Wednesday, October 20, 2021

10 Cities With Highest Foreclosure Rate In The U.S.

Are you affiliated with the term ‘foreclosure’? Are you looking to buy foreclosure homes in the U.S.? Let’s find out more about it. 

As the great L. Frank Baum has rightly said, “There is no place like home”, so even the thought of losing your dream home to financial troubles can be daunting. Foreclosure is one such word or concept that can be an alarm bell if you are not good with money. 

What is foreclosure?

Let’s delve into this concept of foreclosure. Foreclosure is a legal procedure by which the lender acquires and sells the mortgaged property of a person who has defaulted the repayment of a loan. Particularly, this default arises due to the non-payment of instalments for a specific amount of time. It can also happen due to the non-fulfilment of specific terms in the agreement.

Some points which should be highlighted while understanding the concept of foreclosure homes are as follows:

  • Foreclosure is a completely legal process wherein the lender can forfeit the mortgaged property due to the non-payment of specific monthly installments and acquire the amount by selling it.
  • The process varies from state to state but typically, lenders attempt to work with borrowers to get them to make the payments and avoid the possibility of foreclosure.
  • According to Investopedia, the current national average for the foreclosure process is 830 in terms of days; however, this also varies state to state.

Understanding the concept of foreclosure homes

To understand this concept, you first need to get associated with three important definitions that are as follows:

1. Foreclosure: As explained above, it is the process whereby the lender acquires and sells the mortgaged property on non-payment by the borrower. 

2. Foreclosure homes: the mortgaged property which will go through the foreclosure process.

3. REO or Foreclosed home: the property which has completed the foreclosure process and now belongs to the lender, also called real estate-owned property (REO).

Foreclosure Working

After the process of foreclosure, the lender will take full control over the mortgaged property. He will try to sell it to recuperate the amount it lost due to non-repayment. The lender has the right to take back the home because a mortgage is a secured loan. This simply means that the borrower guarantees reimbursement of the loan by providing collateral

If the borrower can’t recompense the loan with money, the lender will seize the mortgaged property and try to get the whole amount by selling the same.

From the borrower’s side, the mortgaged property is used as the collateral, and upon signing the agreement, the borrower is made aware that the lender has the right to seize and sell his collateral in case of non-payment of the dues. This is also called putting a lien on the title of the home. Once the whole loan is paid off, that lien on the title of the home is taken off.

The reason for foreclosing

While borrowing money, the borrower is evaluated to be capable of repayment of the loan amount by speculating all his business or personal reports. The process of verification must be strong to avoid foreclosing. This process involves reviewing credit history, verifying income, and setting up a limit on the borrower’s debt-to-income ratio (DTI)

ALSO READ: 5 red flags on your credit report that instantly repel lenders and how to fix it

Even after all this, no one can be certain of what the future has in store. There can be several unforeseen circumstances due to which the borrower may fail to make the payments. Some of the events that may result towards the non-payment debts are:

  • Taking excessive loans
  • Loss of employment
  • Incurring a huge, unexpected expense
  • A medical emergency
  • Going through an increase in the living standards
  • Loss of a part of income due to death or divorce
  • Relocation before selling 
  • Facing discrepancies due to a natural disaster

Most of the time, it is not just the hardship that forces borrowers to step into foreclosure. It can also be because of something as trivial as an increment in the mortgage payment. For example, the people who have agreed upon an adjustable-rate mortgage system may face an increment in the rate of interest, increasing the mortgage payments.

Or in case there is an escrow shortage. Escrow shortage can best be defined as the situation in which the borrower has a positive balance in account but is not sufficient enough to pay estimated taxes and future insurance.

Since homeowner’s insurance and property taxes are generally paid through the mortgage payment every month, the monthly payment will go high as well.

Underwater Mortgage

While many borrowers go into foreclosure because of their inability to make payments, some get into foreclosures because they don’t make their payments intentionally. This generally happens when their house is underwater, and they don’t have any financial motivation left to make their payments.

A home is said to be underwater when the sum of money owed on the mortgage proves to be more than the home is worth. When they are out of equity, some homeowners find no reason to make their further payments. Instead, they get away from their home, leaving it in the hands of the lender.

 

Types of Foreclosure

Foreclosure can be classified into two types:

1. Judicial Foreclosure: A judicial foreclosure includes visiting an actual court and letting the homeowners challenge their foreclosure homes.

2. Non-Judicial Foreclosure: A non-judicial foreclosure does not include court proceedings. This type of foreclosure and the process involved in it differs from state to state.

