Foreclosure is a legal process in which a bank, a lender, a mortgage company or any other lien holder attempts to satisfy a debt by taking over the homeowner’s property. The lender or the bank may sell the property to pay off the debt or may take ownership. Whatever the situation, it is severely damaging to the homeowner in a number of ways.
Sadly, not many people understand the actual consequences of foreclosure, which is why they agree to undergo them. If you have this process looming over your head, you need to know the aftermath you’ll be facing in the future.
Effects on Credit Rating
Foreclosure is bound to hurt your credit score. The extent of its effects may vary, but bear in mind that each late payment will eventually show up on your credit report. Apart from that, when a property does face a foreclosure, an entry is made in the section that covers legal proceedings. In addition, if you have other debts falling behind – for example, credit card, billings and car payments – the effect will be doubly damaging.
There is often a tax penalty which people never realize. In certain situations, if a property sells for less than the amount owed, the balance of the rest of the loan is normally forgiven. However, the IRS considers this balance as its income because the homeowner would have had to pay it but managed to weasel their way out of it. As a result, the homeowner is taxed on the difference between the amount of the house sold for and the actual amount owed.
Even if the bank or the lender has foreclosed your property, you won’ be getting out of your bad spill for a long time. In fact, a foreclosure can result in stripped wages and your inability to purchase other real estate for yourself.
Loss of Home
Foreclosure not only puts you in a terrifying financial position, but also renders you homeless since you’re forced to give up your investments in your home. The prospect of homelessness also puts you in the need of coming up with funds for housing, which includes a deposit and a month’s rent in advance to move into a new place. Sadly, many people take out cash using their credit cards only to end up getting themselves into a deeper financial mess.
Because of these, it’s always better that you go for a short sale. Even your lenders will like this option since it means less financial burdens for them. However, to learn about short sales and carry them out, it’s always a good idea to have a professional help you. So, get in touch with an experienced real estate agent to help you avoid the aforementioned issues and get what you deserve.