10 States Where Foreclosure Woes Linger

Foreclosure rates across the country continue to improve, but these 10 states are still struggling with above-average residential foreclosures.

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2017 Started With Fewer Homes in Foreclosure

Good news: The U.S. residential foreclosure rate fell 12.94% in January from the same time in 2016.

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10 States That Struggled Most With Foreclosures in 2016

Overall foreclosure activity and the number of new foreclosures fell in 2016, but several states bucked the national trend.

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U.S. Foreclosure Activity Went Way Up in October

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The Foreclosure Crisis Is Over, But Not in Every State

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10 States Plagued By Foreclosure

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10 States With the Biggest Foreclosure Problems This Year

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How Many Americans Have Gone Through Foreclosure?

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During the Great Recession, many Americans lost their homes due to foreclosure. In fact, according to real estate data company RealtyTrac, there were 6,324,545 completed foreclosures from January 2006 to April 2016.

“It is a big number,” Daren Blomquist, Senior Vice President of RealtyTrac said in an email. “Normal would be around 250,000 bank repossessions per year. These last 10 years represented the biggest loss of home ownership and shifting of real estate wealth since the Great Depression.”

The Current Status of the Housing Market

The market has improved, but that doesn’t make it immune to foreclosures. (You can see the 10 states with the biggest foreclosure problems here.)

“The foreclosure crisis is largely behind us, although still certainly lingering in certain pockets,” Blomquist said. “Unfortunately, we are already seeing signs of another housing bubble in certain markets, so people should continue to be cautiously optimistic when it comes to the housing market.”

But Blomquist says people who can truly afford to buy a home may still benefit from it.

“Homeownership done responsibly is still one of the best ways to build wealth,” Blomquist said.

What a Foreclosure Can Mean for You

“Foreclosure will obviously create a crater in a credit report for some time,” Troy Doucet, attorney with Doucet & Associates in Columbus, Ohio, said in an email. “However, foreclosure is not the end of the world. Those with foreclosure in their credit past will find their credit scores slowly improve as time passes. After a few years, they may even be able to buy another house.”

If you default on a loan or go through a foreclosure, it will appear on your credit report for seven years. But you can work to improve your credit score. (Consider these steps to fix your credit.) To see how your mortgage payments are affecting your credit you can take a look at your free credit report summary, updated monthly, on Credit.com.

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Is My Foreclosure Still Hurting My Credit?

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You’ve worked hard to put your foreclosure behind you. Your monetary issues leading to the loss are in the past and you’re ready to move on, both figuratively and literally. There’s just one small thing potentially holding back: your credit score.

But exactly how long do you have to worry about a foreclosure harming your credit?

Foreclosure Facts 

A foreclosure will appear on your credit report as of your foreclosure filing date — not at the date of sale or tail-end of the foreclosure process. At this point, you can expect your credit score to take a big hit — up to 300 points, depending on the other negative information (like a first missed mortgage payment) that may already be on your report.

The foreclosure will generally remain on your credit report for the next seven years. But, while it will affect your score for that time, you won’t necessarily be saddled with a bad score for the duration.

A FICO study, for instance, found that a consumer with a 680 FICO Score (before the foreclosure event) could reach that same score level in roughly three years. And that type of credit score, while not worthy of the best terms and conditions, could net you financing, like an auto loan or, at the very least, a secured credit card.

Will I Have a Hard Time Getting a Mortgage?

Unfortunately, even as score rebounds, the presence of a prior foreclosure could make it tricky to score a new home loan. Just seeing that line item could make many mortgage lenders wary of approving your application, Scott Sheldon, a senior loan officer based in Santa Rosa, California and Credit.com contributor, said.

“The longer in the past, the less of an issue [the foreclosure is],” Sheldon said in an email. “Waiting time is the most important thing they look at.” He estimates an applicant with a foreclosure on file would need to wait around three years to obtain government financing, like a Federal Housing Administration home loan, and could need to wait the full seven years for a standard 30-year conventional loan.”

Rebounding From Foreclosure

Still, all hope is not lost.

To up your odds of getting any type of new financing, you should focus on establishing and maintaining good habits. You can generally improve your credit scores over the long-term by making all payments on time, keeping debts low and limiting inquiries for new credit until your score rebounds. You can track your progress by viewing your free credit report summary, updated each month, on Credit.com.

And it’s important to make sure the foreclosure is removed from your credit report once that 7-year waiting period elapses. You can check your credit reports for free each year at AnnualCreditReport.com. If a foreclosure appears longer than it should, be sure to dispute any inaccuracies with the credit bureau in question.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Worst-Case Scenario: What Does Foreclosure Actually Do to My Credit?

A foreclosure can lead to a litany of problems, financial and otherwise, for homeowners and their families. And, as people work to keep their home or simply get through the filing, they often don’t have time to consider their credit score. In fact, for a time, perhaps they shouldn’t.

“If a person is going through foreclosure, they have very serious financial issues that are probably reflected in very poor scores,” Rod Griffin, director of public education for Experian, said in an email. “If they cannot manage the debts they have, they should be focused on regaining control of their finances, not worrying about a credit score because they shouldn’t be considering applying for new credit in the near future.”

Still, it can be important to note somewhere down the line how much damage you may ultimately have to repair due to foreclosure.

Perhaps unsurprisingly, its appearance on your credit file can cost your score to drop dramatically. The exact point drop will vary, depending on where your score was at the time and what else is in your credit profile. But, according to a FICO study, foreclosure can cause an excellent score of 780 to drop as low as 620. A good score of 720 can drop as low as 570 and an average score of 680 can drop to as low as 575.

This damage can be contained if the foreclosure itself is the only negative information appearing on your credit report.

“As long as the consumer manages to keep the foreclosure isolated by consistently paying all other credit obligations on time and keeping their revolving debt to a minimum, the negative impact of the foreclosure will be contained,” Can Arkali, a principle data scientist at FICO, said in an email. 

However, foreclosures don’t typically take place in a vacuum. They’re usually preceded by other incidents — like missed mortgage or other loan payments — that could cause your credit rating to fall by as much as 300 points throughout the few months that led to your home being foreclosed upon.

How Long Before My Score Recovers? 

These incidents can depress your credit for quite some time.

“A foreclosure remains on a credit report seven years, so it will have a long-term effect on our creditworthiness,” Griffin said. “But, because negative information is deleted eventually, you can rebuild your creditworthiness if you take control of your debts and build a history of positive payments that will continue to appear after the foreclosure disappears.”

FICO estimates that a consumer with a 680 FICO Score (before the foreclosure event) could reach that same score level in roughly three years.

“This is not an absolute guideline, but rather a rough estimate on the basis of a representative credit profile of the ‘typical’ consumer credit file that scores 680,” Arkali said.

Of course, you’ll need to focus on establishing and maintaining good habits. You can generally improve your credit scores over the long-term by making all payments on time, keeping debts low and limiting inquiries for new credit until your score rebounds enough and your budget can handle new bills. You can track your progress by viewing your free credit report summary, updated each month, on Credit.com. You can also find more about fixing your credit here.

[Offer: If you’re worried about errors on your credit reports, and you don’t want to go it alone, you can hire companies – like our partner Lexington Law – to manage the credit repair process for you. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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