After Foreclosure

After Foreclosure

After foreclosure can be a very strenuous period of time for the unfortunate homeowner who recently went through the foreclosure process. Homeowners who have lost a home to foreclosure can have great difficulty in finding a new home and repairing damaged credit scores. Additionally, there can be certain tax consequences after foreclosure and it can be challenging dealing with the emotional loss of losing a home. Homeowners are advised to learn about all of the potential consequences after foreclosure in order to adequately prepare.

The most common problems after foreclosure can be renting or purchasing a new home, lowered credit scores, deficiency judgment lawsuits, outstanding tax debt and lost money from the foreclosure process. It is important to remember these problems are not often permanent and can be overcome.

Finding a New Place to Live After Foreclosure

Finding a new place to live after foreclosure can be an arduous task. Individuals who were evicted from their previous residences may be blacklisted from renting in the future. It can also be difficult for homeowners who lost a home to foreclosure to obtain a home loan from a mortgage lender.

Beyond these difficulties, individuals can have a tough time getting the funds together for a security deposit and/or first month’s rent for a new home or apartment. In the case that a homeowner knows foreclosure is unavoidable, he or she may want to consider putting money aside as soon as possible to prepare for the next security deposit after foreclosure.

Rebuilding Credit After Foreclosure

After foreclosure, repairing damaged credit scores can sometimes feel like an uphill and losing battle. A foreclosure has the potential to lower an individual’s credit score between 100 and 300 points. It is important to remember however, damages to credit scores are not typically permanent. Homeowners who went through foreclosure may be surprised to learn they may be able to begin rebuilding credit scores shortly after foreclosure.

When looking to rebuild credit, individuals should consider applying for a secured credit card. These work like regular credit cards in that they can report to the major credit bureaus, but often require a secured deposit. With 6 months of regular use and on-time monthly payments, an individual may begin raising his or her credit score.

Purchasing or Renting a Home After Foreclosure

After foreclosure, it can feel like a nightmare trying to obtain another mortgage loan or renting a new home. Only recently, Fannie Mae revised its policies to make homeowners wait 5 years instead of 4 years to be approved for a new loan after foreclosure. Apart from repairing credit scores and waiting, there is often not much an individual can do to look very favorable to mortgage lenders after foreclosure.

Deficiency Judgments and Taxes After Foreclosure

After foreclosure, if a mortgage lender forgives a portion of the unpaid balance, this can be considered taxable income by the IRS. Homeowners may be responsible to pay taxes on capital gains for any debt forgiven. Also, if a mortgage lender does not want to forgive unpaid mortgage debt, they may choose to file a deficiency judgment lawsuit. Deficiency judgment lawsuits typically seek to recover unpaid mortgage debt plus any legal fees.

Zombie Foreclosure

A zombie foreclosure can occur when a homeowner leaves their home as a result of foreclosure proceedings, but the bank does not follow through with a foreclosure sale. As a result, homeowners may end up being financially responsible for years of unpaid property taxes, utility bills, maintenance costs and more.

How Do Zombie Foreclosures Happen?

Zombie foreclosures began to happen after foreclosure rates skyrocketed in 2008 and the banks experienced a hard time getting rid of all of their foreclosed homes. The banks were forced to hold onto properties for longer periods of time.

As owners of the properties, the banks became responsible for maintaining the properties. Maintaining the properties could have included paying homeowners association fees, lawn maintenance, home repairs, and more.

To avoid the costs associated with maintaining a property, some banks chose to stop their foreclosure proceedings before the actual foreclosure sale in order to leave homeowners responsible for the properties – unbeknownst to them. Some homeowners would vacate their homes only to find out later the banks did not transfer ownership of the title. Consequently, some homeowners were slammed with thousands in unpaid bills.

Are Zombie Foreclosures Really a Serious Problem?

The real estate data company, Realty Trac, performed a 2013 study and discovered there were more than 300,000 zombie properties in existence across the US. Florida was hit the worst by zombie foreclosures with an astounding 90,556 zombie foreclosures on the market.

The consequences for homeowners of zombie properties can be severe. After an extended period of time with unpaid expenses adding up, homeowners may have their tax returns withheld, bank accounts garnished, credit scores ruined, and even face criminal charges.

According to a March 2013 article, titled “Foreclosed ‘Zombie’ Homes Exceed 300,000 Properties: Study,” on the Huffington Post website, “Unsuspecting homeowners have had their wages garnished, their credit destroyed and their tax refunds seized… In some cities, people with zombie titles can be sentenced to probation, with the threat of jail if they don’t bring their houses into compliance.”

How Can I Protect Against a Zombie Foreclosure?

To avoid being the victim of a zombie foreclosure, homeowners should stay well informed as to the status of their foreclosure proceedings. The foreclosure process can take a very long time to run its course and homeowners should follow up regularly with their banks to keep themselves aware about the status of the home.

Homeowners should never assume they are not responsible for the home. It is necessary to follow up until the foreclosure sale has completed and the home title has been transferred.