How can foreclosure hurt you

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Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Grow Your Legal Practice. Meet the Editors. With a strategic default, you decide to let your home go through a foreclosure because it's a bad financial decision to keep it.

Learn the consequences and alternatives. What Is Strategic Default? Downsides to Walking Away If you're contemplating a strategic default, you should know the consequences and consider them as part of your decision-making process.

Deficiency Judgments In a foreclosure, the borrower's total debt might exceed the foreclosure sale price. Difficulty Getting a New Loan If you walk away from your home, you might have trouble getting a new mortgage loan. Significant Credit Score Drop A foreclosure won't ruin your credit forever, but it will have a considerable impact on your score, as well as your ability to obtain another mortgage for a while. Future Housing Issues If you plan on renting a house or apartment after a strategic default, bear in mind that it's standard for landlords to review your credit report when deciding whether to rent to you.

Job Applications While foreclosure has lost much of its social stigma, many employers routinely run credit checks on potential employees. Moral Implications of Strategic Default Arguably, some moral implications are associated with walking away from an underwater home. Alternatives to Strategic Default Some options to consider instead of strategically defaulting are: Short sale. A short sale is when you sell your home for less than the total debt remaining on your mortgage, and the proceeds of the sale pay off a portion of the balance.

Be aware, though, you might be subject to a deficiency judgment if you complete a short sale. Deed in lieu of foreclosure. A deed in lieu of foreclosure occurs when the bank agrees to accept a deed to the property instead of foreclosing.

Part Of. Preventing Foreclosures. The Pre-forclosure Period. How Foreclosures Work. Investing in Foreclosures. Foreclosure Terms A-O. Foreclosure Terms P-S. Foreclosure Terms T-Z. Table of Contents Expand. When Walking Away Makes Sense. Methods for Getting out of a Mortgage. The Double Standard. The Bottom Line. Key Takeaways There are times when walking away from a residential mortgage is the best option. During the Great Recession, many homeowners—even those with enough income to cover their mortgages—decided to walk away after their homes lost value.

Some experts claim that it can make sense to walk away from a mortgage anytime it is possible to rent a similar place for less than the mortgage payment.

Holders of adjustable-rate mortgages who own homes that have lost value are more likely to abandon their mortgages during periods of rising interest rates. If walking away is the best option, be prepared, and have a plan for your next place to live. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

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