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Take a look at the camera lens, look for grim or scratches, also try this, settings > apps > all > camera > clear data > reset your phone > check again
Can't do much really when you have set notifications volume to max in sound / ringtone menu.
when it goes to background def. it's sometimes tricky. To have the best effect the blurred objects should be bout 1 meter away from object you want to stay sharp. If the objects are too close there will be no blur or it might look not precise. If you get an error message try to go to apps, all, and clear data for camera and background def. Restart phone.