It could be daunting – even scary – to undergo a Power of Sale or foreclosure. This stressful event in a homeowner’s life can, unfortunately, have long-term consequences. These legal processes not only result in the loss of property but also have dire consequences on one’s financial health, particularly hurting the credit score. This article will look at the impact of the Power of Sale and foreclosure on credit scores in Ontario and presents practical solutions for fixing it. It emphasizes the importance of proactive financial management and seeking support to rebuild credit.
A borrower failed to make payments on their mortgage? Now the lender is legally allowed and entitled to use either of these procedures to recoup their losses. In Ontario, when a lender initiates the power of sale procedure, it permits the lender to sell the property. With minimal involvement from the court system! In foreclosure, there is some court involvement, and the property is seized. The borrower loses their home at the end of each of these procedures. Because the power of sale is effective and preferred by the lender, it is often a little faster and more prevalent in Ontario.
Foreclosure and power of sale, unfortunately, have a noticeable and long-lasting effect on credit scores. The borrower’s credit score immediately drops significantly when a lender initiates a Power of Sale or foreclosure since it is reported to credit bureaus. The reduction can vary from 100 to around 160 points, depending upon the person’s credit history. For a maximum of seven years, this adverse entry remains on the credit record, impeding the borrower’s ability to get fresh credit, reasonable interest rates, and employment prospects.
Recovering from the credit score damage caused by a Power of Sale or foreclosure is a pragmatic process that requires time and consistent positive financial behaviour. Initially, the borrower’s credit score will rise slowly. Over time, with diligent effort, it is possible to rebuild and improve the credit score. You would need to avoid taking on more credit at the same timeline, reduce outstanding debt, and process your current payments timely.
Reconstructing your credit score after a Power of Sale or foreclosure does involve successive proactive measures. You must understand that the process would not be super quick, it may even appear quasi-static without enough effort. You have to get your finances in order but where do you even start? Above all and firstly, remember that late payments can damage your credit score; ensure to pay all of your bills on time. Payments can be automated as well.
Taking care of any high interest debt you may have is also crucial. Pay down your high-interest bills first, then progressively reduce the total amount of outstanding debt by lowering your debt burden overall. It all comes down to consistency. Keep an eye on your credit reports and dispute any errors or discrepancies that can drag your credit score. Consider applying for a secured credit card. Secured credit cards would require a cash deposit as collateral. Using a secured card responsibly can help rebuild your credit history. Also, having variety in sorts of credits, such as portion advances and rotating credit, could majorly affect your score. However, the borrower must avoid opening too many new accounts at once.
Managing your financial health after a Power of Sale or foreclosure requires a methodical and clear approach. Furthermore, making a comprehensive budget to track your income and expenses can help manage finances much more effectively and stop you from overspending. Saving up for an emergency fund to cover unexpected expenses provides a financial cushion and helps avoid further going into debt. Seeking advice from credit counselling professionals can also be helpful. These experts can be useful in developing a debt management strategy and in offering appropriate and understandable advice on enhancing one’s financial health. Payday loans and high interest rates have drawbacks that should be understood because they might lead to a never-ending cycle of debt. Looking for more manageable and affordable credit options is advisable.
You can’t be restricted by choices in the current world. There are numerous alternatives to Power of Sale/Foreclosure, so exploring them can help protect your credit score. You could try renegotiating your mortgage terms, like extending the loan term or changing the interest rate. But these measures won’t be feasible for everyone.
Requesting forbearance offers temporary mortgage relief and helps prevent losing your home. Selling the property for a sum less than outstanding owed debt with the lender’s approval, known as a short sale, can be less damaging to your credit score compared to a Power of Sale or foreclosure, but it isn’t an optimal solution. You can transfer the property deed to the lender, known as forfeiture of title, to avoid foreclosure and minimize credit impact.
Losing your home to Power of Sale or foreclosure can severely affect your credit score. The financial effects would be lasting as well. However, you can recover and rebuild your credit score steadily by implementing these processes and taking needed action. Safeguard your financial health by managing money wisely, seeking expert advice, and exploring alternatives to Power of Sale or Foreclosure. If you have questions or need clarification, contact us at 416-499-2122 or ron@powerofsalesontario.ca. We are glad to assist.
jonathan August 20th, 2024
