Foreclosure can be one of the scariest things a homeowner hears. It is the legal process in which a mortgage lender attempts to recover the amount of money owed on a defaulted loan by taking ownership of and selling the mortgaged property. In Layman’s terms, the lender takes the property because the homeowner fails to pay their mortgage payments. Foreclosures can happen to anyone from any background. In the 3rd Quarter of 2021 there were 45,517 foreclosures in the United States alone. Here are some reasons houses go into foreclosure:
The vast majority of negative equity, which is the leading cause of foreclosure, stems from housing market declines. It occurs when the house value drops causing the homeowner to owe more on their mortgage than the property is even worth. When this happens, the homeowner’s best escape plan is to either sell, refinance, or the house could be foreclosed.
Rising Interest Rates
Unfortunately, some foreclosed homes started with extremely great interest rates all for those rates to rise exponentially a few years down the line. This can make it difficult for homeowners to keep up with mortgage payments. Additionally, homeowners with lower credit scores also happen to be the main recipients of subprime mortgages, further complicating things. Subprime mortgages are loans made to high-risk (someone who a lender or creditor would consider more likely to default on his or her loan) borrowers.
Unemployment & Divorce
The two biggest contributors to foreclosures that are directly the homeowner’s fault are unemployment and divorce. Stating the obvious, when someone loses their job they’re unlikely to be able to consistently keep up with mortgage payments. The other big reason for foreclosure is divorce. After the smoke clears and the divorce is final, people might realize there are missed payments or one party can afford to pay the monthly bills alone. Dealing with the foreclosure process can be incredibly stressful. If you have knowledge that your house is going to be foreclosed the best idea is to sell the property. Many people dealing with incoming foreclosures tend to sell their home for cash to investors. This is done because the homeowner can recoup their capital quickly because cash buyers typically purchase properties “as-is” and the homeowner doesn’t have to make repairs on the property.