While foreclosures aren’t traditionally a subject most people like to discuss openly, skyrocketing numbers of foreclosures on a national scale are eclipsing rates not seen in several decades, forcing a conversation no one wants to have. Yet, even though the negative connotations of a foreclosure are as absolute as they have always been for homeowners now as in years gone by, the impact is now further reaching.
We live in a world driven by information easily accessed by an over-abundance of technology, resources and venues. Because we live in a society relying heavily on credit-worthiness to determine eligibility for things like places to live, credit cards, bank accounts and employment; a foreclosure in today’s world can mean a lot more than just a negative mark on a credit report.
*It drops your credit score
A foreclosure will instantaneously drop a credit score by over 100 points. This means that if your credit score was a 680 before the foreclosure, it will automatically become a 580 or below the day that the gavel falls repossessing your home. In addition, the foreclosure filing will follow you on your credit report for 7 to 10 years, hindering your ability to get a new mortgage, a car loan or even a credit card for many years to follow.
*You could wind up with a judgment
If the bank resells your home for less than what you owed, you are in trouble. For example, if you owed $140,000 on your mortgage and the bank sells your property post foreclosure at a price of $100,000, that bank can file a court ordered judgment against you for $40,000, which will follow you for 10 years. During this time, you will not be allowed to take out a new mortgage, until the judgment is cleared. Your ability to obtain any new lines of credit, in fact, will be nonexistent. If this wasn’t bad enough, a judgment on a credit report will lower the score by an additional 100 points.
*You could wind up with a tax lien
A foreclosure and judgment are subjected to the IRS capital gains tax. This means that once the foreclosure is completed, you could wind up with a tax bill that—if unpaid—turns into an IRS tax lien and then a judgment. Unlike a judgment from a mortgage holder however, an unpaid IRS judgment will follow you for life.
*You may not be able to buy another home
As credit and collection laws continue to change and debt resold from one collector to the next, your ability to finance a home within 10 years of a foreclosure are quickly becoming null. Depending on your circumstances, you will not be able to qualify for a new home for a minimum of 5 years after the foreclosure, but may never qualify depending on how you handle a judgment filing.
*Your credit card interest rates increase
If you paid your credit cards and neglected your mortgage resulting in a foreclosure, you may be in for another rude awakening with your credit card companies. Credit card holders with a foreclosure on record can face interest rates of skyrocketing proportion as they are now considered to be a severe credit risk.
*You could owe your employer an explanation
It isn’t uncommon for employers to require a credit check before hiring new personnel. It is becoming even more common for employers to periodically review credit files as a condition of continued employment. Individuals who hold security clearances, for example, can lose a job because of a foreclosure filing. Financial professionals can be placed on a period of probation for a foreclosure, and have their jobs put in jeopardy. Many different employers and professions will face the ugly truth of a foreclosure filing on an employee’s credit report and the results are often tumultuous. In essence, if a foreclosure is haunting you, it won’t stop with your credit.