Purchasing a home with your spouse is an exciting time when you can have a place to call your own, decorate as you please, and gain more stability for your family. When taking out a home loan with your spouse, you should know what you’re responsible for and what the laws in your state say […]
Consequences of Foreclosing Your Kansas City Home Loan
Sometimes, people have no choice but to foreclose their Kansas City home loan due to a financial hardship. These hardships range from permanent disabilities to losing a spouse or job. Foreclosure can result in both short term and long term consequences, making it a problem you want to avoid if at all possible. The main two consequences of home loan foreclosure include:
- Taxed unpaid debt
- Credit damage
Short-Term Foreclosing Consequences: Taxes
The International Revenue Service, or IRS, considers unpaid debt as taxable income. This term includes a foreclosed Kansas City home loan. It may seem unfair to tax an amount of money you never had in the first place. However, you essentially have money you wouldn’t have had if you were still responsible for the loan.
Long-Term Foreclosing Consequences: Credit Damage
Regardless of how good your credit score was before your foreclosed Kansas City home loan, your credit score will suffer from foreclosure. In fact, people with good credit will lose more points than a foreclosing person with bad credit.
Preventing Credit Damage with a Short Sale
A short sale is when your lender allows you to sell your home for less than the amount of your loan and forgive you the difference. By achieving a “paid satisfactorily” short sale, you can keep your credit score from falling as a result of foreclosure. However, if your short sale results in a “settled for less than the full amount due,” you may still suffer some credit score consequences.
Foreclosing is not beneficial to anyone. Therefore, mortgage lenders typically have programs in place to prevent foreclosure when possible, including changing your mortgage rate with: