Almost 4.5 percent of mortgaged U.S. homes were in foreclosure in the third quarter of 2009. That’s the highest rate in 37 years of data collected by the Mortgage Bankers Association!
A foreclosure leaves the former homeowner with badly damaged credit (scores may be lowered anywhere from 250 to 300 points) eliminating their ability to purchase another home for at least 3 and up to 5 years as compared to a homeowner who successfully negotiates and closes a short sale who could be eligible for a Fannie Mae-backed mortgage after only 2 years. Foreclosures remain as a public record permanently, and on a person’s credit history for 10 years or more. Consequently, any time a credit report is pulled to purchase insurance, purchase or lease a car, or to obtain other types of revolving credit, the borrower can expect to pay a significantly higher interest rate as a result of the foreclosure.
Most people don’t know that a foreclosure can potentially affect a person’s ability to get or retain a job. Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination. Even more concerning is the fact that a foreclosure can affect a person’s ability to acquire or retain a security clearance. This is a significant consideration for current or potential police officers, persons in the military, CIA, security positions or any other position that requires a security clearance.
Most importantly, know that Michigan is a Deficiency Judgment state. What this means is that lenders can pursue a deficiency judgment through the court system for losses incurred during the foreclosure. Those costs include the unpaid loan balance, legal fees for the foreclosure (which average about $8,000 to $10,000 or more per property), accelerated interest and even pre-payment penalties—in some cases the deficiency judgment could be more than the amount originally borrowed. One recent news article stated that mortgage recoveries through deficiency judgments rose 48 percent to a record $1.01 billion in the first nine months of 2009 as compared to the same period in 2008.
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