What Would You Advise a Friend Facing Foreclosure?

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Many of us know people who are facing imminent foreclosure. Millions of people have confronted this dragon, and chances are you know a few. Have you ever been asked for advice by one of them?

I have; by more than one.

No, I’m not an attorney, or even a debt counselor. But I have spent many years in the mortgage business, which makes me a natural candidate for advice.

There’s no right or wrong advice to give to someone in this situation, and much depends on an individuals circumstances. But I sense that much of the advice I’ve given was a bit “out-of-the-box”. Not that it was my intention to do so, only that as an industry insider, my view of the situation is just different from what you might get from someone who isn’t.

What did I advise?

The “standard” advice for a friend facing foreclosure

Let’s start with what I didn’t recommend. From what I’m seeing and hearing out there, most advice on this topic comes under one of two broad categories:

  • ”How did you get yourself into this mess?”—which is more of a judgment than any kind of advice; or
  • Make a pact with the Devil, but do what ever you need to do to keep the house; better times are coming, you just have to wait it out.

I didn’t offer up either of these. On the first count, it’s totally counter productive to kick someone when they’re down. As to the second, as well intended as that advice may be, it’s not the right course for everyone.

It’s not your fault

What Would You Advise a Friend Facing Foreclosure?
What Would You Advise a Friend Facing Foreclosure?
This is the first piece of advice, learn what you can from the experience, but don’t beat yourself up. The foreclosure crisis we’re now in has largely been caused by big picture issues, like unemployment, a comatose housing market and a declining economy.

Did people who are losing their homes make mistakes and exercise poor judgment? Yes. But people were doing that five, ten and twenty years ago, and they weren’t losing their homes. The economy just doesn’t have the slack it once did, and this is the most basic reason so many people are in this mess. These are problems that exist well above and beyond the control of the individual. To internalize them serves no useful purpose.

The people I know who are going through foreclosure aren’t walk-aways; they’re people who bought their homes several years ago, did well for a while, fell on hard times and have been unable to recover. The loss of the house and all that implies is nothing short of traumatic.

Two of them have faced chronic unemployment over the past several years for the crime of being middle-aged in a bad economy. Unemployed—and feeling unemployable—and now they’re facing the loss of their basic possessions as validation of their plight. That’s a lot for anyone to deal with.

So, first order of business (and continuing theme) is a pep talk. They’re good people in a bad situation—they need to know that. There’s no percentage in spending too much time blaming themselves for what went wrong. What they most need to do now is to rally themselves to get up off the mat and be prepared to fight for their future survival.

Was this good advice?

Don’t throw good money after bad

One of the first instincts of anyone facing financial disaster is to get help—in the form of money—from family and friends. While I think this has merit in dealing with a short term crisis, it probably won’t help if the problem is long term.

In the two cases I’m most familiar with, I believe the root problem is the career, not the loss of the house. The foreclosure is really a distraction from the real problem—the loss of income. Even if the foreclosure can be stalled with an infusion of cash, it will merely postpone the day of reckoning, not eliminate it. This is probably the same reason why so many mortgage modifications ultimately fail.

My opinion and my advice is that if you’re going to seek financial help from family and friends, postpone this option until after the crisis, and use the money to rebuild your new life. If money is accepted in an effort to save the house, and that effort ultimately fails, it may not be possible to get more help during the even more critical rebuilding period.

What do you think about this advice?

Flee today, and live to fight another day

As I see it, foreclosure is heavily subject to the domino affect. Lose your job, get a couple of months behind on your mortgage, the dominos start to fall and you can never catch up.

The situation is magnified by falling house prices and by refinance, modification and short sale efforts that go nowhere but drag on for months. In the process, the pile of unpaid payments grows. Once the value of the house falls below the amount of the mortgage, the situation is beyond redemption.

