When you buy a home, you don’t plan on losing it through foreclosure or having to sell your home through a short sale. Ending your home ownership experience this way is emotionally painful, plus hard on your credit. On a positive note, though, you have a chance to start fresh to rebuild your life. There are several major challenges presented by foreclosure.
Dealing with a sense of loss. Losing your home can lead to a feeling of failure and cause stresses in your family. You may feel that life is out of control, especially if you stay until the sheriff comes to evict you. A housing counselor may be able to help through some of feelings, while helping you forge a concrete plan for your future.
Finding a new place to live. You may qualify for relocation assistance to help you put a deposit on a new place or pay for some moving expenses, but without help, relocating can be costly. Some landlords may be reluctant to rent to you after foreclosure or may want a larger security deposit. Depending on were you live, the rent may not be much less than the mortgage, although your overall expenses will probably be less.
Owing a balance and taxes. If you default on your mortgage, and your home is sold for less than the mortgage balance, your lender can come after you for the remaining balance in many states. Even if you win that battle, the IRS might send you a 1099c because it considers your forgiven balance as taxable income. You will have to prove that you are insolvent in order to take advantage of recent laws to absorb homeowners of tax liability.
Coping with your finances. If the mortgage was the main financial obligation you had that put your finances out of whack, you have a chance to live within your income when that is gone. If you have many other financial obligations you cannot pay, you may need to take further action like declaring bankruptcy, although that is a last resort. In any case, you will have a lower credit score as a result of the foreclosure.
While being in financial trouble with your home is not fun, one way to lessen the blow, if you have equity, is to sell your home to a reputable company which buys houses. This process will relieve you of your mortgage debt within a week and perhaps even offer you some upfront cash to help you get settled. You will still have to leave your home, but you will be able to move on our own terms.
Question for Comments:
What do you regard as the worst aftermath of foreclosure?
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