The latest report from the American Enterprise Institute stated, “14.7 per cent of the 7.6 million mortgages backed by the Federal Housing Administration were delinquent in May. An additional 10.5 per cent of those loans were delinquent by more than 90 days and at risk of going into the default”. This proves that delinquency is still a major hurdle that is affecting a considerable number of homeowners disturbed with their mortgage payments.

The Director of American Enterprise Institute Housing Centre, Edward Pinto, and his research fellow Tobias Peter wrote in the report, “If a modification is unable to address the delinquency, the next alternative is for the homeowner to sell the home. Given the drastic level of home price increment, the alternative should support many distressed owners to avoid foreclosure, pay off the mortgage, cover selling expenses and maintain one’s credit record.”

The causes for this situation were multifarious. While several government deferral programs secure homeowners and renters equally from immediate eviction, overlooked payments do not disappear. They often sum up to a greater financial hole. But the stats categorically show that owners in particular cities and neighbourhoods are at a much higher risk of getting foreclosed.

The locations which are more at risk are generally not those that belong to a lower income or disadvantaged section of the society. They are the affluent neighbourhoods in big cities like Chicago and Houston, which make on this list. This is because the payment amount of mortgages is high and quite difficult to maintain during such times as unforeseen disasters.

Cities in the United States with highest foreclosure rate

The list of 10 cities which are at a higher risk of foreclosure than others in the U.S. are as follows:

1.     Atlanta, Georgia (Sandy Springs, Alpharetta)

·        Total of delinquent loans: 17.2 per cent

·        Total of seriously delinquent loans: 12.5 per cent

·        Percentage of loans backed by FHA: 17.4 per cent

2.     Houston, Texas (The Woodlands, Sugar Land)

·        Total of delinquent loans: 17.4 per cent

·        Total of seriously delinquent loans: 12.8 per cent

·        Percentage of loans backed by FHA: 21 per cent

3.     Chicago, Illinois (Naperville, Evanston)

·        Total of delinquent loans: 18.8 per cent

·        Total of seriously delinquent loans: 13.8 per cent

·        Percentage of loans backed by FHA: 19.3 per cent

4.     Dallas, Texas (Plano, Irving)

·        Total of delinquent loans: 19.1 per cent

·        Total of seriously delinquent loans: 14.6 per cent

·        Percentage of loans backed by FHA: 14.2 per cent

5.     Washington, D.C. (Arlington, Alexandria)

·        Total of delinquent loans: 18.8 per cent

·        Total of seriously delinquent loans: 14.5 per cent

·        Percentage of loans backed by FHA: 13.7 per cent

6.     Baltimore, Maryland (Columbia, Towson)

·        Total of delinquent loans: 17.3 per cent

·        Total of seriously delinquent loans: 12.8 per cent

·        Percentage of loans backed by the FHA: 19.4 per cent

7.     Riverside, California (San Bernardino, Ontario)

·        Total of delinquent loans: 14.3 per cent

·        Total of seriously delinquent loans: 10.5 per cent

·        Percentage of loans backed by FHA: 20.6 per cent

8.     San Antonio, Texas (New Braunfels)

·        Total of delinquent loans: 16 per cent

·        Total of seriously delinquent loans: 11.1 per cent

·        Percentage of loans backed by FHA: 19.3 per cent

9.     Fort Worth, Texas (Arlington, Grapevine)

·        Total of delinquent loans: 15.7 per cent

·        Total of seriously delinquent loans: 11 per cent

·        Percentage of loans backed by FHA: 18.3 per cent

10.  Philadelphia, Pennsylvania

·        Total of delinquent loans: 17.5 per cent

·        Total of seriously delinquent loans: 11.9 per cent

·        Percentage of loans backed by FHA: 17.6 per cent

Conclusion

The total of delinquent loans in the whole US is 14.7 per cent. The total of seriously delinquent loans stands at 10.5 per cent, and the percentage of loans backed by the FHA is 14.7 per cent. The data proves that there has been a subsequent increase in the foreclosing sector in the last few years.

Losing one’s home is never an easy situation to deal with. As Tracey Taylor has wisely quoted, “Home is where you feel loved, appreciated, and safe.” So, if that safety itself is compromised, there is no place a person can encounter to find solace and refuge. Therefore, it is very important to always have a backup plan even if you are fully capable of repaying your debts to avoid such situations as a foreclosure.

 

Rishita Bose
Rishita is a student of IIL, Indore where she is currently pursuing BBALLB Hons. She shows a keen interest in the financial sector and holds experience of 3 years writing about money trends. She also has her own blog where she pens down her strong opinions and tries to keep the truth upfront.

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