What are the pitfalls to let a home go into foreclosure?

Question

My morage is right around the value of my home.

Answer 1

If you are considering letting your place simply foreclose, please reconsider. Speak to the bank (or lender) and plead your case. If the first person you speak to doesn't have an answer, ask to speak to a supervisor. Be as polite as possible and you'll likely find that they'll be understanding. Look into refinancing (if you have enough equity, this shouldn't be an issue). Please don't delay. If you don't think you can make the payment, call the bank today. If nothing else, they'll have a record of first contact.

Here are some pitfalls...

Your credit score will be trashed and this will hurt you in the future since practically everything is tied to your credit score - renting a place, getting a car loan, getting auto insurance, applying for a new job, even applying for that department store credit card so you can buy new clothes at a discount (and please don't think you can just use cash for everthing - that's impratical). Don't be surprised if your insurance rates go up after all this.

You will lose your home. Once foreclosure is complete, you can't physically live in the place anymore and will have to leave. Given that your credit is junk at this point, renting a place may not be as easy.

After everything is done and the bank has taken the property back, you'll likely get a letter stating the forgiven loan amount. The bank may have forgiven the loan but the IRS does not and will consider any forgiven loan amount as income that you have to pay taxes on. If you couldn't afford the mortgage in the first place, you probably can't afford the taxes and now you have the IRS on your back - they're worse than the bank.

Answer 2

You're joking, right? You lose your home, your credit is trashed, you may be left with a deficiency judgment or taxable gain on any forgiven debt and you ask what the pitfalls are??