How Foreclosures Work

By: Charles W. Bryant

Effects of Foreclosure

Multiple foreclosures can devastate a community.
Multiple foreclosures can devastate a community.
William Thomas Cain/Getty Images

The most obvious effect of foreclosure is that you now find yourself without a home. Many people rely on family at this point to get them through the coming months. Some people are able to afford to move into an apartment while they get their finances back on track. Sadly, some people that suffer foreclosure find themselves homeless. Most states have homeless prevention programs that assist people who are down on their luck and in need of a boost. If you've been foreclosed on and have no housing options, check with your state and local department of human services to see if they can assist you.

Your credit rating is another way foreclosure can affect you. While being foreclosed on does have a negative impact on your credit rating, it doesn't damage it beyond repair. Credit ratings are based on your credit history, so the foreclosure will be factored in along with everything else. If you had a good rating before you fell behind on your loan, you might be surprised at how high your credit score is after you foreclose.


The most important thing to do after foreclosure is to try and repair your credit. Make sure all your other accounts are current and paid up. You may try and secure a smaller loan -- making payments on this loan will help you repair your credit. You may even be able to secure another home mortgage at a less-than-prime rate with a large down payment.

If you've been foreclosed on, you may have trouble finding or keeping employment. Some employers require a good credit rating to get hired, and foreclosure can even be grounds for termination. Stress and depression are also common effects of foreclosure. A lack of self-esteem and self-worth are typically associated with people that have lost their homes.

The trickle down effect of foreclosure can also have a serious impact on your community. One foreclosure can ring up as much as $34,000 in local government agency bills. Trash removal, unpaid utilities, sheriff and police costs, inspections and potentially even demolition of the property all contribute to that cost. Property values also decrease near foreclosed properties. In some housing markets, up to $220,000 in reduced property value can be expected [source: Apgar, Duda, Gorey].

You can learn more about foreclosure and the housing market by looking into the links below.

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More Great Links­


  • "About the Servicemembers Civil Relief Act." Department of Homeland Security, 2007.
  • Apgar, William C., Mark Duda, and Rochelle Nawrocki Gorey. "The Municipal Cost of Foreclosures: A Chicago Case Study," February 27, 2005. documents/2005Apgar-DudaStudy-FullVersion.pdf
  • Christie, Les. "Crime Scene: Foreclosure.", November 19, 2007.
  • Christie, Les. "Foreclosure Rates up big in December.", January 2007.­_up_from_2005/index.htm
  • "Foreclosure procedures by state." Realty Trac, 2007.
  • "Foreclosure Statistics.", 2007.
  • "Foreclosure." Encyclopedia of Everyday Law. Ed. Shirelle Phelps. Gale Group, Inc., 2003. 2006. November 29, 2007.