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
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:
- Let the house go, and let the process run it?s course?you will survive this
- Concentrate your efforts where it needs to be?on generating or increasing your income
- Sell off as many of your possessions as you can to raise some cash
- 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
- Line up financial assistance from family or friends to help you get back on your feet (not to save the house)
- 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)
- Vow to never get yourself in this position again
- 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?