Foreclosure is the process through which involuntarily a lender starts a process of reacquiring the underlying asset before the end of a loan/mortgage agreement in order to recover the outstanding debts, or voluntarily where a borrower seeks to end the mortgage contract before its maturity due to reasons associated inability to continue making the payments due to sickness or job loss or the value of the asset been extremely low such that it  makes no financial sense to continue repaying the mortgage. Both of the moves have implications or rather consequences in the following areas:

Credit score

The credit score is the most affected when it comes to foreclosure, usually in a negative manner. This is so because first it appears on your credit report seven years, thus making it difficult and costly to acquire credit in the future. Secondly, after foreclosure you stand to lose at least 100 points of your credit score.Thirdly where employers consider your credit report before hiring you may be disqualified as they may deem that you will not make an effect employee as compared to a person who has no overwhelming debts. You may also have a challenge in finding a rental space where you might be required to convince the landlord that you will be able to make payments.

To avoid these effects some debtors seek alternatives to foreclosure such as the short sale which is an agreement between the lender and borrower; that the lender will accept a lower value than the outstanding amount as full compensation for the debt. Short sales usually have less effects on the credit score but it depends on how it is reported on your credit report for example if it is reported satisfactorily settled or close to that, then it shall not have a negative effect however should it be ‘settle for less than the debt’ this will have similar effects as a foreclosure.


Foreclosure has tax implications that accrue since the tax authority(s) consider unpaid debts as an income to the borrowers commonly referred to as cancellation of indebtedness income, meaning that foreclosures and short sales may be followed by a huge tax bill.


The above two are financial more like effects of foreclosure. It will be inappropriate to leave behind the esteem problems foreclosure causes especially after been forced out of your home stigma and/or shame may result from that incident; transferring your children to another school(s) thus disrupting their livelihoods.

Foreclosing party

More often than not these parties are construed to be winners in a foreclosure however this is not always the phenomenon, should the property be not bought at the auction it becomes a Real Estate owned (REO). The bank takes over and attempts to sell it from there. During this time the responsibility of maintaining the property and meeting the real estate fees is of the bank, not forgetting that foreclosures are very costly processes to them due to legal fees, real estate taxes and other resource expenditures.