Consequences of Property Foreclosure in McAllen TX

According to CNN, the number of houses facing foreclosure in Texas was 1.06% in 2009, which was better than many other states. The trend is still positive. For example, as of September 2017, one in every 2,854 houses was facing foreclosure in McAllen, TX while US average was one in every 2,079 homes.

Consequences Of Foreclosure

Both judicial and non-judicial foreclosure types are available in Texas. If the loan document includes a power of sale clause, then the lender can foreclose the house otherwise the lender must file the case in court to obtain a foreclosure right. There are many short and long-term effects of foreclosure. Mass foreclosures can even disturb banks, housing industry and whole economy in general. On individual level foreclosure can disturb your job, financial situation and credit score.

Difficulty In Obtaining Credit

The credit score is important. In fact, every mortgage & credit card company will check your credit score before approving your loan application.

The first big blow of foreclosure is on your credit score. Lenders are bound by law to submit all foreclosures to the respective credit bureaus. Credit score would sharply drop if you had a good credit score before foreclosure. For example, FICO (Fair Isaac Corporation) score of 800+ may instantly drop by 300+ points. If the credit-score was already low, it would still fall but to a lesser degree. Low credit score will have many impacts. Your bank may cancel your credit card or may significantly reduce its spending limits. You will have difficulty in purchasing big ticket items like cars and furniture. It may take up to seven years to rebuild credit score to an adequate level again. According to FHA housing guidelines, you cannot take a new mortgage for at least 3 years after a foreclosure case was filed against you.

Emotional Side Effects

Losing home also impacts one’s psyche. Many people can handle defeat gracefully seeing it as a temporary loss, but others have a tough time. Significant financial loss even reduces self-confidence. Low self-esteem, distorted self-image, and negative social feedback loop make it very difficult to restart.

Effects On Tax Return

After foreclosure, you may receive an unaffordable tax bill. For exact details, side-effects, and implications in your particular case, you should consult an experienced tax lawyer. However, in general, capital gain or loss is related to taxable income. If the lender has forgiven a loan, IRS may consider it as taxable income and every gain in income is subject to income tax.

Foreclosure Effect On Your Job

If you have a good and satisfying job, then a foreclosure may not have any effect on it. However, if you are searching for a new job, it might become difficult after foreclosure. More and more employers do a credit check to know their employee’s financial situation.

Once they see a bad credit score, it looks to them as a red sign. If you are not competent enough and above average in your skills and experience, then this low credit score may become a reason for refusal. This is specifically true for professionals working in the finance world. So, if you have a job, by all means, stick with it.

Effect On New Mortgage Approval

Getting new mortgage becomes very difficult after foreclosure. Loan from FHA and other government-supported agencies is out of the question for 3-7 years. Bad credit score makes it very difficult to get a private loan. Private mortgage, if available will have a higher interest rate, more substantial down payment, and a bigger monthly installment. An isolated foreclosure with extenuating circumstances is an exception. In that case, you might be able to get a new loan in next 2 years.

Current Foreclosure Trends

The good news is that for the first-time, foreclosure rates are now the lowest since 2000, according to Black Knight Financial Services. These statistics mean not only foreclosures are in decline, but housing market and the economy, in general, is recovering. This positive trend is a good sign for homeowners like you.

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