Foreclosure will be on credit report for 7 years.
BK will be 10 years.
You can stall a foreclosure sale with a BK.
IF they are being foreclosed on their original purchase money loans, 1st and 2nd, it is usually NON-recourse debt.
The loan is secured by the property, and nothing more.
They will have no tax consequences.
If they have refi’d, whether they took cash out or not, it is recourse debt, and they could well be haunted for the loss OR income tax on the loss via a 1099-C (Cancellation of Debt)
The tax consequences are not a reason to not be foreclosed on. You can only afford what you can afford.
The alternative to foreclosure is not being homeless,they will find a place to live, and probably for much less than their mortgage. It is not a terminal disease. It’s a financial business situation that people can recover from.
Most people aren’t used to having consequences of their financial decisions be negative. People don’t actually OWN homes until they are paid off. Until then you only have equity. If there is no equity today, and you put no money dow, what exactly are you walking away from other than emotion ??.
I think that many people who are getting foreclosed on will be better off once they get past the trauma. For some foreclosure is a blessing in disguise.
For those that are hanging on, they may easily owe 50% more than the home is worth, while those who walk can rebuild their lives and buy a similar home back in the future for less money, and less debt if they choose.
Although recent foreclosure on your credit is a problem to someone who wants to buy in 2007, I don’t think that will be an issue in a year or two.
With otherwise good credit and full doc, the market will be so desperate for home buyers to prop up prices, I think that a foreclosure will be overlooked with otherwise good credit.
