Foreclosure Consequences:
Besides the obvious fact that a homeowner will lose his or her place to live, there are other ramifications that will affect someone facing foreclosure, including emotional and financial burdens:
- Losing the home. Foreclosure is a very difficult and emotionally-devastating process for homeowners and their families. It comes atop of already existing financial and other problems, and has long-lasting effects for years to come.
- Losing all saved equity and appreciation in the home. Homes increase in value each year (in most cases). The longer a person lives in a home, the more the home's value increases. In many cases the combination of the equity and appreciation can translate into the homeowner losing a significant portion of life savings.
- Increased taxes. A lender that loses money from the sale of a foreclosed home must report the loss to the IRS. Subsequently, the IRS requires the previous owner to report the lender's loss as income on his or her next tax return and pay taxes on it.
- Inability to borrow money in the future. The most serious consequence facing a homeowner is the immediate destruction of their credit profile. A foreclosure is a serious derogatory item that will label a person as unworthy for credit. It will remain on the credit report for at least 10 years.
- Inability to buy a new home for a long time. Current lending guidelines restrict lenders from providing new mortgages to anyone with a foreclosure on their record for at least 5 years.
- Difficulty in renting an apartment. Landlords are routinely checking credit history for all applicants, and have significant restrictions for anyone with bad credit. They could have policies of outright denial to rent or demand significant cash deposits as well as increase in rental fees.
- Lawsuits. In many states the lender has the right to recover part of the loan that was not repaid by the sale of the property at a public
foreclosure sale. When there is a deficient amount realized from a foreclosure sale, the lender can sue the borrower and get a deficiency judgment against all other assets of the borrower, causing the borrower to be personally responsible for repayment of the loan. - Loss of employment, difficulties in finding another job. Some employers require their employees to maintain good credit histories. Notification of a foreclosure may be grounds for an employer to fire the person from his or her job.
- Increase in insurance premium rates. Insurance companies
routinely use credit scores to calculate their risks (regardless of insurance type – including auto, life, health, etc). Statistically, people who have a poor credit score are more likely to file a claim resulting in higher insurance premiums. - Challenge to security clearance. Foreclosure is the most challenging issue against a security clearance, outside of a conviction for a serious misdemeanor or felony. If a client has a foreclosure, and is a police officer, in the military, a government employee, a security officer, or any position that requires a security clearance, in almost all cases, clearance will be revoked and position will be terminated.
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