Debt Consolidation & Maryland Credit Counseling

Three common foreclosure consequences in Maryland

With rise in cost of living and increased unemployment rate, individuals are unable to meet the monthly payments like mortgage; credit card debt etc. Defaulting with secured debt like mortgage can lead to foreclosure. With record levels of foreclosure, individuals need to be aware of the various consequences of the foreclosure other than losing home.

The first thing which gets affected with foreclosure is your credit ratings. Most commonly a person might be facing foreclosure because he lost a job, is facing divorce, suffering an illness or injury as a result, foreclosure is now stealing your home, but due to previous credit history you have good credit ratings which will get affected with foreclosure. It will affect the foreclosure in tow ways: firstly it drops your credit score around 80 points with the defaulted monthly payments recordings and second, it affect you credit score by foreclosure listed in the credit report.

Foreclosure affects your interest rates: as the foreclosure drops the credit score, lenders feel risky to lend the amount to an individual having bad credit score therefore increases the interest rates to cover the risk associated with lending to person with bad credit score.

Tax consequences of foreclosure: foreclosure of property is not the end of the story when the home owner defaulted on the mortgage payments because you may get a letter from internal revenue service department and that will depend on type of loan, loan terms and foreclosure.

Type of loan: consequences of foreclosure depend on the type of mortgage. There are two types, recourse and non recourse. If your mortgage is recourse type then you are responsible to pay for the mortgage company. In this case the mortgage company can sue you for the amount that is not recovered from the proceeds of the foreclosure. If the mortgage is non recourse type then you are not liable to repay the deficiency amount. Only thing the bank can do is sell the property and take the proceedings to pay the mortgage. In case of deficiency, you are not liable to repay the amount.

Regardless of the mortgage type, as the foreclosure is treated as a sale, it is taxable. You have to report to internal revenue service any gains from sale as an income at the same time you don’t get any deduction for any loss that is incurred during foreclosure.

Generally if the mortgage company or credit card company cancels or forgives debt, then the amount of debt that is cancelled is treated as income for individual and is taxable by IRS.

Therefore filling foreclosure has many consequences one must take necessary action before the foreclosure is filled by the lender. Before the foreclosure is filled by the lender, the borrower should receive the notice of defaults and should get enough time to remedy the default before filling foreclosure. Do not delay or ignore the notice and give response in written communication to your mortgage lender about your hardship. As the borrower gets 90 days from the time of defaults, try to rectify the issue before the foreclosure is filled.