If you listen to media today you would assume that all your neighbors are in foreclosure. Foreclosure is a big problem and I wish I could say that the trend is over. Many analysts believe that another wave is coming due to mortgages resetting (adjustable rates adjusting higher) late this year and early next year from the 2006 refinance boom.
According to the Mortgage Banker Association in some areas of the U.S. 1 out of every 10 homes is in some stage of foreclosure. Some areas such as Las Vegas have seen periods where 50% of homes were in some stage of foreclosure. To get perspective a normal market has 1 to 3% of homes in foreclosure.
Many people wonder why people go into foreclosure. Was it just bad decisions? Greedy loan officers? Bad banks? Or is all those pesky adjustable rate mortages? According to the Distressed Property Institute (of which I am new graduate. Corpus Christi’s first Certified Distressed Property Expert, more later) there are 16 reasons for foreclosure.
Below is a brief explanation of the first 8 reasons cited:
1. Payment Increase or Mortgage Adjustment
This is the biggest reason for foreclosures right now. In a nut shell interest rates adjusted higher and people could not afford the new payment. The combination of the adjustable rate mortgage and buying to much house has been catching up with people.
2. Loss of Job
It’s not hard to imagine why this one leads to foreclosure. According to the Distressed Property Institute (DPI) it is estimated that most American families can only maintain their current living expenses for 60 days or less when income is interrupted for any reason.
3. Business Failure
When a small business fails income is interrupted, debts pile, and the emotional weight takes it’s toll and payments are soon missed.
4. Damage to the property
Even with insurance there may not be enough coverage to rebuild the house or maintain the household during construction. Many times the insurance money is used to find new living arrangements.
5. Death of a spouse
The pure emotions involved with this can lead to extremely tough times. It’s compounded when the deceased was the only wage earner.
6. Death of family members
Once again the stress and turmoil can cause financial and emotional hardship leading to missed payments.
7. Severe illness
Extended periods of illness can lead to loss wages and medical bills piling up. Medical bills are one of the main causes of bankruptcy in our country.
8. Inheritance
Though this may sound odd, but it is true. The example I was given by the DPI is, “Imagine a son who makes $60,000 a year whose parents pass away and leave him with a $700,000 mortgage and payment on a $1.5 million property. He can not afford the payment and if it doesn’t sell fast it can move towards foreclosure.
I will cover the next 8 reasons in next weeks update. It is said that 70% of the people facing foreclosure to not even attempt to sell their house or talk with the bank. If you or anyone you know if facing this issue please call me for help. There is hope. As as Certified Distressed Property Expert I am trained on helping people in a preforeclosure situation. There are options available and I can help.
A couple of phrases to help avoid foreclosure, Pay off all debt, Emergency Fund, Live Below Your Means, Life Insurance. Long live Dave Ramsey
Till next week, enjoy every moment of the gift of life.
Joseph C.
Joseph Cortez 