- A drop in your credit score – your credit score can take a big hit from those missed payments. But the extent to which your credit will be impacted is a matter of some dispute. According to the American Bankers Association, a strategic default/foreclosure can cost you between 100 to 400 points on your credit score. Foreclosures will stay on your credit report for seven years.Meanwhile, Fair Isaac, the company that created the FICO score, says that a strategic default/foreclosure typically shaves roughly 150 points off a person’s FICO score. (FICO scores range from 300 to 850 points). And experts from YouWalkAway.com, which helps people who are going through strategic default, say that it’s more common for clients to have a 100 point drop in their credit score, with the score often rebounding in less than two years.
- Tax liability – even though you’ll be protected under the Mortgage Forgiveness Debt Relief Act of 2007 (which extends through 2012) from paying federal taxes after a foreclosure, you might still be responsible for paying state taxes. These are imposed on unpaid debts and can cost you more than you had planned.
- You want to get a new mortgage within three years – if you want to get another mortgage within the next three years, you could be out of luck. Some lenders will be unlikely to sign off on that loan when they see a foreclosure or strategic default in your credit history.
“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox , co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.