Consequences of foreclosure
Foreclosure doesn’t just affect your credit alone. Once a home is lost to foreclosure, the homeowner’s credit score will drop by as much as 250-280 points. Only three years or more of on-time payments will restore the credit score. In case the foreclosure is an isolated event and the credit record is otherwise sound, consumers may be able to rehabilitate their records in 24 months. But this is a rarity as foreclosure normally comes hand in hand with escalating rates that only push the individual deeper and deeper into debt.
While it’s common to hear about money issues and foreclosure, few realize the tax consequences of such a process. A foreclosure brings about a property title transfer and subsequent tax assessment. Most property owners do not realize that by losing their home to foreclosure, there are likely going to be tax implications.
Basically, any time debt is forgiven; it is considered a taxable event. The IRS states that any borrowed money that is not paid back is considered as income and is taxable. A mortgage involves the bank or lender granting funds to the owner in return for a promise to pay the funds back. When the owner begins repaying the money, this money is not claimed as income on their tax return. If, however, this debt amount is canceled or forgiven, it will have to be included as income for tax purposes. The loan amount is considered as income because there is no longer an obligation to repay the lender for the same.
GETTING ANOTHER HOME
It is common, following a foreclosure, for the borrower to seek a future mortgage. While it might take some time and might be a bit more difficult, it is certainly not impossible to purchase a home following a foreclosure. Most lenders will require a waiting period before they would consider a loan application. These waiting periods vary depending on how the situation lies. For example, the waiting period for buying after a foreclosure is 5-7 years… for buying after a short sale it takes 2 years.
If foreclosed owners who can explain the extenuating circumstances… generally situations beyond one’s control, they may experience a shorter waiting period. Situations that may be a factor could include death, illness, job transfer or accident resulting in severe injury. If there are documented extenuating circumstances, they could have a direct bearing on the number of years to wait to get a conventional loan.
GETTING A NEW JOB
In the event that foreclosure leads to relocation, there are times when a new job hunt is necessary. Unless the job being applied for deals with the direct handling of money, there is no need for a foreclosure to be referred to in a job interview. The federal Fair Credit Reporting Act has rules that all employers must follow.
These include notifying a job applicant before conducting a credit check. Most companies limit checks as a result. The only instance where this does not apply is if a foreclosed owner is applying for a financial job. In such situations, the individual should have a ready explanation about the reasons behind the foreclosure and how the process has changed his or her personal money-management skills as a result. This is often enough to alleviate any potential employer issues.
These are a few of the problems that one can face as a consequence for foreclosure this is why it is required that you get help in order to avoid even being on the brink of mortgage or if after that not being able to pay up and risk losing your home!!!