Here was my tactical advice:

  1. Let the house go, and let the process run it’s course—you will survive this
  2. Concentrate your efforts where it needs to be—on generating or increasing your income
  3. Sell off as many of your possessions as you can to raise some cash
  4. Find a friend or family member with extra space, or a rented room to move into; don’t wait until you’ve been put out of the house and you’re working against a kick-out date–move on your own terms
  5. Line up financial assistance from family or friends to help you get back on your feet (not to save the house)
  6. The house is the past; your future is “out there”—go find it and don’t look back (figurative of course, I might not have used those exact words)
  7. Vow to never get yourself in this position again
  8. Imagine you’re 18 years old and starting out in life all over again–because that’s what you’re doing.

It may sound counter-intuitive, but my thinking is that being in the middle of a storm is the prime time to become future oriented. What hurts most people going through foreclosure is that they’re emotionally rooted in the past, in an effort to keep something from a previous life that they lack the resources to maintain anymore.

Let it go, and move on. You’re life is more than a house. Would you give the same advice?

What do you think of the advice I gave? Was it wrong? Has your opinion been sought by someone facing foreclosure or some other disaster? What was your advice?

( Photo by Jeffrey Turner )

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21 Responses to What Would You Advise a Friend Facing Foreclosure?

  1. Great post – well articulated.

    The only difference in my suggestions would be on #4 to realize that currently the Notice of Default / Foreclosure process is heavily impacted. It is possible to live in that home without paying the mortgage for as much as 18 months before having to move out. That buys a lot of time to mend your cash flow.

    Now the challenge with this is that it takes a little bit away from “ending it on your own terms.” Living in that home all those months will be a constant reminder of the challenges in your situation. Then again, even if you are living with friends or in a small apartment, you will have those reminders. It all depends on how well you can “frame” your situation and work with it.

    My advice would then be – immediately line up an alternative (friends, family, small apartment, etc.) but wait to make the move until you have received a notice of default. Points 7 & 8 are very important and powerful.

    We will ALL get out of this, but the level of pain many of us are likely to feel over the next few years has likely not reached it’s crescendo. Plan accordingly.

  2. John – I agree with those points. The only issue I have with it is what you articulated about the constant reminders. Being in a state of foreclosure is a highly negative situation, and the longer you sit in it, the more it impacts your mindset–negatively.

    As to the 18 months, it varies from state to state. Here in Georgia, FC is a simple process that can have you out in a matter of days. But I know of a situation in Pennsylvania where the owner stayed in the house so long he got it back.

    Still, controlling emotions and limiting negativity is really important. The sooner you enter the recovery phase the better.

  3. Call me the optimist, but I agree with John above!

    As long as the defaulters are strategic defaulters, I’m okay with that plan of attack.

    Although to be honest, I don’t think of a house as a internet tech bubble that bursts and is gone. Houses have substance and value based on where they are located, and I believe that this oddity in time will pass and the value of houses will go up again right quick (2 to 3 years)! One could say that this might be a great opportunity!

  4. MR – I wish I shared your optimism about a quick turnaround. I think this housing depression (there, I said it!) could be with us for a very long time.

    There’s definately opportunity for intelligent speculation on the investment side, but waiting out a foreclosure could be a vain hope.

  5. Well about time you posted a NEW article, I have been checking daily (lol).

    Kevin, once the foreclosure starts it is very hard to stop and unless the person can pay off what they owe, the house is gone.

    Personally, at the “first” sign of trouble is when I start to figure out options.

    But I have heard of “miracles” where banks gives the homeowner some options but you have to be very careful about scams or the “fine print” to avoid stuff coming back to bite you. Just like all those people that jumped on the real estate wagon and then found out that the interest rates would increase. And they increased when they were short of funds.

    Great post as usual…..

  6. Thanks Angela! I think the key is not to wait until the situation is chronic. So many people look for ways to stall, hoping against hope that a miracle will happen. The problem is that foreclosure is a process, and once begun it’s hard to get out of its way. My personal though is that action is more contructive than hope once the process begins. Thanks for the comment!

