Don't worry if resold loan appears twice on credit report
Dear Credit Care,
I went through a foreclosure about
a year ago. I pulled my credit reports a few weeks ago, and I'm a little
curious as to how some of the information on my report will be viewed in the
future by creditors. I missed my first mortgage payment in March 2010. In
June, I was notified by my lender that my account had been sold to another
lender. I never made a payment to the second lender. The second lender noted on
my report that no payment was made and the loan was foreclosed upon.
My first question is, do these notices count as two negative marks
on my credit? (I have maintained my credit card payments, student loan payments
and utility payments -- never having been late and paying more than the full
amount on the credit cards.) Or are they a single negative mark since the
nonpayments were for the same loan, just two separate entities?
Secondly, if these items count as two separate negative marks, do
I have any recourse in getting one of these removed? -- Heather
Dear Heather,
The items on your credit report would be considered one negative
activity by potential creditors. The items are similar to an initial loan and a
collections account. Your original creditor likely charged off the loan after
90 days without payment and then sold it to the second lender. The second
creditor then reported the loan to the credit bureaus. Even though the items
appear as two separate entries, potential lenders will know that both items are
for the same loan.
Both items included on your credit report are accurate. Therefore,
they cannot be removed until the reporting period ends -- typically, seven
years from the first date of delinquency. The original loan is most likely
being reported as 90 days late and then charged off or sold. The second item
may be reported as nonpayment foreclosure, which is also accurate.
What you do not mention -- and what concerns me -- is whether or
not the second lender will sue you to recover the deficiency amount owed on the
loan after the foreclosure. The deficiency amount is the amount that the lender is unable to recoup after a foreclosure. Here's how it works: Say you owed $200,000 on your house that the bank foreclosed. Then say the bank turned around and sold the house at auction for $125,000. The deficiency amount would be $75,000 -- and you might be liable for that.
Many lenders forgive the deficiency amount and don't try to collect it. That's not the case with all lenders, however. Depending on the type
of foreclosure proceeding and the state laws that apply, it could be that you won't
have to worry about the lender seeking repayment of the deficiency balance. Still,
I would recommend that you watch for any communication from the lender. And whatever
you do, don't ignore any correspondence you might receive.
If the lender did forgive the deficiency amount, you should have been
protected from paying taxes on the amount forgiven under the Mortgage
Forgiveness Debt Relief Act. That's the case as long as the loan was solely home-related
-- no cash out to pay credit card bills, etc. -- and the amount forgiven was less than $2 million, or $1 million if married and filing taxes separately. To qualify for forgiveness, you need to file a form 982 with your tax return. If you did not file the necessary forms with the IRS for your 2010 tax return, consult with a tax professional to determine what you should do. You can also visit IRS.gov's page on the Mortgage
Forgiveness Debt Relief Act to learn more.
As long as you are adding positive information to your credit
reports each month, such as your on-time and higher-than-minimum payments on
your credit card accounts, the mortgage loan's negative items will have less of an impact on your credit as time goes by.
Handle your credit with care!
See related: How to rebuild your credit after a foreclosure, Get the really free credit reports, 1099-C surprise: IRS tax follows canceled debt
Kim McGrigg is the community manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. You can find more money management advice on Blogging for Change and MMI's Facebook page.
Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Credit Care.
Published: July 29, 2011
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