Foreclosure Penalties


When you go through foreclosure, you will have to deal with some penalties. Some penalties will affect your credit and financial status. Reestablishing credit can be difficult, and you will have to pay a higher premium for credit. That's why you should make sure you have exhausted all alternatives to foreclosure.

Credit Score

  • When your property is foreclosed upon, your credit score can drop by 250 to 280 points. Credit scores are used by lenders to determine the likelihood that you will default on a loan -- and a foreclosure, of course, is the result of a default. Credit scores, also known as FICO scores, generally range from 300 to 850. The higher your score, the better chance you have of getting a lower interest rate on credit.

Deficiency Balance

  • As part of the foreclosure process, your home will be sold at a sheriff's auction, which is a public auction mandated by the courts. The proceeds of the sale will go toward the balance you owe on your mortgage. If the sale doesn't cover the balance, depending on the state you reside in, the lender may require you to pay the difference.

Effects of Bad Credit

  • A foreclosure can remain on your credit report for seven years, making it very difficult to get approved for new credit. Even if you are approved for a loan, your interest rates will be higher than the market rate. Credit card issuers will probably also charge you a number of fees that other applicants don't face, such as an application fee, an account setup fee, a program fee, an annual fee and monthly servicing fees.

Secured Credit Card

  • You may have to apply for a secured credit card as a way to reestablish credit. A secured credit card requires you to open a bank account with an initial deposit of $300 to $500, which is your credit limit for the card. If you default on the credit card, payments will be taken from the account. This type of account has a high interest rate in addition to an annual fee.

Other Hazards

  • A foreclosure can affect your ability to get certain jobs. You also face a certain amount of emotional stress and anxiety when you go through a foreclosure. It can be quite some time before you are able to buy another home. If you had any equity in your home, you'll probably lose it all.


  • Photo Credit Joe Raedle/Getty Images News/Getty Images
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