Since the start of the economic downturn in 2008, foreclosures have reached high levels in Florida and in many other parts of the country. However, a foreclosure can be very damaging to one’s credit and can make it difficult to rent another residence. Other lines of credit may lower or close and there can be financial implications at tax time.
In many states there is a period of time where the homeowner can remain in the foreclosed property and pay nothing. There is a chance during this time that a better job will come along or the homeowner will be able to save the money to negotiate a deal to keep the property. However, this can also be risky considering some of the horror stories in the news about lenders foreclosing on homes even after they’ve allegedly made deals with the property owner.
A short sale may be an option for a homeowner unable to meet mortgage obligations. In this process the bank agrees to a sale price that is less than the balance of the mortgage. In many cases, the homeowner can walk away owing almost nothing or with affordable terms to pay off the deficient balance. However, short sales can be nearly as damaging to a credit rating as a foreclosure. Another alternative may be renting out the home while temporary living arrangements are made. However, some homeowners’ associations have restrictions or outright bans on such practice as do some municipalities.
Bankruptcy may be another option for some homeowners. The relationship between a Chapter 7 bankruptcy filing and the foreclosure process may depend upon the laws of a particular state as well as the practices of the lender.
Source: Huffington Post, “Is Foreclosure Ever a Good Idea?“, October 25, 2013