What’s a foreclosure sitting duck? It’s a person sitting in a house that he knows he’s probably going to lose, but he hangs around and…just sort of lets it happen.
You’ve probably seen examples of this happening. Maybe you’ve been in that position yourself. I don’t want to minimize the emotional factors that affect a person who is facing the prospect of foreclosure. I get that it’s hard to believe you are going to be displaced out of your house. I can also appreciate the deer-in-the-headlights syndrome that grips people who are facing a set of completely unattractive options.
But the same time, it’s sad to see people lose not just their homes, but everything – their home, their possessions, their reputation, their friends, and their communities. Worse is realizing that in many cases it’s totally unnecessary. The loss of the home to foreclosure is often caused – or at least exaggerated by – emotional factors that get in the way of sound judgment.
A typical example of a would-be foreclosure sitting duck
I was taking a walk around my neighborhood yesterday morning. There’s a house around the corner from me that has been sitting empty since February. The story that I’d heard is that the family had picked up and abandoned the property because it was going to be seized by the bank.
Though the house had been sitting quiet for nearly 7 months, there was an eerie reminder of the foreclosure – and the family that lived there before. The driveway and part of the from lawn were piled high with the contents of the now abandoned house. There was living room furniture, a refrigerator, mattresses, kids toys and household tools, among the rubble of indescribable odds and ends.
What were once a family’s prized possessions were now put out as junk. The family is now gone, and they’re hardly remembered by their neighbors. The kids were pulled out of their schools, and undoubtedly are now attending new schools in an unfamiliar community, or perhaps even another state.
When people go through foreclosure, it’s as if they become ghosts. They never come back, and no one ever hears from them. The humiliation is unbearable.
This house reminded me of how many times I’ve seen and heard of this very situation playing out in the past. It’s a real shame too, because there were probably steps they could’ve taken to prevent this before it got this bad.
Pretending it won’t happen
I’m not trying to imply that everyone who goes through a foreclosure situation has brought it on themselves. In fact, far from it. I believe there are structural problems in the economy that are negatively impacting more households than most of us generally understand.
And maybe that’s the part that mystifies me the most. Why is it that people who are in the eye of the economic storm spend so much time denying the true depths of their circumstances?
Not only have I seen more than a fair number of people going through foreclosures, but because of my extensive experience in the mortgage industry, I’ve also had the questionable honor of counseling a few of them. And what I found is a consistent pattern of disbelief. Not only do they have difficulty accepting the possibility that, yes, they are being legally dispossessed of their property, but they also seem to be incapable of accepting good advice on how to deal with it.
Milking the homestead for all it’s worth
What most people who are going through foreclosure seem incapable of accepting is the fact that once you get behind on your mortgage by two or three months, you are on a path toward foreclosure that is almost impossible to stop. The hope is always that they’ll be able to get their hands on enough money to bring the loan current. But they’re prevented from doing that by the same factors that caused them to fall behind in their payments in the first place.
It’s a vicious cycle from which rescue is almost impossible. In fact, in most foreclosure situations, it seems that the pattern starts years before the actual threat of dispossession enters the picture. There is usually a prolonged period of unemployment, sometimes followed by re-employment at a much lower income level. There is also visible evidence of deferred maintenance to the property. Broken components on the home are not fixed, the house is not painted, the lawn and shrubbery overgrow, and junk starts to pile up.
The point is, it usually becomes apparent that the owners can no longer afford the property long before foreclosure becomes a visible threat. This is why I believe homeowners actually lose their homes; they fail to see was is so obvious to everyone else.
Rather than thinking long-term, the more common pattern is to immerse themselves in short-term survival strategies. How can I stall off the foreclosure process? If only I can get a better job, I know I can fix this. How long can I stay in the house before they put me out?
That last point is one that I can’t prove, but have a strong suspicion that once a person knows that foreclosure is inevitable – and that they can’t stop it – they try to stay in the house as long as possible to take advantage of living in the home without making payments.
I get why you would do that, but I have a strong feeling that it only makes matters worse.
The risks you take by following the typical pattern of inaction
There’s a belief in America that you preserve your home no matter what. Maybe I’m all alone in this opinion, but I think that it’s incumbent on everyone to consider their lives and their financial situations well beyond homeownership.
If you are facing the loss of your home, it is fundamentally true that it is happening because you can no longer afford to keep it. Putting off the inevitable in hopes of a miracle is not a workable strategy.
