How Foreclosure Affects Property Owners

What’s so bad about a foreclosure? I mean, I would just lose the house, right?
If losing the house was all that took place, foreclosure would be much impactful on a homeowner than it really is. A “deficiency judgment” may occur once the property is foreclosed upon by the lender, as that lender has taken a significant financial loss on the property.

A foreclosure can negatively affect you in many ways:

• Foreclosure is attached to your personal credit report and may stay there for 7-10 years
• The lender(s)/lien holder(s) may seek a court ordered deficiency judgment(s), which may personally attach to you and your credit
• The deficiency judgment may lead to the garnishment of your future wages
• The deficiency judgment may negatively affect your current and future employment
• Foreclosure may make it difficult for you to obtain future loans, especially qualifying for a new mortgage to purchase a new house

Note: Often overlooked during a stressful period is that a foreclosure can stay on a person’s credit history for up to 7-10 years. Though many property owners in a negative equity and upside down financial position are distressed and may not initially care about the circumstance they are unaware of the consequences that can occur from this.

A Foreclosure generally reduces a property owner’s credit score by 250-280 points. Most employers check credit reports of current employees. The property owner could possibly lose their position with the company due to this information. Since most employers now run credit checks and background checks, many of these employers may not even be hiring those who have recently gone through foreclosure, as it can be seen that the individual’s work ethic is in question.

Foreclosure Bank Loss Example:

Let’s say the loan value of the mortgage that the property owner signed for and agreed to pay is $100,000 and the foreclosure sale produces a buyer at $30,000. There is now a $70,000 loss to the lender. The lender now has the legal right to seek the deficiency judgment against the property owner. Since the property owner most likely did nothing to prevent the foreclosure, the lender may come after them for the difference. This becomes a personal judgment attached to their name and credit report for 7-10 years. As you can see the damage from a foreclosure can affect the property owner and their loved ones much more than they typically are aware of.

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