The Psychology of Foreclosure

Foreclosure; that's right I said it. A lot of people treat it like a dirty little word they whisper behind their hand. With the economy tanking and job losses, foreclosure has become a reality for a lot of Americans. Some are people who bought too much house. Others decided to get an interest only mortgage or an adjustable rate mortgage and can no longer afford the payment. For some, medical bills and other emergencies have drained all their resources.

What is foreclosure? Foreclosure is when you are no longer able to make your mortgage payments. The bank will begin proceedings to take the house in lieu of payment. It will mar your credit score for years to come. You could be slapped with a deficiency judgment. This is the difference between what you owe and what the bank is able to sell the property for.

Now there are a lot of people out there who like foreclosure. It provides cheap homes that they can potentially flip. For most though, foreclosure can be a devastating loss. People will hang on to their homes long after they realize it just isn't a feasible option anymore. Why do people do this?

The people who have the easiest time with foreclosure are those who look at it as an investment choice. For some reason, their investment in the building is no longer working out so they cut their losses and move on. For others though, the house is a part of their family. It has tick marks and growth charts on the wall. It has memories.

Before you go through the process of foreclosure, educate yourself. There are a lot of aspects you will need to be familiar with.

Find out how it will impact your credit. Foreclosure will drastically reduce your credit score. That being said, if you are behind on payments for your mortgage or other bills, have collection agencies calling and cars repossessed, your credit is already going to be trashed. You can live without credit.

Find out the tax implications. They sell the house for less than what its worth, then the government could consider this income. Find out what you will need to report on your tax return.

Research what it will mean for any future home ownership. There have been new regulations regarding this topic. It can be several years before you legally could qualify for another mortgage.

Lastly, try every option you have before going through it. Some banks will work with you with loan modification and payment deferment. It's important to communicate with your mortgage holder.

Society has put a stigma on foreclosure. If you foreclose on your house, that means you are a deadbeat loser who won't pay their bills. Society has turned what is in essence a business and financial decision into a black mark against the character of the person themselves. It is important to understand that having a foreclosure is not an indication of your character as a person. Life can happen. Medical bills and emergencies arise. Step back from the emotional aspect and look at the situation from a business perspective. No one wants to foreclose on their house. Sometimes, it is unavoidable.

Credit can be rebuilt. Another home can be bought in the future. There is life after foreclosure.