Foreclosure Consequences
One of the big downfalls of a foreclosure are the taxes that can accrue afterward. Most people don’t realize that if their lender takes a home under foreclosure, or what is also called the short sale, if the lender does not sell that house for as much as the loan is worth , the home owner can actually be liable for taxes on the amount of unearned income when that sale occurs. So the homeowner in foreclosure not only loses the home, he/she still stands to pay out additional money to balance out the lender’s loss.
If you are facing a foreclosure, never walk away from that transaction. Even if that foreclosure happens and if there happens to be a tax liability, its a good idea to check back with your lender and go over the paper work , to make sure that all the number are correct. If it turns out that there really is a tax liability and your lender is not willing to work with you on it, then should contact a tax attorney in your area and get them to look over the paper work and give you advice.
Now lets talk about your credit score after a foreclosure. A foreclosure will affect your credit ratings the same as a default payment will show on your credit card. Foreclosures last 7 years on a credit report as opposed to bankruptcies that last 10 years.
What about getting another loan ?
It is advisable to not try to get another loan for at least 12-18 months after foreclosure. So stay loan free for at least 12-18 months. If after that point your are looking to get another loan you should first take a close look at your credit reports and work to improve your ratings which are probably pretty damaged . So review all credit reports immediately before reconsidering attaining another loan or mortgage.
To improve your credit ratings,you may want to reduce your credit cards to no more than 5 and try to consolidate your balances if your have more than 5 credit cards.
Another consequence to foreclosure is that not only will your credit score be affected, the credit card companies will periodically review your accounts, and when they notice a foreclosure in your records , you will most probably subjected to higher interest rates in the future.
As we can see , a foreclosure has many more consequences to the consumer that just losing their homes . If you are facing a foreclosure , the best thing is to move quickly. The foreclosure process can take up to a year , so you will have time to look at some options to save your home. If you are not more than 90 days behind on your mortgage payments, your lender will be much more likely to try and work with you to help refinance your home.
If you are in dire financial trouble and you foresee that you will not be able to make your future mortgage payments, you may want to consider the HASP Home Owners Affordability and Stability Plan .
For more information you can visit www.financialstability.gov
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