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Buying another home of one's own
Fannie Mae has just upped the length of time it takes from the completion of a foreclosure sale until the borrower can get a new
mortgage from four years to five years.
The extra year is designed to deter what Fannie Mae believes are borrowers who have made reckless debt decisions.
But foreclosed owners who can explain that extenuating circumstances -- typically situations beyond someone's control, such as a job
loss -- are the impetus for the foreclosure must wait only three years.
Perhaps the best option for obtaining a mortgage after foreclosure is with a federally insured FHA loan, says Jerry
DuPaw Jr., a McHenry, Ill., mortgage loan officer.
The minimum time between the completion of foreclosure until when you can be approved for an FHA loan is three years --
whether or not there are extenuating circumstances. Still, FHA borrowers will have to show that they've been practicing good bill-paying
habits since the foreclosure.
Owing a potential employer an explanation
Should you lose your job as well as your home, your new job hunt shouldn't be hindered by the subject of your foreclosure coming up in
job interviews -- unless you're applying for a job in which you handle money.
"We recommend that employers do credit checks when they are concerned about how financially responsible someone is --
which may be for any money-related position from a cashier to an accountant," says Robin Throckmorton, a Loveland, Ohio, human resources
consultant.
The federal Fair Credit Reporting Act has rules employers must follow, such as notifying the applicant of the credit
check, and most companies limit checks so as not to run afoul of the law.
If a foreclosed owner is applying for a financial job, he or she should have an explanation ready, perhaps describing
how the foreclosure has changed some of his or her personal money-management skills today, says Throckmorton.
Getting hit with a tax bill
It seems like the ultimate injustice: You lose your home, and then
weeks or months later you open the mail and find a bill for taxes
on the amount of mortgage that the lender was never able to recover
from the sale of the property.
Anytime debt is forgiven, it's a potentially taxable event. You are not paying back money that you borrowed, so that money
is considered income by the IRS.
However, there are some exceptions. Last year, Congress passed relief for foreclosed owners -- but only those who lost
their principal residence and didn't have a mortgage that they had previously taken as a cash-out refinance to use the proceeds for expenses
other than improving their home, says Julian Block, a tax attorney and syndicated tax columnist in New York City.
But foreclosure victims may still not have to pay a tax tab, even if they had a cash-out refinance. That's because the
IRS has long allowed taxpayers to escape a bill on forgiven debt if they are insolvent. If, for instance, you receive a Form 1099c from
a lender saying it couldn't recover $5,000 of what it was owed, but your debts exceed your assets to the tune of $15,000, you must file
Form 982 with your tax return to clear your tax obligation.
Living through loss
The emotional toll of leaving a home and neighborhood is impossible
to quantify. One recent report released by First Focus, a Washington
advocacy group, finds that some 2 million children are likely to
be impacted by foreclosure in some way, including the disruption
of being placed in a new school after a move.
One glimmer of hope is that the large numbers of foreclosures today may lessen the stigma of the event, says
Throckmorton. She remembers when job applicants had to explain frequent changes in employment, because jumping from job to job was frowned
upon. "Now that's considered normal -- with foreclosures so much in the news, it may prompt people not to make judgments."
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