The Main Reasons Foreclosure Occurs

Homeowners can face foreclosure due to unemployment, divorce, illness or bad mortgages.

When you default on your mortgage payments, meaning you don't pay the loan as agreed, your mortgage lender can foreclose on your home. When your home is foreclosed, the lender repossesses it and attempts to sell it to recover the costs. Since 2007, the number of homes foreclosed upon in the United States has steadily risen, and millions of American homeowners have lost their homes. There are several common reasons that foreclosures occur.

Unemployment

When you are employed and earning a steady salary, it's easier to make your monthly bill payments. However, when your job unexpectedly goes away and you cannot find another one before your unemployment benefits run out, making those monthly mortgage payments becomes a struggle. According to Freddie Mac, almost 50 percent of home foreclosures are due to unemployment or loss of income, as homeowners no longer have sufficient income to pay their bills.

Divorce

Divorce is another common reason for home foreclosures. When a couple divorces and one spouse is suddenly responsible for maintaining all of the bills for the home on one income, it can be easy to fall behind in mortgage payments. In some cases, the actual cost of the divorce itself can lead to a foreclosure, as the attorney and court costs can reach well into the thousands of dollars for both parties. If the court determines that the house should be sold, with the proceeds split between the two parties, the home could go into foreclosure while it is up for sale if the mortgage is not maintained.

Illness, Injury or Death

When an unexpected illness or injury occurs, it usually brings with it substantial medical bills. If the medical costs are not covered by insurance, or the medical insurance carries a high deductible or other out-of-pocket expenses, homeowners may come up short for their monthly mortgage payment. In addition, if the illness or injury prevents you from working for an extended period, that loss of income could also strain the family finances and lead to a foreclosure. Death is also a common reason for foreclosure, especially if the deceased was the primary provider of income and did not have adequate life insurance coverage.

Poor Money Management

In some cases, a foreclosure occurs simply because of poor money management. In some cases, homes go into foreclosure because a home buyer paid more than he could actually afford, lured by the low, or no, down payment mortgages and adjustable interest rates. When the bank increases the interest rate on the loan, the monthly payment increases, and a mortgage that was once manageable suddenly eats up a greater portion of the homeowner's income. Other homeowners fail to factor in the cost of maintaining a home, including repairs and maintenance, taxes and insurance, and end up over their heads with bills and cannot make their monthly payments.

References

• University of Illinois Extension: Common Reasons for Foreclosure
• Foreclosure Dataonline: Reasons for Foreclosures
• "USA Today": Job Cuts Adding to Growing Number of Housing Defaults
• "The Washington Post": Unemployment Spike Compounds Foreclosure Crisis