Causes of Foreclosure

Stop ForeclosureThere were over 2 million foreclosure filings in the United States in 2012.  That means that there were over 2 million families losing their homes, or businesses failing and losing property.  This number is down from 2010 when there were nearly 3 million foreclosure filings in the United States, but even after the totals have dropped by nearly a third, foreclosure is a big problem.  Foreclosures happen because homeowners are unable to pay their mortgage, property taxes, keep the property insured, or default on a loan secured by the home.  The bottom line is that foreclosure comes down to inability to pay financial obligations related to the property in some way.  Some of the reasons homeowners fall behind on their mortgage obligations include:

  • Loss of income.  The reality for most Americans is that we are living paycheck to paycheck.  If something happens that causes our income to drop then we are a few months away from losing our home.  This doesn’t always mean losing a job.  It could be a partial reduction in income such as a loss of overtime income or reduction of hours.  Even a small decrease in monthly income can cause disarray with a household budget.
  • Medical expenses.  If a homeowner gets sick then they may have to choose between paying a doctor and paying a house payment.  In most cases I would say pay your house payment first, before any other creditor, but getting the medical attention needed to preserve your health trumps paying a house payment almost every time.  Medical services are very expensive in this country.  Even simple procedures can cost a patient thousands of dollars.
  • Adjustable rate loans.  Adjustable rate loans were very popular for several years.  They allowed you to get into a home for the smallest interest rate possible.  However, these types of loans also allow the lender to increase the rate, causing that small house payment to become very large after a few years.  If the borrower bought the most expensive house they could afford based upon the initial low interest rate, then they are in big trouble after the rate increase.  Adjustable rate loans are a leading cause of foreclosures in the United States and are best avoided.