What are the effects of a foreclosure?

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What are the effects of a foreclosure?

I’ve been 1 month behind on my mortgage due to a child with cancer, and so have not been able to work for 2 years. I rented my home during that time. Now I’ve moved back in and was given 60 days to get a new roof or no insurance. My credit obviously stinks and I have no money. How long will it effect the chances of purchasing another home, and how long will it effect my credit on other purchases like a vehicle? What are the legal ties to the loan after a foreclosure? Can a person claim bankruptcy on a home? If so, what are the future effect if that happens? In other words, which is the lesser of 2 evils?

Asked on July 27, 2011 Oklahoma

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

1) A foreclosure does not legally prevent you from purchasing a home or obtaining a mortgage--or other loans, such as for a vehicle--thereafter, though it IS a major negative impact on your credit. While the credit reporters do not publish their formulas or criteria, common wisdom is that it reduces your credit score by around 200 points, decreasing the chance of getting credit, reducing the amount you'd qualify for, and increasing borrowing costs. LIke most negative information, it will affect your credit for 7 years.

2) Your state appears to allow "deficiency judgments," which means that if your home is foreclosed on, if then, when sold at bankruptcy, it does not bring in enough to pay off the whole amount of the loan, the lender can sue you for the remaining balance.

3) You can't file bankruptcy "on a home"--bankruptcy affects all your debts, including the mortgage. However, you have NO right to keep the home without paying the mortgage. While there are various wrinkles depending on the type of bankruptcy (e.g. Chapter 7 vs. Chaptger 13) you file, the short answer is you can keep paying the mortgage and keep the home, or you can give up the home and discharge the mortgage debt, but you can't do both.

4) Bankruptcy affects your credit about as much as a foreclosure according to most reports--maybe a little bit more--but stays on your record for 10 years, not 7.


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