Consequences of Foreclosure in California

The consequences of foreclosure in California go beyond dollars and cents. Many California homeowners fell behind in their mortgage payments due to the economy and/or because affordability issues were ignored by lenders and buyers.  Unable to find the help they needed to avoid or stop foreclosure, many are are now facing the consequences of foreclosure in California.

Consequences of foreclosure #1 - no roof over your head

First, they must live with the loss of their home.  A recent report by First Focus, a Washington, D.C. advocacy group, finds that about 2 million children are likely to be affected by foreclosure in some way, including the need to change schools. 

Fortunately, the negative stigma of foreclosure is not what is was.  Many good and reasonable people are finding themselves facing foreclosure. Unfortunately, it's now considered normal. 

With foreclosures so much in the news, it may prompt people not to make sound judgments.

They must also find another place to live.  Even though renting is usually much cheaper than owning, this comes at a time when they lack the cash for a deposit and first month's rent.  Homeowners facing foreclosure need to retain some cash to keep a roof over their heads after foreclosure.  

Consequences of foreclosure #2 - bad credit and high interest charges

Foreclosure will affect their interest costs on credit cards, car loans, etc.  Foreclosure affects credit scores. "Credit cards have a 'default' rate, and (foreclosed owners) could see their interest rate jump to as much as 30 percent," says John Ulzheimer, president of consumer education for Credit.com. 

If a foreclosure is an isolated event on an otherwise good credit record, consumers may be able to rehabilitate their records and garner better loans and card rates in 24 months, Ulzheimer says.

Consequences of foreclosure #3 - not being able to buy a home

The consequences of Foreclosure includes hampering the ability to purchase another home. 

Fannie Mae increased the length of time it takes from the completion of a foreclosure sale until the borrower can get a new mortgage from four years to five years.  The extra year is designed to deter what Fannie Mae may believe are borrowers who have made reckless debt decisions.  In contrast, distressed homeowner who sold their property using a “short sale” are only required to wait two years.

Consequences of foreclosure #4 - poor job prospects

Another consequence of foreclosure might be an impaired ability to get a new job, especially if it is in the financial sector or involves the handling of cash.  To be considered for some jobs, a foreclosed owner may need to be prepared to answer questions regarding their money-management skills.

Consequences of foreclosure #5 - unforeseen taxes

In some situations, the foreclosed owner may need to be concerned with owing taxes after losing his/her home.  While most homeowners are eligible for tax exemption, taxes could be owed especially if the property is non-owner occupied and the owner took out cash when re-financing the property or on a home equity line of credit (HELOC).

The main lesson to be learned from this is that distressed homeowners can avoid these negative consequences if they get assistance from a competent foreclosure avoidance company.  For example, one thing you can do is sell the property in a short sale.  The negative impact on credit score and taxes can be avoided.  A new property can be purchased in as little as two years, or when you are ready. 

With the extremely low prices that are currently available in this economy, it makes sense to pursue this option and avoid the negative consequences of foreclosure in California.  If you do this, you will likely find that you are much better better off compared to your other alternatives.