Foreclosure’s consequences not always understood

Few people fully understand the ramifications of a foreclosure, said Sally Scrimgeour, a certified distressed property expert with Coldwell Banker Burnet in Chaska, Minnesota.

Distressed homeowners reach out to solve mortgage troubles.

“If you go to apply for a job and you have had a foreclosure, and that is a question that is asked of you, employers say that is potentially one of the top reasons they rule out a candidate for employment,” she said. “Also, there are some employers who do periodic checks on people’s credit.”

Scrimgeour advocates short sales, in which the homeowner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds to the lender usually in full satisfaction of the debt.

Lenders are more open to short sales because their loss is much less than with a foreclosure, Scrimgeour said.

“Frequently you have the homeowner still in the house taking care of the property and paying the utilities,” she said. “The home is maintained and the landscape is being watered. Frequently the homeowner is still keeping up with their homeowners association fees, and they’re usually paid up on their property taxes until their payment goes delinquent.” “What seller’s don’t realize is the do not write a check for commission if their are no proceeds.”

In a foreclosure, all of those expenses are on the lender while there is no income from the loan, Scrimgeour said.

In a foreclosure, the homeowner’s credit score will drop by at least 300 points, while a short sale usually results in a loss of  as little as 50-150 points, Scrimgeour said.

“In maybe as little as 18 months, if you do a short sale, you can requalify for a mortgage,” she said. “If you’re going through foreclosure, it might be five years, seven years or 10 years, and with some people they may never be able to buy a house. You’re really risking a lot.”

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