Credit Report Articles

Risky Mortgage Moves Can Have Long-Term Effects

Walking away can have long-term effects on a credit report.

The current housing crisis has left many lenders unmotivated to collect remaining debt after a borrower leaves their property. In addition to walk aways, those who pursue short sales may also be able to leave their property without hearing again from a debt collector.

But this is hardly a safe bet - and could become significantly less common after banks eliminate excess distressed properties. A recent article by the Baltimore Sun referred to laws in some states that allow lenders to pursue borrowers for any shortfall they incur after reselling the property. For example, if an individual walks away from a house with a $350,000 debt and the bank is able to sell it for $250,000, said lender may be able to pursue the $100,000 difference.

Maryland debt collectors may seek this balance for up to three years after the distressed homeowner leaves his or her property. They may be pursued for 12 years in certain circumstances, according to the report. Chapter 7 bankruptcy may be the only alternative for some borrowers weighed down by debt.

All of these actions will have negative effects on a credit report. Late payments on mortgage loans will remain on their report for seven years, as will a foreclosure or short sale. Bankruptcies remain longer, up to 10 years, according to FICO spokesman Craig Watts.
"And what's on your credit report can affect your employment," the report said. "Many employers, for example, review applicants' credit reports before hiring."

Maryland is among the 16 states whose lawmakers have considered banning credit-based hiring practices. Critics of these practices have said that using someone's financial history as reflection of their responsibility as an individual can unfairly trap some job seekers in a cycle of unemployment and debt defaults.
Stuart Pratt, president and CEO of the Consumer Data Industry Association, recently wrote a column for the Sun defending such practices. He said that viewing one's credit report can help businesses protect against risk, particularly at companies with fewer than 100 employees.

"Employers should have information available to them that protects their businesses from catastrophic losses and also ensures that their workers can stay employed," he said.

Therefore, those seeking new employment or mortgage loans may benefit from a credit monitoring service which will give them a thorough understanding of their credit standing.