A Foreclosure will negatively affect your credit and with the large amounts of foreclosures in today's real estate 
market avoiding a foreclosure is on many homeowner's minds. San Diego California has many foreclosures and will continue to see many more bank owned REO's and foreclosures in the near future. Homeowners that are having trouble making house payments have several options and should always seek legal and tax advice from professionals in those fields. Some of the options if you're unable to make your mortgage payment are to first call your bank. Consider a short sale or a deed in lieu before the bank foreclosures on your home.
A Short Sale is negotiating with the lien holder a payoff for less than what they are owed for a piece of real estate short of the full debt amount.
A Deed in Lieu is when the owner of a piece of real estate avoids foreclosure by voluntarily surrendering their property by deeding to the lender as satisfaction for the debt. A Deed in Lieu allows the lender to take possession sooner than would be possible through formal foreclosure.
A Foreclosure is when the owner's right to the property is terminated, usually by default. The property is purchased back by the bank or public auction.
I read an interesting article from First American CREDCO that focused on the impact of a foreclosure on a FICO score. The article states that after collaborating with many various individuals and resources including the three major credit bureaus they have come up with the following information.
Short Sale will bring down your FICO score by 100 Points.
Foreclosure will bring down your FICO score by 280 Points.
The writers of the article I read made it clear that this information is not legal advice and that this information is not intended to be perceived as such. Other lenders I have personally spoken to and information I have read have concluded that a short sale is less destructive on a FICO score or credit report than a foreclosure.
If you are considering the option of a Short Sale in San Diego County please contact us. If you are considering buying or selling real estate in San Diego County we're here to help. We can also help you buy a San Diego Foreclosure.
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Mike what a wonderful blog so many people ask me how will this affect their credit score. At least I have a more numerical value to put with it.
Good info....I wish the mortgage servicers would help the cause by making the short sale process easier to negotiate. Here in KY we have fewer agents who are experienced with them too. Have one in my subdivision and the listing agent says its scaring off buyers.
From a score perspective, the short sale does stop the bleeding sooner. They will report it as an M9 with a zero balance and a settled for less than full balance notation. If goes through to foreclosure the relling delinquencies, as we refer to them, will show an extended number of months as 120+ days M5 rating. The consecutive extended delinquency rating is what hurts even more long-term.
Good luck in SD!
I actually commented on this similar topic. Unfortunately, credit scoring is not an exact science (why I have no clue). But here's what my experience has shown me. The true impact on the credit score depends on the final disposition of the mortgage. Ideally, you want the account to be listed as either a Closed Account or Paid As Agreed. This will have virtually no negative impact on the credit (with the exception of any missed mortgage payments). However, if the account reflects that the account was Foreclosed, Settled, Closed For Less, etc. or any other negative notation, you can expect a decrease in credit scores to the tune of 150 to 300 points.
Heather,
Thanks for stopping by.
Kevin,
Good info. Good luck with the short sales in Kentucky - I think there slow and tedious in every state.
James,
Wow! Thats a wealth of information. Thanks for helping out my readers with even more good info.
Mike