  7. LOL, I just thought of something. Never been foreclosed but I heard it can take up to a year before they put you out of your house. I guess, then I probably would ride it out versus being in the streets if my credit is already messed up from the crisis. I never use to think this way, but now being technically homeless, desperate times dictate desperate actions. No one wants to lose their home and if you have no where to go – my suggestion would be to stay in the house until they put you out. Of course, you never know when the day is – so that alone can create alot of stress. And with there being so many empty homes just sitting, makes me wonder if there isn’t a better way to handle things. Some of us had no control over losing our jobs, I know I did not plan on being laid off (lol). Thank goodness I was renting an apartment, but had to make a decision to give it up and move in with my boyfriend who was also laid off. Combining two unemployment checks made more sense. Does anyone have any ideas for all those empty homes = making no money for the homeowner = failing into disrepair and vandalism? This is something I need to really look into. Who knows, this may be my ticket to financial freedom. Okay Kevin, ready for your next article – I stop by here now that I found it just to see if you posted something. I just saw one of your articles on the bargaineering.com site (old) but good. You are all over and have a talent for writing……

  8. I think every situation is different, and one cannot blindly say “you should do whatever it takes to save your house” to everyone anymore than one should say “cut your loses and bail” to everyone. For me, my home is more than just a building of wood and brick. It is part of a neighborhood that I love. It is in a location that I love. My wife and I designed the layout an watched this house be built. We made it our own. Some will laugh at this, but to me, my home, it’s location, and the people that make up the neighborhood are unique. One of a kind. Priceless. You can say that if you move you can keep your friends. Not really – in my experience, everytime I’ve moved, or watched someone else move away with the “We’ll keep in touch” statement, it never happens. I’ve watched friends of mine who work in the housing industry do the exact thing you suggest above – they lived to fight another day. They sold their big fancy houses that they built during the height of the housing boom that they could no longer afford, and are now renting. For me, when I saw the writing on the wall, I took a different road. Most of my credit cards were raising their minimum payments from 1% to 2.5% a couple of months out, and I was going to be unable to make the payments. I fought like hell to keep my home. I went to my bank – no help. I searched the internet and read testimonials on several debt management companies. I ended up enrolling in one. My wife asked for more hours at work. I found a second income. I found a third income. I continue to fight like hell every month to keep my home. 18 months later I’m still here. I’ll continue to fight, because this is my home – and nobody is taking it from me. Oh, and those friends that sold their houses and are now renting? They’re renting houses in MY neighborhood….

  9. Travis – You’re a real fighter, and it sounds like much of what you’re fighting to protect is a sense of community. That’s really important, and something we can easily miss in the view of a house as mostly a possession. One thing I have to offer however, is that you really do have to measure your circumstances–the depth of the hole you’re in versus the resources and abilities you have–then decide if the fight is worth fighting.

    With most people facing foreclosure–we’re not talking about the strategic default crowd here–there are usually other economic issues taking place. Each of us has only so much time, energy and resources, and they have to be applied in a way that will provide the greatest improvement without risking health, sanity and other factors.

  10. Kevin,

    Great article and discussion! You really raised a good point about the “negativity factor” of continuing to live in the house destined for foreclosure (strategic default). How an individual chooses to frame the experience is certainly an important factor to consider. This is also true, however, of the individual who moves in with friends or family as there can be equally negative factors that can enter the picture with that choice, as well.

    We would offer two considerations for maximizing either experience. If we chose to remain in the home (the most likely option), we would want to frame the decision as representing the starting point of the rebuilding process with the increased cash flow serving as the seed money for a new start. It would be vitally important to continually focus on the rebuilding opportunity that extra cash flow represented. If the extra cash flow went for consumption, it would show a lack of gratitude for this opportunity and it is unlikely a good outcome would be achieved.

    If we chose to live with friends or family, during the rebuilding phase, it would also be important to recognize the inherent opportunity such an arrangement could offer. Equally important, is to hedge against the real risk of everyone, including the host, tiring of the arrangement. It needs to be a win-win for everyone. We would want to share a portion of the strategic default cost savings with our host to keep their enthusiasm and spirits positive. After all, they are giving up the some use of the house and also are giving up a great deal of their privacy. To compensate them, in some fashion, would not only be the right thing to do, it would also be better for one’s own self-esteem at this critical juncture.

