What to do after facing foreclosure is an extremely broad topic; after all, there are so many possibilities for homeowners to begin the process of financial recovery or make a fresh start or attempt to get their house back or qualify for a new house. How one family will respond to saving their house or losing it will be entirely dependent on their circumstances and the particulars of their experience with foreclosure, and any specific advice may be too narrow to apply to all cases.

©artur84 - freedigitalphotos

©artur84 – freedigitalphotos

In general, however, homeowners who have dealt with a foreclosure and survived to tell the tale have a number of decisions to make, both in the short term and in the context of their long-term financial lives. Dealing with a damaged credit history, attempting to qualify for a new mortgage as soon as possible, and making sure that they are protected from the next financial crisis are aspects of their financial condition that they must carefully analyze. If they do not plan how to react to the foreclosure, it is more likely they will end up in another financial hardship, possibly facing eviction again or fighting off bankruptcy.

The most immediate consequence of having a mortgage go into default or foreclosure is that the borrowers’ credit scores will drop drastically, possibly by over 200 points from their highest, depending on how many late payments they had and how they kept up with their other credit lines during the hardship. Homeowners will have to decide whether it is worth their time to work on improving this score or simply attempt to extract themselves from the credit trap and focus on savings rather than borrowing. Getting off of the credit addiction may allow these families to accumulate more assets that they own free and clear, as well as giving them the relief of never having to worry about which bill to pay this month and which ones to fall behind on.

If the owners do decide to work on their credit and improve the record, it is most likely in an effort to qualify for a new mortgage within the first few years of facing foreclosure. Whether they lost the house completely or are dealing with a higher payment due to a forbearance agreement or mortgage modification, qualifying for a mortgage with better terms can prove to homeowners that they have repaired the situation and are creditworthy again. Some of the more important aspects of this process to focus on include paying all of the other debts on time, not opening more credit lines, and disputing any inaccurate, negative information that is reflected on their credit histories. This process may take quite some time, but the rewards are usually a much higher credit score in far less time than if they did not focus on credit improvement techniques.

However, possibly the most important action for property owners to take after facing foreclosure is to analyze their current financial status and begin a monthly savings plan, even if just to establish an emergency fund in case of future crises. If they are still in a position where all of their monthly income is going towards bills, housing expenses, and basic general expenses like food and transportation, then it may be wise to consider taking on a second job, eliminating as many expenses as possible, or downsizing to a smaller house or alternative living arrangement. If there is no room in the budget for even a small savings plan, then it is unlikely the homeowners will be able to weather the next financial storm.

Foreclosure can be an incredibly destructive financial process, but it can also provide a unique opportunity for homeowners to reconsider their financial habits and plan for their future with a fresh start. With completely damaged credit, it may be in their best interests to discharge other debts through bankruptcy or focus on living without the pain of borrowing money from credit cards just to finance their lives. What homeowners specifically do after foreclosure will be entirely dependent on their economic situations, but every one of them should carefully assess their current financial conditions and plan for the future.

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