There are many foreclosure consequences that you may not have thought of before. Foreclosure is more than just losing your home. Foreclosure consequences can follow you for years and years to come. So before you contemplate just walking away and losing your home, consider these seven consequences.
- Renting a New Home. One of the first foreclosure consequences to contemplate is where you are going to live after the foreclosure. Renting a home is not easy to do for someone with a foreclosure on their credit report. If you were unable to pay your mortgage payment, then how can you pay deposits, rental payments, deposits for electric, water and phone? Once there is a foreclosure on your credit, sellers may want double the deposit that is normally charged. Plan ahead before allowing a foreclosure to go through.
- Credit Problems. When there is a foreclosure, your credit will be ruined for years to come. A foreclosure will stop you from purchasing anything for at least three years and will remain on your credit report for at least seven years. Even if you write a letter of explanation, most creditors will never ever see the letter. All they know is that you had a house foreclosed on and you just walked away.
- Emotional Depression. You work your entire life to afford a home and then “BAM,” it is gone. Your children have to give up their friends, you have to move to a strange area and you are flat broke. Depression sets in and you may feel hopeless. The emotional aspect of foreclosure is very devastating. The consequences of a foreclosure amount to more than just money, you feel desperate and some even think of ending it all.
- Trying to Buy a Home Again. If you had problems renting a home, how do you think you will ever buy a home with a foreclosure on your credit report? Foreclosure consequences definitely include difficulty in buying a home again. Banks are turning down class A+ buyers, so how about someone with a foreclosure on their credit? In order to buy again, you may need to take out a B loan which means higher interest rates and more lending points and fees.
- Possible Tax Problems. After the foreclosure when your lender sells your home, you may get a tax bill that you were not planning on. The difference between the amount you owed and the amount the lender recovered is taxable. So any money not paid back to the lender is considered income and the IRS sends out a 1099C to the owner of the foreclosed property.
- Explaining to People WHY? Foreclosures are published in the newspapers and notices are posted on your home that you have to move. Everyone in your neighborhood will know you have a foreclosed property. You may have to explain to your boss, your family and even your Sunday School teacher what happened. You thought your worse problem was walking away from the home of your dreams and now you are humiliated by everyone.
- Lawsuit, Deficiency Judgment. A foreclosure consequence that many owners are unaware of is the fact that a lawsuit or deficiency judgment may be filed against the owner of the property. In most cases the owner of the 1st mortgage will not file unless you have known assets. Normally deficient judgments are filed by owners of 2nd and 3rd trust deeds that were not compensated for their loss. This deficiency judgment does not go away and the owner of the deficiency judgment may garnish your wages or pursue your other assets, such as your bank accounts and other properties.