The Effects of Foreclosure

For any home owner facing the threat of foreclosure, he or she should carefully consider every options before allowing the home to go to the mortgage company.  Foreclosure has long lasting effects that can haunt a person for years down the road.  Besides the obvious fact that a home owner will lose his or her house, there are other ramifications that will affect someone facing foreclosure including emotional and financial burdens.

The most common effects of foreclosure are:

1) losing the home.  

2) losing all saved equity and appreciation in the home.  Homes increase in value each year (in most cases).  The longer a person lives in a home, the more the home's value increases.  In addition, the more payments a person makes on a mortgage, the more he or she decreases the balance owed against the home.  In many cases the combination of the equity and appreciation can translate into the home owner losing thousands of dollars.

3) increased taxes.  A lender that loses money from the sale of a foreclosed home must report the loss to the IRS.  Subsequently, the IRS may require the previous owner to report the lender's loss as income on his or her next tax return and pay taxes on it.  

4) inability to borrow money in the future.  The most serious consequence facing a home owner is the immediate destruction of his or her credit profile.  A foreclosure is a serious derogatory that will label a person as unworthy for credit.  This derogatory remains on the credit report for at least 7 years.  The result may be declined applications for credit, the inability to rent an apartment, not qualifying for employment, and a host of other implications for the person.

5) lawsuits.  Though Arizona has anti-deficiency laws designed to protect home owners from lawsuits from lenders and other lien holders, a company may still be able to file a lawsuit for damages in some situations.  

6) loss of employment.  Some employers require their employees to maintain good credit histories.  Notification of a foreclosure may be grounds for an employer to fire the person from his or her job.

7) loss of self-esteem.  Emotionally the stress of foreclosure may have serious effects upon a person.  The loss of his or her home may lead to depression, loss of self-esteem, embarrassment around family, friends, and others.

There are options when facing foreclosure.  Free help and assistance is available for home owners facing the possibility of foreclosure.  If you would like to talk with someone about your situation, click here.