You own a house with a mortgage when you lose your job or have a medical event or spousal death or something else major and cannot pay the mortgage. You either hope you can get a new job or sell the house in time to avoid foreclosure, but neither happens. The bank forecloses on the house, has the sheriff kick you out of the house, and sells the house. If the bank sells it for more than the amount due on the mortgage, the bank keeps all the extra profit. The homeowner loses all his/her equity in the house which could be tens of thousands of dollars or even hundreds of thousands of dollars. Plus the homeowner has the sting of bankruptcy on his/her credit rating.
There is a better way. Instead of the above scenario, make it the law that the bank will work with the homeowner in a contracted manner to sell the house while the homeowner still lives in the house, with the bank receiving back the mortgage outstanding balance plus a fair amount of bank interest and fees involved in the process once the sale of the house is concluded. The homeowner receives any equity left over after the bank reimbursement from the sale of the house, plus gets no foreclosure damage to his/her credit rating. It's a win/win result. Great Britain actually does it this way. America should do it too.
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