Rental Restrictions

Question:

Like a lot of other people we are facing foreclosure. How difficult will it be to rent an apartment or house with a foreclosure on our credit report?

Answer:

A foreclosure is an awful event, something to be avoided. For credit-score purposes, foreclosures, short sales and deeds-in-lieu of foreclosure are each likely to be listed as “not paid as agreed” on credit reports. Lenders, landlords and other creditors can then determine how they want to consider such events when someone applies for a loan or rental unit.

The view among landlords varies. Some see foreclosure as a catastrophic financial event and want to avoid individuals with such histories. But other landlords may want to know more about you and the circumstances that lead to foreclosure. A foreclosure caused by health issues, the temporary loss of a job, the death of a spouse, etc. may be understandable and acceptable to some landlords. Also, it may be that an individual with a toxic loan was foreclosed because the payments suddenly rose to the point where they could not be met, but the individual otherwise has a solid credit history and enough income to support rental payments.

This raises several points:

First, different landlords have different policies. Speak with as many as you can.

Second, if someone advises you to purposely miss mortgage payments to “qualify” for a mortgage modification, ignore them. You don’t know if you’ll actually get the modification, but there’s no doubt your credit will be damaged. Moreover, you may be able to qualify for a mortgage modification under the “home affordable refinancing” section of the government’s Making Home Affordable program. Take the refinancing quiz at makinghomeaffordable.gov to see if you qualify.

Third, consider an interim option, such as moving in with family or friends or renting an apartment in someone’s home.

None of this will be easy or pleasant, but as time passes it will at least be possible to re-establish your credit.