There are a number of reasons for foreclosure that will not only take your home away but also will ruins your credit score. A foreclosure can happen to almost any of the homeowner who is having difficulty paying mortgage installments. Once a homeowner is behind making payment, then the homeowner is at risk of having the property taken away by the lender.
Foreclosures also negatively impact the homeowner’s credit report for seven years. If nonpaying a home is the part of the American Dream then losing a home is fast becoming the new American Nightmare. Foreclosure is the process by which lenders have the legal right to recover their loan by repossessing the property that the loan was for and reselling it to recover their loss. The process begins when borrowers miss their loan or the mortgage payment. Foreclosures have become too much commonplace. Foreclosures are also happening to the people in all income brackets and all kinds of neighborhoods. There are several reasons fore foreclosure and some of them are give here:
Major Reasons For Foreclosure:
- Illness: – According to the University of Illinois Extension illness is one of the major reasons for foreclosure, whether the homeowner suffers or a close family member. A homeowner who suddenly receives the thousands of dollars of medical bills, then he might be unable to keep up with the mortgage payments. As well as some medical conditions may put him out of work and cause the additional financial burdens.
- Divorce: – According to the University of Illinois Extension divorce can cause a lot of problems in keeping up with the mortgage payments and may be one of the main reasons of foreclosure. Depending on the terms of divorce one person may become responsible for the payments of the house and not allowed to keep up with them. The stress of the divorce process and impaired communication may also lead to the missed mortgage payments.
- Job Loss Reason of Foreclosure: – Fired or out of work for personal or medical reasons can also lead to a default mortgage and can lead to be one of the reasons for foreclosure. Unemployment and disability payments even if the homeowner is eligible for such benefits they can rarely cover the costs of living and mortgage payments.
- Unexpected Maintenance Expenses: – If anything goes wrong, then the homeowner is responsible for maintenance and repairs. If the air conditioner is broken or a roof is leaking, then the wallet of the homeowner is protected. Such unexpected expenses can make possible for the homeowner to address the problem and keep up with the mortgage payments.
- Death Reason of Foreclosure: – According to the University of Illinois Extension when the main provider of a household dies, then often the surviving family members end up losing their home to foreclosure. In such case a housing counselor may be able to help to avoid the foreclosure, but only if the surviving spouse is able to work or to cure some of the defaults through the proceeds of life insurance.
- Negative Equity Reason of Foreclosure: – It is right to say that the negative equity, mean that the owners owe more on their loans than the house is worth and it is one of the major reasons of foreclosure. Negative equity and being underwater is considered an important reasons for foreclosure because the homeowners with equity have options that they can refinance or sell if they are facing trouble-making their payment.
- Five D’s of Foreclosure: – Other than this fact that the majority of the foreclosures is driven by negative equity from the price declines, but as well as there is a base rate of foreclosure that happens even during the best economic times and housing markets. This base rate can be easily be explained and understand by the Five D’s of foreclosure;
- Death: – The passing of a head of household can very quickly result in foreclosure.
- Divorce: – In most of the divorce cases, spousal support and house payments are missed. More common is one refusing to leave and the other refusing to pay.
- Drugs: – Drug use and abuse impairs judgment and fixes become a higher priority than house payments.
- Disease: – Catastrophic illness, chronic disease, lack of health insurance coverage, or a primary provider falling ill, any of these can significantly impact a homeowner’s ability to make mortgage payments.
- Denial: – A home is a person’s castle and security. Individuals often refuse to acknowledge that their home can actually be taken from them if they fail to meet their financial obligations.
- Adjustable Rate Loans: – Adjustable rate mortgages are very appealing to homebuyers because of the low initial payments. Sometimes individuals who enter into these loans do not fully understanding the potential risk involved. The payments often increase much more and much faster than expected. This often leaves the homeowner unable to meet these higher monthly payments.
- Financial Irresponsibility: – This is one of the most preventable reasons for foreclosures. This is not necessarily a matter of a lack of income or debt overload. Occasionally, individuals enter into a mortgage without the personal discipline to give proper priority to such a large obligation. In these situations an individual has gotten behind in their mortgage payments out of neglect and are overwhelmed with the mounting interest and penalties that have accrued on top of their missing payments. Sometimes these individuals have also provided a very small down-payment or none at all which gives them even less incentive to prevent foreclosure.
- Relocation Reason of Foreclosure: – With the downward slide in the economy and housing sales, relocation can leave a house sitting on the real estate market for months or even years. Most commonly homeowners who can no longer afford to finance two residences will opt to go through foreclosure as a means of relieving themselves of the financial burden.