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A foreclosure is the most damaging event your credit status can encounter, worse than bankruptcy. A foreclosure on your credit record will negatively impact your ability to borrow money for many years. Obviously the best way to stop foreclosure is to bring the loan current thus keeping your FICO rating intact.
Before deciding on which course of action to take to stop foreclosure, you need to understand its impact on your FICO rating.
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Refinance - Pay off the original loan with a new loan that is more favorable. This should keep your FICO score intact beyond any late payments.
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Forbearance - You promise to stay current on the mortgage going forward and agree to a repayment plan for delinquent payments and accrued fees. Again, this should keep your credit score intact beyond any late payments.
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Deed-in-Lieu - You basically hand over the keys to the lender. The impact on your credit score is the same as if your home is foreclosed on. Your FICO score will take a hit of 200 to 300 points.
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Bankruptcy - This should be your last resort. It can affect your FICO score by about 400 points and your credit for the long term.
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Loan Modification - You still want to stay in your property and the loan modification includes a favorable revision of the terms of your original loan. Your credit rating will not be negatively affected beyond any late payments.
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Short-Sale - Your property is sold for less than what is owed the lender. This can reduce your rating 50 to 150 points depending on how many payments are missed.
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Discounted Note Purchase Or Rent Your Property - An investor buys the existing note at a discount. The investor set up a rental agreement with you and offers you the option to purchase back the property at a predetermined price within a certain date. This should keep your FICO score intact beyond any late payments.
Always talk with your accountant and attorney before taking actions to stop foreclosure.
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