Information on Foreclosure and Credit Cards

UpdatedNov 17, 2008

If I "walk away" from my property with a foreclosure could my credit cards be recalled and canceled?

Bill, I have an investment property in Florida that has lost over 50% of the purchase cost. I have been unable to rent it and can no longer make the monthly mortgage payment and association fee. If I "walk" from the property with a foreclosure could my credit cards be recalled and canceled. All my other bills are currently paid on time and I have an excellent credit score. thanks...Richard

Richard, thanks for your question. While I do not think that the foreclosure should cause your credit cards to be recalled, it is definitely going to hit your credit real bad. The only thing I can foresee happening is that the credit card companies might jack up the interest rates on your accounts based on the foreclosure on your credit profile. This is due to what is called the "universal default clause" that most of these credit card contracts have built into them.

This provision, generally buried in the fine print of your credit card agreement, basically says that if you are more than 30 days late on any payment to anyone, the interest rate on your credit card could shoot up and your credit score may be damaged. You need to find out if these are applicable to your accounts. You can read more about by following the links below:

Universal default rules explained.

Universal default - On Wikipedia.

I hope the information provided helps you Find. Learn. Save.

Best,

Bill

www.bills.com/

8 Comments

BBill, Mar, 2010

The length of time foreclosure takes varies by state. In Florida, a mortgage creditor must ask a court for a hearing to foreclose 21 days after it gives notice to the homeowner of its intent to foreclose. How long it takes the court to calendar a hearing varies, and may take months. See Information on Consequences of Mortgage Deficiency Balance in Florida to learn more about your rights in Florida. See also the Bills.com resource collections advice to understand what may happen if you stop making your credit card payments.

DDee, Mar, 2010

I am thinking of foreclosure on my primary residence. How long does the process take, since i am thinking of saving everything I have in the bank. Also should I stop paying my credit cards? Can they come after me some how (garnish wages). I live in Florida

SSam, Apr, 2009

Thank you for your comment, Issman. If you fall behind on your mortgage (or any other credit account), other creditors may "re-evaluate" your credit worthiness as part of their periodic review of your credit reports. This process is often called "universal default," meaning that if a consumer defaults on one account, other creditors can also enforce the default provisions of their contracts. A creditor can close any credit line at any time, so there is no way to prevent this type of creditor action. Unfortunately, this is one of the many financial difficulties that can accompany job loss and loss of income.

AAnn, Apr, 2009

Saf-G is completely correct. We are in the exact same situation, except it was my primary residence b4 i got married three years ago and still cant sell or rent the unti. I am in a neg-am mortgage and owe $120,000 MORE than it is worth. I havent paid the mortgage in 5 months and 3 credit cards have been cancelled just this week. Amex, Rooms 2 go and wachovia. We both had credit scored near 800 our entire adult lives, never missed payments on the 6 homes we have owned between the two of us. This is ridiculous and embarrassing and very, very scary.

BBill, Mar, 2009

Thanks for the update.

SSaf-G, Mar, 2009

This is not entirely accurate. I am in the exact same predicament, and as a result the second property is going into foreclosure. My credit score went from 760 to 635 in a matter of months. Thus far 3 of my credit cards have been cancelled, both were Citi accounts. AMEX, Discover and some random dept. store cards are still active. I too am current onn all other accounts and have good history with the exception of this one major glitch.

BBill, Nov, 2008

Really do some hard thinking and see what you can afford to keep and what you need to let go. If you can still afford your home, then put that on the priority and stop payments to other payments such as credit cards. If you feel that there is a car that you can live without, then get rid of it. Make a tight budget and stick to it. If you feel that its not worth it to keep paying on your mortgage then start discussing about your options with the lender. It is always better to be pro-active rather than reactive.

BBill, Nov, 2008

The two of us have good paying jobs currently, one thinks she could be laid off soon. We have a large Mortgage, and a lot of other bills that one income lowering or going away would cause us to go into default. Question- Should we stop paying on everything and use the incoming money to downsize and move forward or keep trying to pay as much as we can, then in a couple of months (max)we still fail to keep up and are broke?