Again, this is just my opinion, but if you begin to feel that you’re struggling to own your home, it’s almost certainly time to change strategies. This isn’t to say that you should jump ship at the first sign of financial weakness. But it is to say that you should consider your options in the face of that situation, and be fully prepared to exercise them as necessary.
Most people don’t, and end up losing their homes. And there’s a whole lot more ugly stuff attached to that outcome.
You’re not powerless
Every foreclosure-in-the-making will eventually reach a point of no return. This is why it is so vitally important to exercise any options you have as early in the process as possible.
Here’s a set of strategies that you might consider, rather than trying to hang on until you lose the house in foreclosure:
Be realistic about your financial situation. When people experience financial difficulties, it’s common to believe that they’re only temporary. But this is where you need to take a reality break. A lot of people are facing financial shocks that take them not months, but years to overcome. If your house has become an unsustainable expense, you must face the reality that you may no longer be able to afford to be a homeowner.
Vow to stay in control of your circumstances. Just because you’re going through financial difficulties doesn’t mean that you have no options. But time is a critical factor with almost all options. Set up short-term strategies to stay in the home, but also attach time limits. If after three months or six months you’re still struggling to pay your mortgage, you should be prepared to relieve yourself of the home.
Create an exit strategy. Get as much information on selling your property as you can get. That means getting a realistic assessment of what the property is likely to sell for – in many markets this can be substantially different from what we might commonly referred to as the “value” of the house. If you do reach a point where selling the house is the only viable survival option, you’ll need to do it quickly. That means you’ll need a price it to sell. If you owe more on the house than it’s worth, talk to your lender about setting up a short sale. The more you do in advance, the easier it will be to act when the time comes.
Keep the house and property in good condition. This is easier said than done when money is tight. But you can keep the house clean, keep the lawn cut and hedges trimmed, keep excess stuff from accumulating around the house, and paint a room or two as necessary, at very little cost. The idea here is twofold:
- You should want to keep the house clean and orderly for as long as you live there. Let it deteriorate, and your attitude and emotions will go down with it. You don’t need that on top of money troubles!
- A clean, orderly home will be much easier to sell on short notice.
Your focus should be on setting up your next move. By preparing an exit strategy before the sheriff comes knocking at your door, you enable yourself to make a more graceful departure. If you sell before your situation becomes desperate, you’ll have a better chance of preserving your credit, of preserving your income options, and keeping your head clear so that you can maintain some form of forward motion. All of that is important – you’re not swearing off homeownership forever, you’re just abandoning the current effort, so that you’ll be in a better position to try again later.
What you gain by avoiding foreclosure
What you’re trying to do, overall, is to avoid the type of crash-and-burn foreclosure situation that the majority of people experience. Rather than concentrating on saving your house, you should instead focus on salvaging whatever you can of your financial integrity apart from the house. Here is some of what you gain by selling your house rather than letting it go into foreclosure:
1. Better credit – Foreclosure is one of the worst entries to have on your credit report. If you can avoid it, even if you have some late payments, your credit will recover more quickly.
2 A better shot at your next place – It will be easier to rent another place without a foreclosure. Let the house go into foreclosure, and you may be at the mercy of living with family.
3. You may get some equity from the house – If you sell your home, you may get some equity out of it. If it goes into foreclosure, you won’t get anything. In fact, you’ll be lucky if you don’t get saddled with a deficiency judgment for the unpaid balance of the mortgage.
4. You’ll get out of a negative situation before it gets even more negative – Dangling on the edge of foreclosure is an emotionally draining place to be. That will hamper your ability to recover from your financial difficulties, or even to do your job on a day-to-day basis.
5. By selling on your own terms, you may preserve your self-esteem – You may not feel the need to abandon your friends and your community if you are able to sell rather than losing your home in foreclosure.
6. Selling may go better on your kids than a foreclosure will – If you sell, you’ll have considerable control over the process. If you go into foreclosure, you’ll be told what to do, and when you need to do it. That can weigh heavily on kids.
Foreclosure is an ugly situation, and so are the conditions that lead to it. But you don’t have to sit around like a helpless victim. You can almost certainly avoid being evicted from your home, and having all of your possessions piled up on the front lawn, like my former neighbors. The only way to do that is to act before the situation gets completely out of hand.
The loss of your house does not mean that your life is over. It just means you need to take a financial timeout, reorganize your finances, and then plunge forward once again. That’s a lot more constructive than staying in the house waiting for a miracle.
What advice would you give to a person who’s facing the very real possibility of losing their home in foreclosure?