Bankruptcy

How an HOA Foreclosure Affects Your Credit Score

By Amy Loftsgordon, Attorney
If you go through an HOA foreclosure, your credit score probably will suffer a major blow. Exactly how far the score will drop depends largely on how good your score was prior to the foreclosure.

If you live in a planned community and don’t pay your homeowners’ association (HOA) assessments, you could lose your home to a foreclosure, which will likely severely damage your credit score. Read on to find out just much your score might drop after an HOA foreclosure.

How Credit Reporting Typically Works

Ordinarily, if a person doesn't make a payment on a debt, like a mortgage payment or a credit card payment, the creditor reports that borrower to the three main credit bureaus: Equifax, Experian, and Transunion. The delinquency is then listed in the person’s credit report based on the level of delinquency—late 30 days, 60 days, 90 days, and so on—which lowers the individual’s credit score. The more times you’re late and the longer you go without making a payment, the lower your score will go.

Late HOA Payments Might Not Affect Your Credit Score, Foreclosure Most Likely Will

In order to report delinquencies to the three major credit bureaus, a company has to become a member of the bureaus. Because most HOAs are small organizations, many don’t sign up for membership due to the cost and certain reporting requirements. So, your HOA might not report your delinquent assessments to the credit bureaus. (Though, if the HOA turns the debt over to a collection agency, the agency could report the debt.)

If you go through an HOA foreclosure, on the other hand, the foreclosure will probably show up in your credit history—even if the HOA doesn’t report it. Here’s why: An HOA foreclosure is judicial or nonjudicial. A judicial foreclosure involves the court system. In a nonjudicial foreclosure, the HOA follows a series of out-of-court steps, which typically involves recording a notice in the land records. Both court filings and land records are public records. If the bureaus find out about your HOA foreclosure from the public record, which they usually do, the bureaus will add this information to your credit report.

How Much an HOA Foreclosure Hurts Your Score

According to FICO, a foreclosure could lower a person’s credit score by 100 points or more. The exact number of points that will fall off your score depends primarily on how good your credit score was prior to the foreclosure. Someone who has a high credit score before a foreclosure loses more points. A foreclosure has less impact on someone who already has a low credit score.

FICO says that if your credit score was 680 before a foreclosure—generally considered a good FICO score—after the foreclosure it will end up somewhere between 575 and 595, which is a decline of 85 to 105 points. But if your credit score was 780 before a foreclosure—usually considered as a very good FICO score—the foreclosure lowers your score to between 620 and 640—a drop of 140 to 160 points.

Because a FICO score is based on what’s in your credit report, and the three main credit bureaus tend to have slightly varying information, each bureau probably has a different credit score for you.

Questions for Your Attorney

  • How can I stop an HOA foreclosure?
  • Which alternative to foreclosure will have the smallest effect on my credit score?
  • How can I improve my credit score after an HOA foreclosure?
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