| Foreclosure Consequences |
Besides the obvious fact that a home owner 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-troubling process for homeowners and their families. It adds additional burden to the existing financial hardship the homeowner is already facing, and will have a long lasting affect 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 will increase. In many cases, the combination of the equity and appreciation can translate into the home owner losing a significant portion of their 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 may require 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 home owner 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 can remain on your credit report for at least 7 years.
- Inability to buy a new home for several years. Current lending guidelines restrict lenders from providing new mortgages to anybody with a foreclosure for 24 – 36 months.
- Difficulty to rent an apartment. Landlords are routinely checking credit histories for all applicants, and have significant restrictions for everybody with bad credit. They could have policies for outright denial of rent, or demand significant cash deposits as well as increase rental fees.
- Lawsuits. . In many states, the lender has rights to recover part of the loan that was not repaid by the sale of the property at a public foreclosure sale. If there is a deficiency from the 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 to find 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 insurance score are more likely to file a claim resulting in a higher insurance premium.