The Impact of Foreclosure: There’s more at stake than you think

The Impact of Foreclosure

While losing your home in a foreclosure action is devastating, there are other issues that arise which can have a serious impact on your life and future. Even though you may be having enough difficulty facing the bank trying to take your home away, if you neglect the other effects that a foreclosure has on your life, you will find more problems waiting for you down the road. The two biggest ways that foreclosures can impact someone’s life is through their taxes, and their credit rating.

Tax Issues

There are some serious tax consequences which arise when going through a foreclosure. While many homeowners in foreclosure do not think about it, after a debt is forgiven in a foreclosure action, the US government considers that to be income for the forgiven borrower. So the property owner not only will lose the property, but they likely will also owe taxes on the difference between the sale price of the property (the value of the home) and what was left to pay off on the mortgage and forgiven by the lender.

Credit Issues

In addition to the tax consequences of going through a foreclosure, you will also find that there are consequences when it comes to your credit and credit score. Mortgage records, including foreclosure records, remain on your credit report for 7 years. Foreclosures can be nearly as damaging to personal credit as a bankruptcy filing and impact your ability to borrow in the future. To minimize the damage, it is wise to keep current with all your other credit and loans.