The primary consequence to consider in the event of a foreclosure sale is, naturally, losing one’s home. However, it goes beyond that—there are many more unfortunate effects associated with a foreclosure.
Many people who are behind on their mortgage payment may fear the foreclosure process and try to avoid foreclosure with loss mitigation or a loan modification. However, sometimes foreclosure happens quickly, and you will need to take quick action on a notice of default.
If you fear your house may be subject to foreclosure proceedings, taking quick action to prevent foreclosure should be top priority for homeowners.
Loss of a Home in Foreclosure Sale
Homeowners know that a home means far more than just a place to live; it is where you raised your family, became part of the local community, and built-up countless memories.
Unfortunately, if you are behind on the mortgage and face losing your home, a foreclosure or short sale can make your house feel like a source of stress instead of a place of joy.
If your house goes through foreclosure, you could lose your house and all of the money you have put into it. This could cause other big problems for you beyond what you experience financially.
Locating a New Residence
Facing foreclosure by your mortgage lender can be a devastating experience, as not only will you lose your house, but it could also make finding another place to live more difficult due to the lasting consequences on your credit report and credit score.
Unfortunately, if you are hoping to secure a federal mortgage immediately following a foreclosure, buying your dream home right away is out of the question.
For those who have gone through a foreclosure with their mortgage, it is typically necessary to rent for one or two years. Unfortunately, you may be met with resistance as landlords are often not eager to take on tenants coming from a mortgage foreclosure.
However, obtaining housing can still be achievable; just ensure that you plan ahead and come prepared by having higher deposits ready plus the first and last month’s payment in-hand.
Effect on Credit Score and Credit Report
If you don’t make your mortgage payment in a timely manner, the consequences on your credit report could be dire: your credit score would likely decrease by up to 135 points.
Unfortunately, the credit score effects will only worsen if the foreclosure is completed and you lose your home; with that outcome, it’s estimated that this number increases to 160 lost points!
Your credit status will still drop to fair or poor even if you had a good credit score previous to skipping mortgage payments. Any time your credit history shows missed payments, credit scores will drop.
Your future finances will suffer if you are facing a low credit score. You might be turned down for loans or credit cards, and even if you are approved, the new credit will have a significantly higher interest rates, which will wind up costing you considerably more overall.
Since your FICO Score is updated each month, you can start to repair your credit over time.
The Economic Effects
Being in a stable financial situation means that you never have to worry about the potential costs of foreclosure. Though, unfortunately for those who have extenuating circumstances, the beginning foreclosure proceedings can cause severe economic devastation.
Arkansas is not a judicial foreclosure state, which means that in order to foreclose on a property, a mortgage holder doesn’t have to take you to court through the legal process. Instead, lenders can provide the required notices to a homeowner and begin foreclosure proceedings without going through a judge.
Extra Money Owed on Mortgage Payments
If you owe more than the loan amount on the house, you might even have to pay your mortgage company out of pocket after the foreclosure. After tacking on debt on top of the home loan for fines, penalties and fees, sometimes a house sells for less than the total loan.
If that happens, the borrower may have to pay more.
If you owe more than the home is worth, a lender may seek to obtain a deficit judgment against you. As such, it will be your responsibility to settle any outstanding debt associated with the home.
The lender might even take legal action by obtaining court orders for bank or wage garnishments in order to ensure that you make payment of this amount due.
It is crucial to contact with a foreclosure defense attorney who can assist you in negotiating a settlement with the lender to prevent deficiency judgements.
Even if an agreement is made, the discharged debt is still regarded as taxable income, which necessitates tax filing and payment. A lawyer can also provide you advice on how to avoid these repercussions.
The Effect on Emotional State
Losing your house is terrible, and the foreclosure procedure is frequently arduous and draining. Additionally, you could need to downsize drastically, which could result in social stigma. Even if there are no negative effects on your personal life, losing your home may make you feel ashamed or embarrassed.
It is crucial to keep in mind that anyone could experience foreclosure; it does not imply that you are financially negligent or have poor money management skills. Even while remembering these things is useful, a foreclosure will probably still leave you with significant emotional scars.
How a Co-Signer is Affected
If you have a co-signer on your mortgage, they will be impacted by the foreclosure as well. Your co-signers’ credit score and financial capabilities are at risk of being damaged in the same manner as yours.
If the home is sold and the sale does not cover their full debt amount, creditors may pursue a deficiency judgement against the co-signers as well. They must also still pay taxes on any discharged deficiency debt.
It is essential to speak with an Arkansas foreclosure defense attorney who can explain all of the legal possibilities available and provide guidance on how to protect your co-signers from having their creditworthiness and financial standing damaged due to the foreclosure.
It’s important to recognize that while not always obvious, foreclosures can have far-reaching repercussions on both the homeowner and any co-signers of their mortgage.
Foreclosure in Arkansas can be a lengthy process, which means you have time to set up a strong defense – and for that, we’re here to help. If you’re struggling to make your mortgage payments, get in touch with us right away at for expert foreclosure defense and legal counsel.
