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Your credit score will drop significantly. How long it will effect your credit rating will partially depend on how long it takes for the foreclosure. In California, it takes a minimum of a year. During the time the foreclosure is being processed, your loan will be reported as in default. Your credit rating can't start to recover until the foreclosure is complete.

The foreclosure is not the final financial issue. Sometime after the foreclosure is complete, a 1099-C will be issued for the amount of the default.

Have you notified the holder of the first? How far underwater is the property? I am assuming it is underwater because you haven't attempted to sell the property.
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