Take This House and Shove It!
I have a question…
What is so catastrophic about a foreclosure?
I don’t “personally” know anyone who has experienced a foreclosure, so I’m trying to put it in perspective based on what I do know. Growing up in Brick City, then living in a rural, clearly segregated, small town in NC, here are my thoughts:
Foreclosure. Eviction. Same thing. I’ve seen the latter happen many times. Life goes on.
Whether you’re renting an apartment or buying a house - in both situations - you make a deposit (maybe), sign a written agreement, move your family and all of your worldly possessions, enroll your children in school, and create family memories/traditions as you make the place “home.”
During the housing boom (or bust, whatever you want to call it now), many people who didn’t previously qualify to buy a home began buying them left and right. Now reality has set in and they are at risk of losing the home they couldn’t afford in the first place. Why is this bad?
By the time the bank comes to repossess, dude, you had a 2-3 month head start. Pack ya shyt and bounce! Go back to the living arrangements you had before you bought the house. It was acceptable then, so why isn’t it acceptable now? Why do you want to stress yourself out for 30 years to keep a home you can’t afford?
Help me out people. This isn’t tongue in cheek, I’m really confused.
~*~*~*~*~*~Work to achieve, not to acquire.
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It’s emotional. When I bought my house I experienced this huge sense of accomplishment. It’s one of my proudest moments. If I lost it, I would experience a huge sense of failure. I don’t know if I’d call it catastrophic and I’d bounce back but I would be devastated.
I don’t know anyone who has experienced foreclosure (though I know some who have come close). Therefore, my comments are speculation. While there is definitely a financial aspect (BIG hit to your credit), I suspect the real ‘catastrophe’ is the emotional aspect.
For one, a lot of people have bought into ‘the American dream’ so they feel they’ve lost that if they experience foreclosure.
Most people don’t want to have to (what they perceive as) downgrade. There’s a saying - a luxury, once experienced, becomes a need. Who wants to go back to a 3 bdrm apt when they’re using to living in a larger home?
Also, the fear of ‘looking bad’ and the need to ‘look good’ is quite powerful. That’s what prompts a lot of people to buy things they can’t afford (trying to look good) and hold onto homes much longer than they should (trying not to look bad).
I’m not worried about the people in foreclosure… I’m worried about my home value! I know that’s very uncompassionate, but they got themselves into that mess (with the exception of those that lost and have been actively looking, but cannot find a new job) so tough luck.
When appraising a house, an appraiser will use the average of prices from recently sold or currently selling houses, or comps. If a comp for your house is a foreclosure, that immediatly drags down the value of your house and every other house around you! Now that is catastrophic in the short term!
I feel you SM.. I thought the same thing.. and when I was in the market to purchase and after reviewing everything and realized its in my best interest at the time to continue renting, I had a few friends who told me I was stupid I was crazy, etc.. NOW those same friends are either struggling to keep their homes/condos or have been foreclosed on or sold prior to foreclosure..
I understand the sense of accomplishment of owning but if its not what you can afford.. don’t stretch yourself out there.. A lot of people don’t realize that owning a home isn’t just about paying the mortgage.. Hard lesson to learn for some
I think in addition to the emotional aspect and the sense of accomplishment, there are those who simply have the “Keeping Up With the Jones’s” syndrome. I agree with BK, people will try to tell you what you should do, but only YOU know what is feasible and to overextend simply does not make any sense.
But the largest impact of foreclosure is the havoc it wrecks on one’s credit. Damage like that takes years to repair, not to mention the fact that it can hinder the ability to do other things, even renting a future place.
I’m with Tom. I am more worried about my home value taking a hit due to foreclosures in my neighborhood!!
I agree with SM, but I can empathize with those out there who thought they were finally achieving the American Dream. As stated by others, it is the thought and sense of accomplishment that is most upsetting to these people. Not only are they emotionally hurt, but their pride is lost. A hit to the psyche is definitely more crippling than a hit to the wallet in my opinion.
