Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes “Speaking of Credit,” a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
Dear Speaking of Credit,
I have a complicated question. I got a reorganized mortgage through the home modification loan program under President Obama when I was with Bank of America. I filed for bankruptcy in 2009 and they sold my debt to Nationstar (now called Mr. Cooper), which would not reaffirm my contract. They have honored the terms of the modified loan program.
They say they are not obligated to report on my credit because I do not have a contract with them since I filed bankruptcy. That’s unless I want to refinance, which I do not.
My statements have said “voluntary payment due” every month. I have never missed a payment in all these years. I am not in default or foreclosure. I am on Social Security Disability (SSDI) and can no longer maintain the upkeep of this house. I want to return it to them in a deed in lieu and move out of state.
Since they do not report my payment history to my credit file, can they report my deed in lieu as a negative? – Pamela
If I understand correctly, following a loan modification you had to discharge your mortgage debt as part of your 2009 bankruptcy. Unable to reaffirm (exclude) your mortgage debt from the bankruptcy, you were then allowed to continue occupying the house for as long as your monthly “voluntary payments” to the lender went uninterrupted – something you have done for the last eight years.
Now you find yourself unable to afford the upkeep of your house and are looking to use a deed in lieu to turn the house over to the mortgage lender in order to avoid foreclosure, and move out of state. This leads to your question of whether they can report this negative occurrence to the credit bureaus.
Being an indicator of increased risk, a newly reported deed in lieu added to your credit report can lower your credit score – sometimes by more than 100 points. And yes, the lender is allowed to report it to the credit bureaus, despite the mortgage debt having been discharged many years ago.
Yet, as we’ll see, being permitted to report such information doesn’t necessarily mean it’s always possible for the lender to do so.
Deed in lieu likely to be reported
To protect consumers from being pressured by debt collectors to pay debts they no longer owe, some information can no longer be reported on a credit reporting trade line once an account is included in bankruptcy, with examples being discharged balance amounts (no longer owed) and after-bankruptcy voluntary payment history.
On an account with unsecured debt, such as a credit card, adding the “included in bankruptcy” notation typically marks the last negative information reported by the lender for that debt.
However, when a secured debt, such as a mortgage or auto loan, has been discharged in bankruptcy any subsequent transferring of the home or car from consumer to lender can bring on additional credit reporting and scoring impacts.
Deed in lieu, foreclosure, settled for less than full amount due (short sale) and repossession are examples of credit reporting descriptions with the potential for serious score trouble – often added long after the debt was cleared in bankruptcy.
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Deed in lieu unlikely to be reported
Fortunately, your bankruptcy occurred more than seven years ago, the maximum length of time the Fair Credit Reporting Act (FCRA) allows most negative information to remain on a credit report. The major exception to this rule is the bankruptcy’s public record information, which can remain on your report for 10 years.
So, given that more than seven years have passed since your bankruptcy, your mortgage trade line should have already been deleted from your credit report, leaving nowhere to post your deed in lieu.
While it may seem that a new trade line with which to report the deed in lieu could simply be created, the reality is that once a closed trade line has been deleted due to the age of its derogatory information, it’s rarely, if ever, brought back to life.
To do so would mean they would be unable to report any bankruptcy-related information, such as the balance discharged or payment history from before or after the bankruptcy – a challenge from an FCRA-compliance standpoint that neither the lender or bureau is anxious to take on.
This could be good news for you, if the age of your bankruptcy leads to your deed in lieu being left off your credit report and out of your score.
Should that mortgage still be there on your credit report more than seven years since the bankruptcy, there’s a good chance the bankruptcy date is being misreported within the trade line.
If so, the burden will be on you to initiate a dispute with the affected bureau to correct it.
- Of course, you’ll only know how your credit is currently being reported by pulling up-to-date credit reports from all three major credit bureaus – Equifax, Experian and TransUnion – via AnnualCreditReport.com.
- The credit information found here tends to be more complete than at most other sites, and the reports are free once a year. If you haven’t already done so, you’ll want to make this your first step. (Remember you can also check your credit report for free at CreditCards.com.)
Plan of attack
Before initiating the deed in lieu with your lender, this is what you should do:
- Pull your credit reports.
- Review them thoroughly for accuracy.
- If needed, start a dispute investigation to correct any reporting errors.
Once accurate, your reports should be free of any 2009 bankruptcy-related information, other than the bankruptcy’s public record item that lasts for 10 years.
Only then should you approach your lender to begin the deed in lieu process that should not hurt your credit score. Good luck!
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