Here at Widespread Properties, we understand that no one ever wants to find themselves facing the possibility of foreclosure on their home–this possibility is so scary that some people aren’t even clear on precisely how foreclosures work, as the prospect was too intimidating to look into. Our team believes in giving you all the information you need to make the best decisions for your particular situation, so in this article, we’ll go over the fundamentals of what you need to know about foreclosures.
- What is Foreclosure? To start off, foreclosure occurs when the homeowner falls behind on their mortgage payments, allowing the lender to then take control of the property and sell it to the highest bidder. Depending on the lender, the area where the home is located, and the specific circumstances involved, the length of time between the homeowner missing a mortgage payment and the lender taking action can vary, with some financial institutions being stricter than others.
- What are the Consequences of Foreclosure? Once your home has been foreclosed and repossessed by the bank, there are a few other consequences that you’ll need to be aware of. One is that foreclosures has to be reported on your yearly tax statement. While the IRS will generally not tax people on “income from the discharge of debt on their principal residence,” the specific requirements vary from year to year, and it’s best to consult with an accountant or lawyer on this matter. Another thing that follows foreclosures is a significant hit to the homeowner’s credit score–generally to the tune of a 140 to 160 point reduction.