When does a "charge-off" become a foreclosure?

Asked by amanda, Sacramento, CA Wed Aug 15, 2012

We lost our jobs in Feb 2010, and were unable to make our mortgage payments. The home was sold in May of 2011, and the bank shows (on our credit reports) that the loan is charged-off, but no mention of a foreclosure. Neither have we received any correspondence from the bank, such as a 1099 or intent to foreclose. This was a first mortgage on our primary residence. Does anyone know if this is normal reporting procedure?

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Jeff Marr, Mortgage Broker Or Lender, Roseville, CA
Sat Aug 25, 2012
Amanda - I'm seeing this erroneous reporting happening quite a bit these days, though typically it's the 2nd loans that are reporting as 'charged off'....

Though on the surface this might appear to be a benefit to you, any underwriter will require a correction/clarification to any mortgage-related derogatory....If a foreclosure/deed in lieu is the correct status, then you'll need to wait 3 yrs to apply for an FHA loan from the foreclosure date...

Since you're stating that you walked away from the home and it was sold in May of 2011, then the earliest you can purchase again (without using a hard money loan) would be May of 2014...

Let me know if I can be a further resource for you!

best, Jeff Marr
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Sue Archer R…, Agent, Palm Harbor, FL
Thu Aug 16, 2012
It sounds like you may be one of the lucky ones where the item was reported incorrectly, but in your favor. If that's the case, you certainly don't want them to correct it!

If you are asking so that you can qualify for purchasing a new home, then contact a lender and start the process of qualifying for a loan. it sounds like 'the home was sold in May' was actually a short sale, or a deed in lieu...but you'd need to clarify for us in order for us to answer you accurately.

it doesn't cost you anything to call all of us and discuss this in detail to obtain more specific discussions on your personal circumstances. We don't have enough to answer from the information you provided.

But from the current reporting Amanda, you can qualify for another mortgage in May of 2014 if not earlier.
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Ted Greene, Agent, Sacramento, CA
Thu Aug 16, 2012
I am an attorney and real estate broker and I specialize in short sales and foreclosures. If you would like me to give you some FREE advice I would need to get some more information from you to fully analyze the situation. Feel free to call me when you get a minute at 916.442.6400. TED
Web Reference:  http://www.upsidedownca.com
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Patrick O'Ha…, Agent, Citrus Heights, CA
Thu Aug 16, 2012
I agree with Kylee, not enough information on what the actual process was. Was it a foreclosre with the sale at "court house steps" or a short sale or deed in lieu where you voluntarily turned the property back to the bank? Do all 3 credit agencies list it as a charge off? MIstakes are made and it may be best to deal with it now. We have a client who had a short sale and enough time has passed to qualify for a new loan, but one credit agency has it listed as a foreclosure instead of correctly as a short sale, which is how the other 2 report it. Until the credit agency error is fixed she is not qualified to make a purchase. The fix will take some time. So if you have an error on your credit report it may be best to get it corrected now so that you will be prepared to move on when the opportunity presents itself.
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Just a note to let you know that the fix does not have to take a long time. Short sales reporting as foreclosures are actually quite common and the fix is fairly easy. A good broker can rescore this for you in a matter of days.
Flag Thu Aug 16, 2012
Kylee Roe, Agent, Sacramento, CA
Wed Aug 15, 2012
That does not sound normal, but might be lucky if that bad word "foreclosure" isn't there. Still suspect it will be very negative on your credit. Did you short sell? If so, than "foreclosure" will never show up with regards to the home in question.
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