FAQ About Foreclosure
Anyone considering a foreclosure will probably have a lot of questions to ask about the process and the ramifications. If your lender is filing a foreclosure, you may want to contact the staff to see if there is anything you can do to save your home. If the foreclosure is complete, it can be detrimental to your credit report.
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Will I Be Responsible For The Balance After Foreclosure?
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When a home goes into foreclosure it will be sold to the highest bidder. Sometimes there is a remaining balance. Depending on the state you live in and your lender, you may be responsible for the deficient balance. If you are responsible, it's a good idea to contact the lender and make payment arrangements. Make sure the payments are affordable. Don't accept payment arrangements that put a strain on your budget.
What Happens If I Don't Pay The Balance?
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If you decide not to pay, the lender may get a deficiency judgment through the court. Once a judgment has been received, the lender has many options of collecting the funds, such as a bank levy, wage garnishment, as well as a lien on any other property you may own.
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Will I Have To Pay Taxes On The Forgiven Debt?
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The lender may decide that you don't have to repay the deficiency balance. The deficiency balance will be written off to bad debt. This is considered forgiven debt. Unfortunately, you may have to report the forgiven debt as taxable income when you file your taxes. You may receive a 1099-C, which is a debt cancellation form, in the mail from your lender. Upon receipt of the form, contact a real estate attorney or a professional tax person and get advice on how to proceed.
How Will a Foreclosure Affect My Credit?
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Your credit score could be reduced by 250 points because of a foreclosure. This will negatively affect your ability to get approved for credit from other lenders. A foreclosure can remain on your credit for approximately seven years. As time goes on, the foreclosure will have less and less of an effect on your credit report.
Will Any One Approve Me For Credit After Foreclosure?
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After a foreclosure you will need to re-establish credit. Some credit cards that may approve you for credit are secured credit cards and credit cards that specialize in approving people with bad credit. A secured credit card requires you to have a bank account, and the amount of your deposit, which is usually $300 to $500, will be your credit limit. If your payments are late, they are taken from your bank account. The "bad" credit cards will approve you for a low credit limit and a substantial number of fees. Both type of credit cards will have high interest rates.
When Will I Be Able To Buy Another Home?
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After a foreclosure you will be able to purchase another home, but not immediately. The best thing to do is re-establish credit and pay your new creditors on time. It may be three or four years before you will be able to purchase a new home.
Is It Better To Do a Short Sale or Foreclosure?
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If you decide to do a short sale, your credit score will not suffer as much as a foreclosure. The drop in score will vary from consumer to consumer, but you should see a reduction of 80 points. A short sale could remain on your credit file for seven years as well.
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