Foreclosure is a serious financial event with the potential to wreak havoc on one's credit score. A foreclosure is a legal procedure in which a lender or creditor—typically a bank—is granted ownership of a mortgaged property to compensate for the borrower's failure to pay their mortgage. In its simplest sense, a foreclosure is when a homeowner stops delivering their mortgage payments, and the lender reclaims their interest in the home.
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The foreclosure process begins with the homeowner's loan being declared in default. Usually occurs after they cannot make payments for months or even years. When this happens, the lender will launch foreclosure proceedings and approach the courts to reclaim the property. The homeowner is evicted, and the lender resells the property to recoup their losses.
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Although the homeowner has already been evicted, this marks the beginning of the post-foreclosure process, wherein the lender will continue to seek payment. If the homeowner can not pay the total amount owed, the lender will submit the debt to a collection agency to recoup their losses. Once the debt is with a collection agency, the homeowner's credit score will be significantly impacted.
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The first thing that usually lands on a homeowner's credit report after foreclosure is a notice of default, which is a notification that the lender has filed suit to recoup their losses. In most cases, this stays on the individual's credit record and is a significant warning sign to potential lenders. The effects of an individual's credit can vary greatly depending on how long the foreclosure took and how delinquent their payments were.

Aside from the public record of a foreclosure, the direct effects on a credit score will depend on two main factors: the amount of debt still owed and the individual's other credit history. The amount of debt still owed will affect the credit score in two ways. The first is that the unpaid balance will be reported to the credit bureaus as a negative mark and will lower the person's overall credit score. The second is that foreclosure may occur with little or no payoff of the loan balance. It will also reduce the person's credit score, as the lender will report the unpaid debt in addition to the foreclosure.
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Also, if the total debt you owe is more than what the foreclosure sale brings, the difference between the debt and the sale price is called a "deficiency."

​The lender can seek a personal judgment, called a "deficiency judgment," against the borrower to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount using typical collection techniques, like telling your employer to deduct money from your paycheck or forcing your bank to take money out of your account.

Consequences

​A deficiency judgment can place your assets at risk. A judgment gives the judgment owner the legal right to go after your assets to satisfy the judgment debt. For example, the bank may be able to garnish some of your employment wages. It may also be able to seize money in your checking or savings accounts up to the amount owed under the judgment. Plus, the bank may be able to place a lien on your property.

Considerations

​A deficiency from foreclosure can follow you for several years. Even if you're insolvent now or currently lacking assets that the bank can seize, a judgment gives the bank the legal right to pursue payment of the judgment from you for years to come. Judgments have statutes of limitations, and within this time frame, the bank may try to seize your assets. This period will vary from state to state. For example, the statute of limitations on judgments in Florida is 20 years.

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