What are the implications if my mortgage is foreclosed on?

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What are the implications if my mortgage is foreclosed on?

I am in the process of filing Chapter 13 bankruptcy. The payment plan that the lawyer has given me is more than my disposable income. I am now checking to see if foreclosure is a better option for me. I am unable to agree to a payment plan that I am unable to make. What are my options. He says I don’t qualify for Chapter 7.

Asked on December 21, 2011 under Real Estate Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

1) First, of course, if a home is foreclosed upon, you lose the home--the bank (or whomever bought/owns your mortgage) will acquire ownership of the home.

2) There will be a substantial negative impact  on your credit rating; while the credit rating agencies keep their formulas close to their vests, conventional wisdom is it hurts your credit almost as much as bankruptcy does, but for not quite as long.

3) In most, but not all states, if the mortgage is "underwater"--you owe more than the home is worth--the lender can sue you for any remaining balance left after the foreclosed home is sold. For example, say you owe $300k on a home now worth $255k; if the home brings in $255k at the foreclosure auction or through a private sale after foreclosure, the bank could, in many states, sue you for the remaining $45k (called seeking a "deficiency judgment").


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