The consequences of losing a home have long-term ramifications. The stress will wear a homeowner and their family down both psychologically and physically. Mortgage foreclosures commonly result from death, serious injury, divorce or job loss. If you are facing a foreclosure, you may also be dealing with other traumatic and stressful situations. The impact of the foreclosure is of course financial, but there may be other long lasting impacts to your health and well-being.
Financial Consequences
The combination of foreclosure and financial losses is substantial.
Limitations
Finding a new residence will be a struggle. A foreclosure will be seen as a red flag. There can also be forfeiture of down payments and equity.
Taxes
A foreclosure is not deductible, and there may be other complex tax repercussions. The two main actions are COD (cancellation of debt) and capital gain. Taking either course may lead to a higher tax burden.
Credit Damage
Foreclosures stay on credit reports. The action triggers higher interest rates AND negatively impacts your ability to get loans, credit, etc.
Deficiency Judgments
Should the home be sold for less than the loan, the borrower could be held liable for the outstanding balance.
Diminished Wealth
With foreclosure, there is more than the loss of the home. Accumulated equity is no longer available, resulting in an exhaustion of emergency funds. There’s also a reduction in property values, which impacts entire neighborhoods.
Psychological and Emotional Impact
Foreclosure takes a toll on resilience. It manifests as hopelessness, sadness, sleep disorders, anxiety, depression, fatigue, and weight loss.
An abstract published by the National Library of Medicine shows homeowners facing foreclosure experiencing a range of stressful conditions that have even been linked to the risk of suicide. Homeowners dealing with foreclosure demonstrate an increase in diabetes, heart disease, and high blood pressure. Concentration becomes difficult, and it’s not unusual for people to suffer from obesity, stomach cramps, and chest pains.
On another level, foreclosure impacts relationships. It strains marriages and confuses children. As a result of avoiding being judged by others, homeowners are known to self-isolate out of embarrassment. There are also cases of substance abuse.
The National REO Brokers Association developed strategies for those facing the psychological and emotional stress of foreclosure.
Get Professional Help
There are counselors and therapists ready to support persons dealing with stress and foreclosure.
Connect With Others
Support groups provide a sense of understanding and community. Sharing complex emotions about the challenges of losing your home with others will be therapeutic and empowering.
Foster Open Communication
Often, foreclosure-related stress is linked to a lack of transparency. Openly discussing and encouraging family members to express concerns about foreclosure will be helpful.
Balance Challenges and Goals
Many homeowners fail to address foreclosure and its threat. Acknowledging and preparing ensures you don’t lose sight of necessary objectives. While having a place to live will be paramount, also set realistic goals for everything from tax situations to keeping loved ones confident.
Self-care
Managing the stress of foreclosure creates a tremendous strain detrimental to all other aspects of your life. Promoting mental and physical well-being will be an invaluable asset. Get proper rest, exercise, eat healthy, and engage in activities and habits that improve your health and mood.
Recovery
A foreclosure is the beginning of a decline in financial and credit stability. Recovery can take up to eight years, but it is feasible. There may be difficulties finding a job, getting credit or loan approval, and applying for a new mortgage. However, perseverance and preparation will get you through the worst. Take all the steps to mitigate this damage. This includes:
- Monitoring credit scores and reports
- Working on your payment history with steady on-time payments
- Manage your credit utilization ratio
- Get a secured credit card.
Conclusion
If you’re facing a foreclosure, put aside the fear of the worst and utilize all resources that stabilize you and your loved ones psychologically, physically, and mentally. Otherwise, you increase the chances of navigating foreclosure overwhelming you.
