Facing Foreclosure


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The Effect of Foreclosure on You

As foreclosures around the country increase, studies have found that at least 1/3 of all Americans believe it to be acceptable to simply stop paying their mortgage and walk away from it under certain circumstances. Setting aside any moral considerations, anyone who is considering a foreclosure as a solution to financial difficulties should make sure they fully understand the effect of a foreclosure.

It is not unusual for many homeowners to actually feel relief at the prospect of a foreclosure. This can often be the case when a homeowner has become delinquent on their mortgage and they are simply exhausted by the shame of it as well as the continual burden and anger. Even so, there can be numerous affects of a foreclosure that should be taken into consideration. While a homeowner may think they are finished with the ordeal related to their mortgage, foreclosure is not always the end of the road. The house might no longer belong to you and the harassing calls from the lender may come to an end, there are many things that are not over.

You can be assured that when you file for foreclosure, your credit score will decrease by at least 250 points; if not more. Consider how this can affect the interest rate for your credit cards well into the future. You should also consider whether you will be able to finance major purchases in the future, such as buying a car. Foreclosures stay on your credit report for at least ten years; sometimes longer. A foreclosure can very well prevent you from being able to obtain a Fannie Mae mortgage for at least five years. In addition, a foreclosure could also jeopardize future employment possibilities as well. In the event an employer decides to run a credit check, which is an increasing situation these days, you may find yourself unable to obtain a job. This is because foreclosures tend to present a challenge to security clearances and make workers more vulnerable to problems such as embezzlement.

Also, lenders do have the right to pursue homeowners for deficiency payments, except in states where such deficiencies do not exist. A deficiency is the difference between what you owed on the mortgage and what the property actually sold for. For instance, if you owed $150,000 on the mortgage and it house sold at auction for $100,000 then the lender could have the right to obtain a judgment for the remaining $50,000. Even years after the foreclosure, the bank could possibly obtain a judgment for that difference. It might not seem fair, but this is the reality that you could possibly face if you go through with a foreclosure.

Instead of having to deal with all of these negative effects, homeowners will usually be in a much better position if they use a short sale. A short sale allows the buyer to purchase the home for less than what is actually owed on the mortgage, provided the lender agrees. Short sales are not reported on credit reports. Instead, the short sale will show up on your credit report as paid in full and settled. You should be aware that your credit score will still likely go down somewhat, but not as much as with a foreclosure. Also, your credit score will be affected for a shorter amount of time with a short sale than with a foreclosure. This means it can be easier for you to qualify for larger purchases sooner with a short sale. While a foreclosure can stay on your credit report for years, a short sale may only stay on your report for 12 to 18 months. Also, consumers with short sales can still remain eligible for Fannie Mae backed mortgages after a period of two years.

In most cases, short sales also do not pose any challenges to security clearances. They also are not barriers to future employment in most cases. Generally, you will find that you can still convince lenders to not pursue deficiency judgments when there was a short sale; something that might not be possible with a foreclosure.

There is no doubt that there are affects related to a short sale, but it is often much easier to recover from those effects over a shorter time period than with a foreclosure. If you truly cannot find your way out a bad financial situation and you are delinquent on your mortgage payments, a short sale will usually be a better option than a foreclosure.



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