Do you Know the Consequences of Foreclosure?

In case you are threatened by a Foreclosure process, chances are high, that you were unable to pay your mortgage to the lender for a considerable length of time. And in case the lender of mortgage decides to take away your home because of violation of terms namely payment, you might think that there is nothing you can do about it, but in fact you have several options to choose from, such as filing for bankruptcy, refinancing, short sale, temporary arrangements with the lender or to choose the „deed in lieu” procedure instead of the foreclosure. All these serve well for you to avoid the foreclose procedure.

But before finding out more on the solutions, first you have to know what legal, credit and tax consequenses you might have to face by a foreclosure.

First of all the worst consequences will be in connection with your credit, no wonder as the lenders are normally financial institutes namely banks. If someone fails to pay anytime in their life over the stated 30 day period, it will always remain as a black mark in their credit report, it will serve bad credit scores and it will automatically mean the denial of any further applications for any loans, mortgages, maybe even credit cards. Any of such bad listing in the credit report means bad scores for the borrower and it takes up to 3 years to reestablish our credit score back to normal. The worst effect on the credit score is caused by either the foreclosure itself or when the real estate has been lost due to a deed in lieu.

One of the quite few positive things about a foreclosure is that if you bought your real estate with mortgage more than 2 years ago, then according to a 2007 law called „Mortgage Forgiveness Debt Relief” Act even it is sold either by Short sale or auction for less than your actual debt, you will not have any obligation to pay tax on that difference in rates, and also the lender will not ask it from you. In case you bought your home with mortgage either less than 2 years ago, or have applied tax-deferred capital gains, the national tax office gets back its right to obligate you to pay further tax.
The two key-terms widely used besides a foreclosure process both having strong connections with it, either as cause or as an outcome are missed mortgage payments, and short sales.

"Missed mortgage payments”, means when the borrower fails to pay the mortgage over the deadline acceptable by the lender, normally in 30 days, that means that the foreclosure will be applied on the real-estate.

Short sales are, when someone sells the real-estate under mortgage and foreclosure procedure for a lower price that the actual debt is. Due to the mentioned Act of 2007, lenders now can not sue the short sellers on the payment of the difference.

Seek advice from a legal expert!

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