What Happens Before and After Foreclosure?

Between 2008 and today, there have been over 3 million completed foreclosures in the United States. We can blame Wall Street, Sub Prime Lenders, the government, the price of tea in China, or fill in the blank with the group of the day.  While people do lose their homes for reasons beyond their control, like an illness or death, most people lost their homes for one reason. They took on more than they could afford with no equity to help them when prices dropped. Unfortunately, my family got to see what happens during and after a foreclosure when they had that experience a little over two years ago.

Spending More Than You Make

We have some very close family members who were making decent money back before the great recession. Like us back in the day, they spend just about everything they made on a variety of things they thought they needed or wanted. While their jobs were certainly tied to how well the economy was doing at the time, they never set anything aside for a rainy day. They also rolled several lines of credit into a big mortgage payment. They were making enough to afford, so why not?

Rainy Days

Turns out the rainy day came.   Both of our family members lost jobs around the same time when the economy collapsed. Long story short, a couple in their 60’s lost their home to foreclosure.

They were luckier than many because they had a friend of a friend with a rental who agreed to let them live there.  They were able to afford it on social security. Foreclosure ruins your credit rating. Without a connection, it would have been hard to find a rental, and they would have been forced to move in with family.

Silver Lining

At first, they were pretty angry about the whole situation, but with time, I’ve seen some very positive changes. They are living within their means by forced frugality. They have no credit.  It is a bare bones lifestyle, but they have a home, food, clothes, and and a pretty old vehicle. If they do become very ill or disabled, with no assets, they will be eligible for Medicaid if they have to go into a nursing home. No frills for sure, but it could be worse.

What to do if You Find Yourself in a Similar Situation

  •  Avoid the Situation– The absolute worst thing my family did was not ever plan for worst case scenario. Without some emergency fund savings, this could happen to anyone.
  • Don’t put Unsecured Debt into a Secured Asset-Think twice before you put credit card debt into a home equity loan or mortgage. If my family had stopped paying their credit card bills, they would have trashed their credit and gotten lots of collection calls, but they would have kept their home.
  • Pay Off the Mortgage-You never know what might happen as you get older. For me, I would never go into my 60’s with primary mortgage debt. Pay that sucker off!
  • Get Rid of the House– If you know you can’t make it work, try to short sale the house. My family kept trying to hang on and threw what money they did have into trying to save it. We debated trying to give them money, but decided against it. They did get a loan from another family member, but it was too little too late.  If they could have gotten a short sale or even walked away, they would have had a little money to have some breathing room for a new start.
  • Make the Best of It-Unless you are hungry and living on the streets, things could be worse. My family isn’t able to continue in the lifestyle they were used to, but they have basics and family that loves them. I believe they are now getting to the point where they realize how lucky they actually are. It does no good to replay past mistakes and wonder what if. I hope no one reading this ever has to go through a foreclosure, but if it happens, you can pick up the pieces and start again.

Do you have any experience with foreclosure? 

 

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Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of Snipon.com.

59 Comments

  1. What a sad story. I wouldn’t lend them money though, or consider it a gift that you will never see again. It can really ruin a relationship. I would lend money in case of sickness or a real emergency, and maybe pay for family reunions so they can come and participate. It looks like they are living frugally but making ends meet.

    1. We’ve paid expenses when our mother in law has come to visit and given them some gift cards for various things. They are actually doing pretty well considering.

    2. We’ve paid expenses when our mother in law has come to visit and given them some gift cards for various things. They are actually doing pretty well considering.

  2. I don’t think you should have given them money either. The lesson they learned will be incredibly valuable. People need to realise that there are always people worse off and they are not the first (and certainly wont be the last) to go through this. They can always start again and (hopefully) this time plan for things that could go wrong..

    1. I don’t see them ever having much money to save, but they can get buy. When you don’t buy many things, you don’t have many bills.

  3. This is a great post- thank you so much for sharing. No, I don’t think you should have given them money – they’ve only learned better habits because they had to. I think if they’d been out on the street, you’d have done something, but some folks need to hit rock bottom before they can start again.

    1. Absolutely. You can talk until you’re blue in the face, but people have to learn for themselves. You hope it’s before you lose a house or declare bankruptcy, but sometimes it takes a huge reality check to change bad habits.

  4. Thanks for sharing. I’ve always wondered how the process works but its sad to see parents/in laws affected like this. Hopefully we can learn from lifestyles like this but I also know some people just don’t save, sadly.

    1. I wish I’d know more in the early days. I am too type A and would have searched all options. When we found out, it was pretty much a done deal.

  5. I’m all too familiar with this post but I’ll take just a little exception with the statement that most people went into foreclosure because “They took on more than they could afford with no equity to help them when prices dropped.”

    Too simplistic and as a long time Real Estate and credit Professional, this space is way to short for me to elaborate 🙂 As for lending money to family? Thanks to my foolish move to help a family member, I lost over $200k that combined with the market forces, sent me into a 4-5 year journey through credit and financial hell! I still have over $45k out in the street that I will never recover!

    As you’ll read in my blog post; it is what it is – but will become what I make of it! The same will be true with your in-laws God willing! Thanks for sharing.

    I

    1. Lou, thanks for pointing out exceptions. In the case of my inlaws, they’d been in the house for over 20 years and it the remaining mortgage could have been refinanced to a low payment, but they rolled all the other debt in there, giving them a huge payment and no savings. Recipe for disaster.

    2. Lou, thanks for pointing out exceptions. In the case of my inlaws, they’d been in the house for over 20 years and it the remaining mortgage could have been refinanced to a low payment, but they rolled all the other debt in there, giving them a huge payment and no savings. Recipe for disaster.

  6. I think it’s extremely difficult to do, but I wouldn’t have given money to them. By giving them money you would be supporting their behaviors and decisions that brought them to that point, therefore I think it was good that you didn’t.

    I’ve personally never dealt with foreclosure but have coached clients through it and have an in-law that also experienced it. It can be a great learning experience and it’s great to hear that your in-laws learned some lessons.

    Also, love the point about not rolling in unsecured debt into a secured asset. Such a no-no but so commonly done!

    1. HELOCs and cash out refinances can seem like such a good deal, but you really have to think about worst case scenerio and that you could lose your house if you don’t make the payments.

  7. Not wrapping unsecured debt into secured is so important. I really wish there was more financial education about these types of situations so more people don’t end up in the same situation. Hope they come out ok!

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