 The
following are some of the actual consequences of foreclosure
that can affect a person's or a family's financial future. They
can also cause severe financial and emotional damage which can
last for many years.
Loss of Equity
Currently an owner in foreclosure who cannot reinstate his/her
loan by making up the late payments has only two options;
- Sell the property to a
foreclosure profit speculator for what is typically pennies on
the dollar. In doing so, most if not all of the property
equity is lost.
- Lose the property to a
trustee's foreclosure sale. This usually yields little or no
equity for the owner at all.
Credit Problems
When a foreclosure occurs the event can cause serious damage to
an owner's credit rating. The foreclosure action is recorded and
can stay on the owner's credit report for many years.
Expensive Credit
A foreclosure can really damage a person's credit. A bad credit
rating makes future lending very difficult and sometimes
impossible to obtain. The cost of future borrowing on any type
of loan or credit cards will be more expensive due to the higher
interest rates that lenders will charge. Years and years of
limited and expensive credit is a long term consequence of
foreclosure. It makes the total cost of a foreclosure very high
and a financial recovery extremely difficult.
Tax Problems
A foreclosure causes a property title transfer and tax
assessment. If an owner has taken out equity loans against a
property's appreciation and those loans are not paid back, it is
considered to be profit taking. Those loans are taxable and the
owner must deal with any capital gains tax that might be due on
the profit. Most property owners do not realize that they can
trigger a capital gain tax assessment when their property is
lost to foreclosure.
Junior Lien Problems
Sometimes when a foreclosure occurs on a property, the security
for a junior lien lender is "wiped-out". However, even when the
security has been lost, there are some loans that the lender can
force collection on through a court action. This type of debt
collection can cause severe financial pain in the future. |
