Everyone knows foreclosures are bad...no news there. Besides getting set back at least four years and denied home ownership (perhaps longer is a bankruptcy is involved), there is yet something else to think about. The IRS views the gap between the owed amount and the actual sale as gain. In other words, if a person owes $200,000, experiences foreclosure, and the bank eventually sells the property for $170,000, then that person is "credited" with $30,000 of taxable income. How is this possible? The IRS calls this "phantom" income, and guess who gets to claim it? That's right...
Late fees, owed interest, attorney's fees, tax on a net loss...now factor in the emotional cost of humiliation and the time lost due to renting while recovering from a foreclosure...well, it isn't a pretty picture. If you're discovering the mortgage payment is getting harder to make each month, call a Realtor NOW. Do not wait a month or two to see if "things get better". You have too much to lose by waiting.
Everyone's specific case is different, so in addition to your Realtor, be sure to talk with your tax consultant.
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