When an individual has an asset repossessed by a creditor or undergoes a foreclosure, the financial damage sustained by the individual goes beyond the loss of property. In many cases, the individual may face additional debts related to the costs incurred by the creditor in the course of the repossession and the foreclosure. In addition, the individual may see a drop in his credit score, making it harder for them to take out loans at reasonable rates.
Repossession
Generally, a person will only have a piece of property repossessed if he has placed it as collateral on a loan, usually one to pay for the purchase of the property, and then defaulted on the loan. The most common item to be repossessed is a vehicle. After a creditor repossesses a vehicle, he will generally sell it. If the amount the creditor receives for the vehicle is not enough to pay the costs incurred by the creditor in repossessing the vehicle and the amount outstanding on the loan, the debtor must pay the difference.
Foreclosure
When a person takes out a mortgage on a home or other real estate, he will generally put up the property as collateral on the loan. If the person does not pay back the mortgage on time, the lender may attempt to foreclose on the home, meaning that the lender takes possession of the property and the tenants are forcibly evicted. If the outstanding debt on the mortgage exceeds the value of the home, the mortgage holder may owe the creditor additional money.
Comparison
In financial terms, the damage sustained by a person when he loses a home is usually worse than when a piece of property is repossessed. The average cost of a home is higher than the average cost of a vehicle. However, the total loss sustained by an individual will depend on how much money he put into the home as compared to the vehicle, and how much he is left owing after the property has been seized.
Additional Costs
In terms of an individual's credit score, the relative damage of a foreclosure and repossession will depend on the amount of debt that was written on by the creditor. Generally, the more debt that a credit writes off on a loan, the more damage the write-off does to an individual's credit report. However, according to U.S. law, both foreclosures and repossessions can stay on an individual's credit report for a maximum of seven years.
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