From the outside, a foreclosure sounds simple. The bank essentially bought the house by providing the loan. The homeowner then stopped making payments on the loan, so the bank decided to take the house and sell it to recoup their costs.
The reality is usually very complicated. Why did the owner stop making those payments? What really forced them into foreclosure?
After all, no one wants a foreclosure. The homeowner doesn't want to lose the home. The bank doesn't really want to take it, as it's a long process and they may still lose money if the house sells for less than was owed. When you add that to the cost of carrying out the foreclosure, it's not a good deal for anyone.
Well, to help explain why it happens, here are six common reasons:
- The homeowner ran into excessive debt from multiple sources and could not pay everything back.
- The homeowner got divorced after buying the property with a spouse.
- The homeowner has a medical condition that is expensive and/or prevents them from working.
- The homeowner used to be able to afford the home but lost their job.
- The homeowner had to make so many repairs to the house that it became unaffordable, even if they initially thought it would be.
- The homeowner got a new job in a different state and went into foreclosure because of the move.
As you can see, some of these reasons are largely out of your hands. You could get sick, get injured or get fired, and you may wind up facing foreclosure as a result. Make sure you know exactly how the process works.