Mortgage Repossession Can Devastate A Homeowner

Posted by Nick Niesen on October 29th, 2010

About the last thing an individual or a lender want to do is become embroiled in a mortgage repossession procedure as it can be devastating for a homeowner to lose their residence and it detracts from the daily business of the lender. However, in troubled economic times foreclosures may be on the rise as many people struggle to meet the obligations of home ownership.

There are many reasons for people to fall behind on mortgage payments such as illness, layoff, loss of employment, or even escalating interest rates. Despite a history of making payments on time, an event that challenges a persons ability to stay up to date on their payments, may prompt an action leading to mortgage repossession proceedings. Once the borrower becomes behind on even one payment, things usually spiral out of control, with the borrower being continually late time and time again.

In todays housing market, some lenders may have offered mortgages to people who were most likely not going to be able to make the payments, but low interest, variable rate mortgages gave them and the lender a false sense of security for the future. Buyers may have been counting on in increase in income to offset any potential increase in payments due to possibly rising interest costs and when the interest rose and the income did not come in as expected, found themselves unable to meet the obligation.

Had the interest rates remained as low as the level at which the initial purchase was made, the owner would most likely have been able to continue to make the payments, but when the rates began to skyrocket, the monthly payments went up with it and the amount may be completely out of reach. Additionally, other expenses continued to rise while income levels failed to keep the escalating pace, leaving the buyer little choice but to accept mortgage repossession.

If possible, one solution is to refinance the mortgage for a fixed rate mortgage and, if any equity has been established in the property, use that to pay off any past due payments while bringing the new payments to an amount the buyer can afford. Although if the buyer has arrears on the mortgage, lenders may be reluctant to advance additional loans, even though the payments would be lower and more attainable for the buyer.

Some predatory lenders have made loans knowing the person would end up defaulting as soon as high interest rates took effect, counting on the mortgage repossession to be able to sell the property to another buyer at a future date and recoup the money from the failed first buyer, parlaying the property into additional sales.

Fortunately, there are law to protect unsuspecting buyers of predatory lending practices, but people should be aware of the possibility of this happening. Especially if they have been repeatedly turned down for mortgage loans from traditional banks and someone suddenly offers to fulfil their dream of home ownership. Reading the purchase contract carefully can reveal any hidden charges that may point to future problems.