I think people associate homeownership with having “made it” in some way. And, when you have to admit that you failed and cannot afford your home, you are announcing that you don’t make good financial decisions (I don’t care who you are– read contracts before signing, it’s no one’s fault but your own!) and that you aren’t as well-off as you let people believe. We live in a 1100-1200 sq ft apartment. It’s not great. It’s not perfect, but we pay $1000 a month and we’ll always be able to make that payment. We don’t want our neighbors and our family and our friends to know that we are not money saavy and losing your home to foreclosure is a big sign on your head that says “I didn’t read my mortgage contact” or “I don’t know how to manage my money.”
As other have mentioned, it’s more about other people’s homes. You did your homework. You made your budgets. You did everything right, you bought a home you can afford and now you’re losing money and are upside on your mortgage because the other people around you didn’t and now your house is surrounded by foreclosures.
And it hurts the rest of us too, even those of us who didn’t buy anything. Why? Because the stupid bankers who were just making loans up out of thin air and giving money away are stuck with the houses, so now interest rates on credit cards and fees on bank services have skyrocketed (I read a WSJ story about it).
And don’t forget ruined credit for those people who unwisely bought homes they couldn’t afford.
It’s one thing when a few people get themselves into this mess. That’s their problem. But when hundred of thousands, maybe millions, of people get into this mess with the banks making matters worse, then it suddenly becomes everyone’s problem. I mean, there are people who are unemployed right now because their bank employer went out of business because some family 10 states away defaulted on their mortgage. Sick.
Also, this isn’t just happening to people who bought homes they couldn’t afford. People who could afford their homes…when they were working…no longer can because they lost their job and can’t find another one. So it’s not like they were only in their homes for a couple of years; they have been there for a couple of decades. Raised children, built a life, etc. Not everyone wants to keep it movin’. There are lots of people who are content staying still. Those are the people who are devastated.
Sometimes the living situation you were in before you moved was NOT acceptable. Also, as others have mentioned, the impact it has on your financial future can be devastating because of what it does to your credit.
I am in complete agreement with L. Brit. In many of these cases people could afford their homes - they had good jobs, the rates were right and the payments were in their range. The mortgage brokers told them rates “may” go up, but if so only by a point to a point and a half and they could always refinance at that point. How do I know this? That is exactly what they told me. I could afford my house when I bought it… then again, I was also married. Little did I know I would end up being divorced and the house fall entirely to me. now I am $900 in the hole each month.
No, that is NOT what L. Britt is saying. I clearly understand HER point: families who bought homes DECADES ago…RESPONSIBLY…with FIXED rates and payments they could afford for 30 years. But they were directly affected by the current crisis, due to reasons OUTSIDE of their control - most likely a job loss AS A RESULT of the economy - thereby driving them to foreclosure. Those people are true victims.
However, what you are describing is EXACTLY what caused this situation. You purchased a home with creative financing - one you couldn’t afford under normal circumstances with the promise of being able to refinance later. You made the biggest financial decision of your life based on what someone (a sales person) told you. You also stretched to buy a house relying on the income of both adults in the home without consideration as to what would happen if either of you lost your job (a very likely possibility) OR were no longer together (also a very likely possibility).
Sorry, my dear, but THAT is poor planning and I can not sympathize or empathize with your situation. [-SM]
Yes, I could walk away and get a little apartment - however, I have worked hard for my 780 credit score. I don’t want to lose that because times are hard. I am working my tail off to make up that money and keep the home for now. Eventually I want to be able to sell this home and buy something better suited for just one person - it won’t be easy doing that with a big F on my credit report!
My parents lost a house to forclosure when I was 6. I don’t know the particulars of how they got behind or whatever. I remember moving I don’t remember it being particularly stressful or embarressing, since we actually moved to a (rental) house in a nicer neighborhood. My parents were able to purchase that house after renting it for a few years. My parents were my age now when that happened. Then I was chatting with a friend and she told me that her parents, too, lost a home when she was a kid. My point is they rebounded and survived. I think there is a lot of social pressure to buy a home. It’s like you’re expected to buy a house anyway you can. I also think people are expected to buy homes at a younger age than say 15 years ago. It’s like get a degree, get a job, because its a “waste to rent”
Socially, there’s a huge stigma to going through a foreclosure. My thought is that it goes back to the “American Dream”. It’s ingrained in us. When I bought my first place (a tiny condo that I quickly outgrew), I felt like I had become an “adult”. And I was 30 years old!