  11. Steven and Debra – There seems to be a widespread concensus in favor of staying in the home – payment free – until the bitter end. While I can appreciate the logic in doing so, it’s important to realize that it will be only a short time and even that depends on the state you live in. Six months or a year without a house payment can seem appealing, but the time passes quickly and being rent free can be addicting.

    I completely agree that efforts should be made during this time to engineer a soft landing on the other side, I’m just not convinced it’ll actually work out that way. When people are short timers in a situation, especially one where they’re never sure of the day of reckoning, they develop accute deer-in-the-headlights sindrome–a condition bordering on emotional paralysis. That isn’t a postive state to operate in.

    We can talk all day about what people should do about a foreclosure from the comfort of a balanced financial position, but when you’re in that hole things look a lot different. Emotions play a major role in any crisis, and we can never completely separate ourselves from them.

  12. Try to settle it as much as you can. If you have other options to get money in order to settle it, so why not trying that way. It is really important for us to at least do something before hand than you unknowingly seeing yourself losing everything you have before. I agree with you, go to the root of the problem and not the problem itself because it might happen again if you won’t deal with the source first.

  13. I am now in the “deer in the headlights syndrome.” I’m living in a house that I have not made payments on for 6 months. Family/friends are not an option. I’ve been actively looking for an apartment and will be putting in an application in a couple of days. I have asked for a lot of advice; and it seems to be an even split. Stay in the house and save money (not a strategic default) vs. move out and move on. I think I’ve come to a compromise….I will move as soon as I get my NOD. I will not wait until the bitter end and wait for the sale date; however, financially this seems to be the only way to get back on my feet. I surrendered my house in Bankruptcy. I think it really matters is someone is doing a strategic default vs. a necessary one due to inability to pay. Any thoughts?

  14. Anne – Based on what you’ve written, what you’re facing doesn’t involve strategic default–it’s called surviving. And from the sound of it, surviving in a very difficult situation. My guess is that is where most people facing foreclosure are at.

    Strategic default is walking away because your investment went sour. That can only be the case if you can afford to make the payments but choose not to. You’re giving up the house because of an inability to pay, which entirely different. There’s no moral dilemma in that.

    You feel like a deer in the headlights, but it sounds like what you’re doing is very rational under the circumstances. You’re buying yourself time, and that again is the survival side. Just keep busy looking to solve the income issue, and not fretting about losing the house and having to move–that’s negative energy!. It sounds like you’re doing the best you can.

  15. I actually think that’s really good advice. I know someone who was in a similar situation but chose to keep their house but they could only do so by getting financial help from family. And now the house is worth way less than the mortgage they are paying off so to me it just doesn’t seem like a good idea. They should have sold the house and rented a place until they could afford to once again buy.

  16. I agree. When you’re going through a financial storm like foreclosure you have to do your best to think long term. Saving the house sounds noble on the surface, but it’s never worth doing “at all costs”. If the people in question are unable to repay the family loans, then they may be risking a relationship in favor of a house. Not a good exchange.

  17. Facing a foreclosure is never easy. But the trick is to act in a practical manner, if you can save the house without much affecting your financial books, then saving the house is a righteous decision, but if the act of saving the house makes you bankrupt, then it is better to let go. Thanks for the share.

  18. That’s well put Aayna. You have to think strategically, ie – what will get me out of this mess the most completely? Of course when I use the word “strategically” I don’t mean that as advocating strategic default (walking away from a property because you’re losing money on it). I mean not throwing good money after bad, by trying to keep a home you can no longer afford. Most people do that straight to the poor house.

  19. Everything happens for a reason and foreclosures sometime lead to prosperity in the future and much wise decisions afterwards. Thanks for the sharing the tips on how to face this.

  20. I agree Fatima. It’s like a “baptism by fire” – we have to go through it in order to get better. Success feels good, but failure is a better teacher.

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