Sticky: The Effects of Foreclosure on Homeowners

02 April, 2012

A foreclosure is a result of people failing to pay their mortgage, which can be the result of any one of these factors: sudden loss of or decrease in income; or the ballooning of one’s expenses as a result of unexpected events like sudden illness which can result to huge medical bills, and natural catastrophes than can signal the need for extensive home repairs. Foreclosures have negative effects on various sectors of society, including the homeowners, the youth, the community where the foreclosures happened, and the nation as a whole. Among these, the group that is obviously the most affected is that of the homeowners (since they are the ones who directly experienced the impact of having their homes taken away from them). The points below are most of the effects of foreclosures on homeowners:

  • Homelessness – For people whose homes are their only property, foreclosures mean the loss of a place to live in. This can result to them staying on the streets or in a relative’s house, or seeking shelter from government-funded temporary living facilities. Any of these options can result to the second effect, which is
  • Displacement – Being uprooted or displaced from one’s home can have severe psychological and emotional effects not only on the homeowners but also on their children. Starting anew in another place means investing one’s time and effort in forging new relationships, and familiarizing and adapting to one’s community.
  •  Bad credit rating – Since foreclosures happen because the borrower defaulted on his mortgage, it goes without saying that a person’s credit rating will fall if his home is foreclosed. A bad credit score can affect a person in many ways, the most common of which is difficulty or the inability to get a loan application approved. This can be most unfortunate. If a person lost his home and cannot get a new house loan, the choices left to him are few and oftentimes unacceptable.
  • Unemployment – The loss of a job can be a result of two direct effects of foreclosures, namely: displacement and a negative impact on one’s credit score. With regard to the first point, losing a home and moving to a new place, more often than not, means letting go of one’s current job and looking for another one. This is unfortunate, as with the effects of the recession in recent years still largely felt by the population, looking for a new job is easier said than done. With regard to the second point, a lot of employers require their employees to maintain a good credit standing. A less than satisfactory score can result to the loss of advancement opportunities and/or suspension. And if one is unlucky enough to encounter an employer with stringent policies regarding his or her employees’ credit rating, there is a high probability that termination will be the effect of a low credit score resulting from foreclosures.
  • Loss of self-confidence / negative effect on self-image – For most people having their own home is a source of pride and is telling of the level of success they have attained. That said, foreclosures affect homeowners in the sense that they feel like they are a failure for letting their homes be foreclosed. As a result their self-confidence suffers, and they view themselves in a far less positive light.