What are the Consequences of Foreclosure?

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  • Written By: Lainie Petersen
  • Edited By: Melissa Wiley
  • Last Modified Date: 06 September 2019
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The consequences of foreclosure are severe, including the loss of a person's home, tax and credit problems, and tenant lawsuits. For many people, the most immediate consequence of home foreclosure is having to scramble to find a new place to live. In many places, home foreclosure can adversely affect a former homeowner's credit, which can cause significant financial difficulties for many years after the foreclosure takes place. Even worse, the former homeowner may have to cope with paying taxes on any forgiven amount of debt. Landlords who lose a home or building to foreclosure may also have to deal with angry tenants who sue them for damages arising from having to move before their lease expires.

Once a foreclosure takes place, the homeowner and his family may be quickly evicted from the premises. In addition to the trauma of losing their home, one of the most upsetting consequences of foreclosure for homeowners is that they may have a great deal of difficulty finding a new place to live. This is because a foreclosure can appear on credit and background checks, which may make some landlords nervous about renting to the former homeowner. The former homeowner may need to pay a significant security deposit before a landlord will agree to rent to him. As many people lose their homes because of financial difficulties, many of these former homeowners simply do not have the cash needed to pay both a security deposit and a first month's rent.


Foreclosures are a matter of public record and may be included in consumer credit reports, background screening reports, and tenant screening reports. In addition to creating difficulties for individuals who need to rent new housing, the credit consequences of foreclosure can make it difficult for someone to obtain new credit, increase her credit limits. or secure favorable interest rates. In fact, one of the lesser known consequences of foreclosure is that some creditors will increase the interest rates on debts owed by existing customers if the creditor identifies a foreclosure on that customer's security report.

Other possible consequences of foreclosure include tax debt and compensation owed to tenants who lose their home as a result of their landlord's foreclosure. In some places, any debt canceled in a foreclosure may be subject to taxation, and the former homeowner may be responsible for paying a large tax bill. If the homeowner had tenants and the tenants are forced to find new housing during their lease term, they may be able to sue their landlord for breach of contract. In such cases, the cost of defending a lawsuit or paying a lawsuit judgment will only add to the former homeowner's financial problems.


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