Foreclosure is far from the worst thing that could ever happen to you. If your home ends up in foreclosure, chances are there are lots of things you should thank your lucky stars for: your family, your health and your good looks. Foreclosure doesn't mean you are irresponsible or not deserving of prosperity. It can be the result of an unwise decision, bad timing or unfortunate life events. Nevertheless, foreclosure and its first cousins, missed mortgage payments and short sales, do have credit, legal and tax consequences. Here are the consequences of each: Missed Payments * Other than your lender's late fee, there are no credit or other consequences of a mortgage payment being late until it is 30 days late. * One 30-day late mortgage payment can drop your FICO credit score from 50 to 100 points. * If you resume paying mortgage payments after missing one payment (without making a catch-up arrangement with your lender) that one late payment will become a "rolling late," reported as first 30 days late, then 60 days late, and so on. * Most mortgage lenders will not make a mortgage or refinance to a borrower with more than one 30-day late mortgage payment on their credit report within the 12 months preceding the application for credit. All lenders will charge you a higher interest rate and impose tougher terms if you have any "mortgage lates" on your credit report. * Late mortgage payments will be reflected on your credit report for seven years, but the negative impact on your FICO score will decrease as the late payment recedes into the past. Short Sale * When you sell your home for less than you owe on it, and your lender writes off the debt, your FICO score will drop between 80 to 100 points. * It will take approximately 18 months of consistent, on-time credit payments to restore your credit score to a level where you will be able to get a new mortgage with good interest rates and terms. * Legally, mortgage and lien-holders must agree to extinguish their debts for the short sale to proceed; they cannot sue the homeowner to recover the shortfall. * Until December 2007, homeowners of properties sold through short sale were charged with taxable income for every dollar of debt forgiven through the short sale. Under the Mortgage Forgiveness Debt Relief Act of 2007, though, mortgage lenders will not charge owners of foreclosed homes with taxable debt relief/income through the end of 2009. * If you bought your home less than two years ago or purchased your property using tax-deferred capital gains in the course of a 1031 exchange, there might be capital gains tax implications of your short sale. Consult with your CPA in either of these situations. Foreclosure and Deed in Lieu of Foreclosure * If your home is lost to foreclosure or you give it back to the lender via a deed in lieu of foreclosure, your credit score will go down by 250 to 280 points. * It will take about three years of consistent, on-time credit payments to restore your credit score to a level where you will be able to get a new mortgage with good interest rates and terms. * Even if your lender is entitled to come after you for the difference between the market value of your home at the time of foreclosure and what you owe on the home, they almost never do. * Tax-wise, mortgage debt relieved through foreclosure used to be potentially taxable as income, depending on the mortgage. Under the Mortgage Forgiveness Debt Relief Act of 2007, mortgage lenders will not charge owners of foreclosed homes with taxable debt relief/income through the end of 2009. * If you bought your home less than two years ago or purchased your property using tax-deferred capital gains in the course of a 1031 exchange, there might be capital gains tax implications of your short sale. Consult with a CPA if you are considering a short sale in either of these situations. http://www.frontdoor.com/Home-Finance/How-Foreclosure-Affects-Your-Future/1003 They almost never do ?
You can't get blood from a stone. Most people who are foreclosed on have no assets to go after so for the lender to spend more money in legal fees to win a judgment against someone who can't pay is a pointless waste of money and time. Only recently have "strategic defaults" become popular with folks walking away from properties that they can afford but simply do not want to keep making payments on because they have negative equity. Strategic defaulters in recourse states who have assets should not assume the bank will not go after them for their loss. Banks may be so busy that they don't immediately sue for a deficiency judgment but if I were a strategic defaulter in a recourse state I wouldn't sleep well until the statute of limitations ran out.
Doesn't matter. They can still file a judgment which not only sticks to you for many years in most states, but it then attaches to any other assets you might have, keeps you "dragged down", etc. OR here's what they can also do (and this is my theory) Deficiency let's say is 30K overall. That's a tough one to collect or settle. So, they just mark it to some lower number (hey they can mark-to-market, they can make this up too), let's say 10-12K. Little easier to collect or settle. Then package those off to debt collection companies for another cash infusion. Heck, consumer isn't going to know better right? Keeps the ball rolling in that department. Although I'm sure there is probably some obscure level of statute to pursue on this (in the states they can), they don't immediately have to. Some (very) scattered stories in the media have had people pursued/filed on 3+ years after the foreclosure/short sale occurred.
short sale can be between 200 and 300 pt fico hit. Time period can be up-to 36 months for your score to recover. People are tying to make it sound like a short-sale is a way-out with little consequence; this is not the case.
A profitable business is buying these deficiency balances, waiting till the last possible minute to bring suit for a judgment (generally 3 â 6 years) the go after them for wage garnishments, attachments etc... By 6 years they have usually recovered financially, donât want to file bankruptcy as can have new assets. If you are facing a situation where you could be hit with a deficiency balance lawsuit years later, my take is you are better off just filing bankruptcy so you can really start over vs. someday risk getting a law suit for this balance. look up zombie debt
What about overweight and physically repulsive people with broken families? Often these conditions are self reinforcing. Darwin speaking up, I guess?
I looked into that once, but it was with old credit card debt. I saw some companies selling $1 million dollars worth of credit card debt for $2k. Even if you only get 10% of the people to pay, and only pay 10 cents on the dollar to settle, its a 500% return on investment. Of course, its time consuming and nobody wants to be an "annoying debt collector"
this article was written in early 2008 when most people who defaulted were deadbeats with no money. nowadays, people who default are deadbeats with money and substantial assets. you can bet banks aren't going to let them off the hook easy, especially when the deficiency is in the hundreds of thousands