Mortgage loan companies and mortgage servicing companies do not always accurately report on consumers’ credit history after such events short sales, foreclosures, and payment modification plans.
In a short sale a lender allows the home owner to sell for less than the amount owed on the mortgage. Effective July 15, 2011, an owner selling a house or apartment building with four or fewer units in a short sale will not owe the lender a deficiency balance (Civil Code Section 580e). Therefore, after a short sale, the lender should not report the consumer owes any money on the mortgage loan.
If a purchase money lender forecloses on four or fewer units, the lender may not seek a judgment for the deficiency balance. Civil Code Section 580b. This law applies to both 1st and 2d mortgages. Any post-foreclosure report to the credit bureaus should make clear that the former home owner is not subject to a lawsuit and judgment. A report that a debt of $100,000 (the deficiency balance after foreclosure) is “due and owing” is misleading because the lender has no recourse to the courts to collect the $100,000.
Under the Home Affordable Modification programs, a lender typically agrees the consumer may pay less on the mortgage during a trial period. Under these programs, if the owner was current on the mortgage payments before entering into the program and makes the required reduced payments during the trial period, the lender may not report late or inadequate payments to the credit bureaus. Once a permanent modification plan is in effect, if the owner makes the required mortgage payments, the lender may not send adverse reports to the credit bureaus.