Chances are that if you think the worst, in terms of outcome, you’ll probably be pretty close to the mark.
The first blow will be to her credit score – the foreclosure or deed in lieu will trigger a significant drop in her credit score.
The most immediate next event will probably be that she has trouble renting (or purchasing) and will get socked with less than favorable terms. This will occur about the same time that most of her credit cards take advantage of their terms and conditions and move her credit rate up past 20%. This may cascade its way into some creditors cancelling or reducing the amount of credit they are willing to extend to her. She could see an increase in her insurance rates for her car(s) as well as her life, in general, turning into a living hell.
Finally, she’ll have to deal with the tax consequences of the debt liability foregiveness that the lender will turn into the IRS. The only thing that could make this worse is if the State of California jumps on the bandwagon and she will then have entered the 7th ring of hell.
If she is having trouble making her payments or is in a loan that is to adjust any time within the next 5 years she should take immediate action either in the form of refinancing into a better loan or selling the property or mentally preparing for the consequences of the situation.
