Speaking of Credit

How mortgage settlements affect your score (and for how long)


It’s been years since the recession thrust millions of homeowners into default. If you’ve paid your other bills, maybe you can qualify for another mortgage

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Question for the expert

Dear Speaking of Credit,
Is it possible to have a deed in lieu removed from a credit report after three years? — Alonzo


Answer for the expert

Dear Alonzo,
As a result of the Great Recession of 2007-09, many homeowners lost their homes to foreclosure or one of the alternatives to foreclosure, such as deed in lieu of foreclosure, short sale, loan modification or other tools for getting out from under a no-longer-affordable mortgage. And as with any situation in which a lender takes a loss on a loan, these consumers have paid an additional cost in the form of derogatory credit.

Now with the passage of time and an improved economy, the homeownership itch has returned for many of these former homeowners, but this time with an additional concern: What to do about the derogatory credit still remaining from those bleak times?

I don’t blame you for asking if it’s possible to have the deed in lieu removed from your credit report, as no doubt you’re ready to move on and wouldn’t it be nice if that black mark could simply be eliminated? Unfortunately, the reality is that the only legitimate way to get an accurately reported foreclosure, deed in lieu, short sale (typically reported as “settled for less than full balance”) or other negative notation removed from your credit report is for the lender reporting it to instruct the credit bureau to strike it from your credit report as a “goodwill” gesture; not something that often happens. Negative but accurate information stays on your report seven years; you have four to go.

So, with removal of the deed in lieu not an option, let’s look instead at the possibility of obtaining a new mortgage while this negative settlement item remains on your credit report for the remaining four years. But first, let’s be sure we have a clear understanding of what we mean by foreclosure and the terms describing its alternatives:

  • Foreclosure: The result of a mortgage going into default, after which the property is sold by the mortgage lender to satisfy the debt.
  • Deed in lieu: A process whereby the homeowner can avoid foreclosure by voluntarily turning the property over to the mortgage lender in return for being released from all obligations under the mortgage.
  • Short sale: The lender agrees to accept a payoff of less than the principal balance when the “underwater” home cannot be sold at price sufficient to pay off the remaining mortgage debt.
  • Loan modification: The mortgage terms are revised to reduce the monthly payments by lowering the interest rate or extending the term of the loan.

If you have been rebuilding your credit by managing your finances responsibly in the years since the deed in lieu, you have good reason to be optimistic about the possibility of a home purchase in the near future, once:

  • Your credit score reaches the lender’s requirement — typically above 700 — which is achievable with stellar payment history and low credit card debt since the deed in lieu first appeared on your credit report.
  • Your current income and other application information meet the lender’s borrowing criteria, such as debt-to-income ratio, length of employment, etc.
  • The necessary waiting period has elapsed for consumers with a deed in lieu in their past.

To better grasp some of the negative credit scoring impacts consumers in these situations have had to overcome and some of what you can expect going forward on your way to renewed homeownership, we’ll take a look at foreclosure and its alternatives in terms of estimated initial score drop, expected length of time for the score to rebound and the various waiting periods for a new conventional mortgage:

Settlements, credit score impact, a new mortgage
Type of settlementEffect on FICOExpected length of time for score reboundWaiting period before getting another conventional mortgage
ForeclosureCan lower a score as much as 160 pointsImpact lessens over time to where a spotless post-foreclosure credit history and low debt level can deliver a score in the 700+ score range within about 4-5 years.7 years (2 years with extenuating circumstances)
Deed in lieu or short saleCan lower score as much as 125 pointsA good mortgage-qualifying score is possible after roughly 3-4 years of timely payments and low debt.4 years (2 years with extenuating circumstances)
Loan modificationDoesn’t affect score as long as payments are made on timeNot necessary, as long as payments are made consistently on time after the modificationLeft up to the lender. Usually 1-4 years


What all of this can mean for you is that, despite the deed in lieu remaining on your credit report, once you manage to rebuild your credit score to above 700, meet the waiting period and mortgage application requirements, and, of course, have some cash to put down, you could find yourself obtaining a new mortgage within the next year or so, if not sooner.

See related: 1099-C snarls mortgage qualifying, Personal loan consolidation won’t help win a mortgage, Rebuilding bad credit in 5 really slow steps




Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Speaking of Credit

Your low-limit secured card strategy: Pay the bill early, often

When you have a low limit card and want to build your credit score, time your payments so your credit utilization is lowest on the statement date, since that’s when your issuer reports to the credit bureaus

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more