It’s no surprise that people continue to be concerned about money these days. A Gallup Economy and Personal Finance poll revealed that lower income households as well as seniors worry about medical costs. And 30-64 year olds are most concerned about not having enough money for retirement. As of October 2015, the foreclosure rate in Maryland is 1 in 466; putting the state in the top five in the country. Foreclosure activity in Virginia and the District of Columbia are up over last month as well, although not as much as in Maryland.
What are the top reasons for financial distress and foreclosure? Here are five situations that commonly lead to financial catastrophe.
Increase in expenses
An increase in mortgage payments, insurance or property taxes – or a combination of all three – can make home ownership more expensive than budgeted. Or illness can lead to extremely high medical expenses. Even those fortunate enough to have health insurance may face the need to pay for expensive medical procedures that lead to overwhelming debt. If income hasn’t increased at the same rate as expenses, the result is financial distress.
Loss of Income
Whether it’s the loss of a job completely, the failure of a business venture or a company simply scaling back on bonuses, a loss of income certainly affects your financial health. Combining an increase in expenses with a loss of income is even more disastrous and stressful.
When the primary income earner dies, a family instantly loses its income. Even when a family member who is not earning income passes away, the emotional effects and stress can spread throughout every area of life, affecting a survivor’s work, business, and relationships.
Plus, if you inherit a home that isn’t paid for, you inherit the debt and the expenses of keeping it up as well. The costs of maintaining it and paying the remainder of the mortgage may lead to foreclosure.
Even though the divorce rate is declining, at least 30% of marriages still end in divorce. This can really strain homeowners as housing costs will now typically double. The person left living in the original house may no longer be able to afford it. Alimony, child support, attorney’s fees, etc., can all lead to financial distress.
Unexpected Damage to Property
While you may believe “it will never happen to me,” damage to your home can cost you dearly. Things like burst pipes, washing machine floods, fires, or theft are usually covered by insurance. But if your insurance company doesn’t pay the full amount of your claim, you’ll be left holding the bag for the difference. That can be a significant financial hit. In the case of hurricanes and serious rain storms that can cause flooding or earthquakes occurring in areas that never had them before, you won’t be covered unless you have special policies. Remember the 5.8 magnitude earthquake in Virginia in August of 2011 that caused damage all over the DC metro area and was even felt up in Baltimore? Yes, it CAN happen here.
Sure, you never know what will happen from one day to the next. But the key to avoiding financial distress leading to foreclosure that results from any of these situations is to make plans to address them.