating to credit scores when borrowing two years after foreclosure. However, when borrowing after three years or more, the expected pattern emerges with higher credit score borrowers paying lower interest rates."

As noted above foreclosure does not destroy everyone's credit score and re-establishing one's credit score can take as little as two years.  Good news indeed.