Why Do Foreclosures Happen?

JeffAdams profile photo

Real Estate and foreclosure expert, Jeff Adams, explains why foreclosures happen.
So much attention has been given lately to the number of foreclosures that we should expect to see in the United States over the coming years that few people have stopped to consider why exactly foreclosures happen in the first place.



I am going to be a little glib here and say there are about as many reasons why foreclosures happen as there are home owners defaulting on their loans but that would not help answer the question so I am going to take a more general view and see if the reasons a foreclosure happens can be fitted into different categories.



So let’s take things from the beginning and see if we can form a good picture. The obvious answer of course is money, or rather the lack of money. But the reason a home owner who has attained the Great American Dream of buying his own home can no longer afford it is a lot more complicated.



Broadly speaking the reasons area: 1. Ill-Health. A change in the health of the family, an accident, serious illness or anything similar can so adversely affect the finances of a family that they then begin to go into a tailspin and that can very easily lead to missed mortgage payments and foreclosure.



2. Loss of a job. This is common and it only leads to foreclosure if it is so catastrophic that it places the home owner in a new income bracket where he is unable to get another job equal in pay to the one he has lost.



3. Bad finance management. This is more serious than it may at first seem and it does not reflect just on the home owner. Quite a few home owners took advantage of adjustable rate mortgages (ARMs) which allowed them to buy a home and borrow money at very advantageous rates which, however, after six months or a year began to sky rocket and the rest is history. Here the fault often lies with lenders who make it difficult for borrowers to understand what they are getting into and, which, have over the past year been found guilty of using high-pressure tactics to sell mortgages at any costs.



These three reasons, collectively account for more than 90% of the foreclosure cases that we see come into the market.



It is evident from them that foreclosures are never a cut and dried affair of someone being unable to make payments and left to themselves, they never really manage to get out of this morass. It is exactly at this point that the savvy real estate investor steps in and acts as a catalyst in a situation that often finds him creating a win-win scenario for everybody and that is what is satisfying about being involved in the foreclosure market.





Jeff Adams


Comments(1)

  • NC_Yank19th September, 2008

    Many of the foreclosure in the market today have much to do with the vicious cycle that builders, lenders and appraisers have created.



    Harriet Home Buyer wants the American Dream, nothing wrong with that.



    Harriet Homeowner does not have any money down like previous generations.



    Builder, Lender, along with Realtors and Appraisers creatively find a way to get Harriet Homeowner in a new home.



    Builder puts up cheap track home, has appraiser over appraise same so that Harriet Homeowner does not have to come up with any money.



    Realtor shops around for Lender who will buy into the scheme and all parties are happy.............UNTIL a year or two later (sometimes months) when Harriet Homeowner realizes they can not afford home or worse a crisis arises and they can no longer make their payment.



    They try to sell however because this is happening at such an alarming rate, the bubble burst and prices drop exponentially.



    Lender (often a different lender then original) is not getting paid and next thing you know the house is in foreclosure.



    This is exactly what is happening all over the US.



    How long will it last.................who knows, I suspect it will take 5 years to work itself out............add another 10 years to that and it will repeat the cycle........eventually a depression will set in.............if not around the corner.



    GovCo is bailing those responsible out of this mess with you and I holding the bill.



    Our taxes go up which puts more financial stress on us who inturn quit spending money which slows the economy down even more.................have you noticed the prices of vehicles lately.



    Now lets enter novice investors who think they are going to get rich off of others misfortune and you have the making of even more problems if nothing else the longevity of a slow economy.



    NC Yank

Add Comment

Login To Comment