What Happens to Owners During the Foreclosure Process?
The foreclosure process can be intimidating for some homeowners. According to the United Way of America, more than 70 percent of homeowners fail to respond to lender communication during the foreclosure process. Homeowners who might have otherwise had an opportunity to remedy their mortgage foreclosure lose their homes and are forced to find ways to start over.
Other People Are Reading
-
Relocation
-
Homeowners are evicted following the foreclosure process. The length of time each owner has to vacate the property varies by state. Some states offer homeowners months to leave the property, while others offer only 30 days. Homeowners must begin their search for a new place to live as soon as they've resolved to allow the foreclosure or have been denied mortgage assistance. It is unlikely that a homeowner will obtain a new mortgage loan, which means that renting is the most reasonable option for homeowners planning a relocation.
Credit
-
Foreclosures wreak havoc on a homeowner's credit score. If you are planning a fresh financial start after the foreclosure of your home, plan for restrictions on new credit accounts. A CNN Money report shows that credit scores drop between 85 and 160 points following foreclosure. The extent to which your score drops is based on whether your other credit accounts are in good standing. Having poor credit can cost you employment opportunities, housing placement and access to competitive interest rates. Credit cards for people with bad credit do exist, but with high interest rates and excessive fees. For example, as of 2011, First Premier Bank offers a credit card for consumers with poor credit that has a 49.9 percent interest rate.
-
Judgments
-
Some homeowners are faced with deficiency judgments following the foreclosure process. A deficiency judgment occurs when a homeowner is sued for the remaining mortgage balance on his loan. The lender can file a deficiency judgment right away or wait years until you regain financial stability. However, laws surrounding deficiency judgments vary by state. Foreclosed homeowners can contact a HUD-certified foreclosure counselor to determine whether their state allows lenders to file extended deficiency judgments.
Taxation
-
The Mortgage Debt Relief Act of 2007 protects most homeowners from taxation following the cancellation of their mortgage debt. The IRS considers the debt taxable once you are released from your legal obligation to repay. While you are responsible for the debt, it is not considered a source of income. Homeowners are responsible for cancellation of debt taxes as a form of income tax. However, if your home is your primary residence and the amount of your canceled debt is less than $2 million, you are not required to pay taxes.
-
