Foreclosure can have some consequences that you may not be aware of. If you are facing foreclosure, it is important to understand the potential implications to make an informed decision about your options.
What is foreclosure?
Foreclosure is the legal process by which a lender attempts to recover the balance of a loan from a borrower who has defaulted on their payments. The process can vary depending on the state’s laws in which the property is located, but generally, it involves the sale of the property at auction.
As a borrower, it is always advisable to learn about a foreclosure sale, which means your rights are being garnished. The following are some key points to keep in mind if you are facing foreclosure:
- The lender can pursue a deficiency judgment
It means that if the property is sold at auction for less than the outstanding balance of the loan, the lender can sue the borrower for the difference. Not all states allow lenders to pursue deficiency judgments, but in some cases, the borrower may be responsible for the unpaid balance even after the foreclosure sale.
- The debt will be reported to the credit agencies
A foreclosure will appear on your credit report for up to seven years and will significantly negatively impact your credit score. It can make it difficult to obtain new lines of credit, secure a mortgage, or even rent an apartment.
- You could be evicted from the property
If you are still living in the property when it is sold at auction, the new owner has the legal right to evict you. It can be a stressful and emotionally difficult experience, so it is important to be prepared for it.
- You may have to move
Even if you are not evicted from the property, you may still need to move if the new owner does not want to continue renting. It can be disruptive and expensive, so it is important to plan accordingly.
- You may owe taxes on the debt
In some cases, the IRS may treat the unpaid balance of the loan as taxable income. It can result in a significant tax bill, so it is important to be aware of this possibility.
- The foreclosure will stay on your credit report for up to seven years
A foreclosure will negatively impact your credit score and stay on your credit report for up to seven years. It can make it difficult to obtain new lines of credit or secure a mortgage during that time.
- You may have difficulty renting an apartment
Many landlords use credit scores to screen applicants, so a foreclosure can make it difficult to rent an apartment. It is especially true if the foreclosure was recent.
- You may have to move
If you are still living in the property when it is sold at auction, you may need to move if the new owner does not want to continue renting. It can be disruptive and expensive, so it is important to plan accordingly.
A foreclosure can have some negative consequences, so it is important to be aware of them before defaulting on your loan payments. If you face foreclosure, talk to a housing counselor or an attorney to learn about your rights and options.
