Do you Know the Consequences of Foreclosure?
If you have ever been threatened by foreclosure, chances are high that you were unable to pay off your mortgage to the lender for a considerable length of time. However, if the mortgage lender decided to take your home away due to term violations, namely payment, it may have lead you to think that the situation was futile. But there are actually many ways to avoid the terrible consequences of foreclosure. People threatened by foreclosure have the option to file for bankruptcy, refinance, short sale, negotiate temporary arrangements with their lender or utilize the deed in lieu procedure.
Although it is beneficial to learn about the ways to avoid foreclosure, you must be prepared for the worst as well. There are several tax, credit and legal consequences of foreclosure.
One of the major consequences of foreclosure is damage to your overall credit. If someone fails to pay off his or her mortgage over the stated 30-day period, it will remain as a black mark on his or her credit report. Failing to pay off bad credit scores automatically results in denial of any future applications for loans, mortgages and credit cards. It could take a person up to three years to stabilize their credit score. Damage to your credit score is caused by either the consequences of foreclosure or real estate being lost from a deed in lieu.
Although there are many consequences, there are also several positive things that can result from foreclosure. One of these positive things are if you bought your real estate with a mortgage more than 2 years ago then, according to a 2007 law called the Mortgage Forgiveness Debt Relief Act, it can be sold either by short sale or auction for less than your actual debt. Furthermore, you are not obligated to pay taxes on the difference in rates and the lender will never ask it of you, if you bought your real estate more than 2 years ago. However, if you bought your real estate with a mortgage less than 2 years ago, or have applied tax-deferred capital gains, the national tax office has the right to make you pay further taxes on your property.
Two of the many key terms that describe the consequences or causes of foreclosure are short sales and missed mortgage payments. Both of these key terms are widely used and have a strong connection with the foreclosure process.
Missed mortgage payments are when borrowers fail to pay their mortgages over the deadline acceptable by their lenders, which is normally within 30 days.
Short sales occur when someone sells their real estate under mortgage and foreclose their property for a lower price than what the actual debt is. Due to the aforementioned Act of 2007, lenders nowadays cannot sue short sellers for the payment difference.
Seek advice from a legal expert!