Failure to pay a mortgage results in a lowered credit score for every missed payment, according to Reuters. After several months of non-payment, the bank sends an eviction notice and eventually repossesses the home through foreclosure. Reuters notes that different states have different foreclosures processes, and in places like New York and Florida, it may be years before a house is foreclosed on for non-payment.Continue Reading
Missing just one mortgage payment can cause a hundred-point decrease in credit score, says Liz Weston, author and credit expert. Lower credit scores make it more difficult to obtain financing for a new house, a loan for a car, credit cards and other services based on credit worthiness, like car insurance.
Stopping mortgage payments and having a home repossessed does not free the owner from IRS taxes, explains Reuters. If a homeowner owes more than the house is worth, and the bank repossesses the house, the homeowner must pay taxes on the missing amount. The Washington Post gives the example of a couple who failed to make their mortgage payments and ended up with a $30,000 tax bill after selling the home for less than the total owed on the mortgage loan. The Mortgage Forgiveness Debt Relief Act and Debt Cancellation spared homeowners from these taxes from 2007 until 2013, but the Act was not renewed after it expired at the end of 2013.Learn more about Law