on a whole i don’t feel sorry for the people that lost their homes due to foreclosure in this recent economic downturn. there are always exceptions, but overall, it seems that most people were just buying a house they couldn’t afford and not bothering to do their research on home loans. i’m not a homeowner so i’ve never gone through the process but i’m sure it’s scary and tedious to go through all the loan paperwork. regardless, i know it’s not THAT hard to read “Adjustable Rate Mortgage” and understand that to mean just what it says. now we are all paying for the poor decisions of others. but you know i am more mad at the lenders and bankers and wall street fat cats that got rich off of these stupid ARMs and other shady financial lending practices. while it’s still the individual’s choice and therefore their responsibility to deal with the consequences, it is not right that companies are getting bailouts from the fed govt. these companies purposely targeted and approved loans for people that they shouldn’t have been approving or targeting and made millions off of those loans. now the tides are turning and they’re running to the govt for help and of course the govt, who gets tons of $$ from those companies is agreeing to bail them out. it makes me sick that the govt approved this stupid bailout package.
Foreclosures are emotional because losing your home is emotional. So is losing your entire downpayment and any equity you have in a house PLUS. I know of people who have had to move for job reasons (two families actually) who put down 20 percent or more for houses they bought at the market peak, just because that was when they moved to the area, not to time it or rush into it or anything. In one case, they had to move for the husband’s job. They had to do a short sale - thank goodness the lender agreed. But they came out with nothing, not a penny of what they saved all those years. They tried to rent the house but couldn’t find a renter in the time period they allotted (six months). In the other case, the family moved because of the mother’s/wife’s parents who are ill and need help. They packed their things, left their jobs and moved in with the parents but when the husband was laid off after two months at his new job, they couldn’t make the mortgage payments. They didn’t try to rent their house which could have helped them. Their lender would not agree to a short sale (!!!!) and they just stopped paying the mortgage. I tried to talk them into paying part of the monthly payment but people will do what they will do. So foreclosure it is.
It’s tough out there, much tougher than anyone expected.
I’ve read AND re-read each of your comments and this is what I’ve gathered. Foreclosures are catastrophic because:
1 - Emotional, sense of failure
2 - Poor credit rating
3 - Loss of the “American Dream”
4 - Don’t want to downgrade
5 - Don’t want to look bad to others
6 - Concern about surrounding home values
7 - Pressure from other people to buy/own a home
8 - Keeping up with the Jones’
9 - Loss of pride
10 - Don’t want family/friends to know
11 - Massive foreclosures affect everyone, not just the homeowner
12 - Job loss in related industries
13 - Unacceptable prior living conditions
14 - Impact to people who did all the right things
15 - Trusted the lender, shouldn’t have to suffer
16 - Social pressure to own a home
17 - Not fair, businesses are getting a bailout
Thanks for all of your comments. I was thinking more along the lines of the individual who bought a home irresponsibly but is now going through foreclosure. I didn’t consider the comments shared in 6, 11, 12, and 14, which make the most sense to me. Thanks for the enlightenment.
I think we have witnessed a major change in the motivation to buy a house in recent years. A house became an asset. It no longer was the home in which we build memories. Everybody was swept up in it, even people who could not afford their own home.
Single Ma:
We’ve been #14 (responsible homeowners) for 25 years. Now when we need to move closer to where I work (65 miles away), we can’t sell our home because of #6 (drop in home value by $120,000), #11 (massive foreclosures - the bank won’t even send me information about how we might be able to sell the home), and the icing on the cake, #12, my husband lost his job this week.
The wise saying, “Be careful what you ask for, you just might get it.” includes all the unexpected things that come along with the perceived “good life”.
I recently faced a foreclosure at the age of 24. And during the whole thing trying to keep up and trying to get back on track it became more of a burden and a lot more stressful than just letting it go. But I was trying to hold on to my condo because I had been so proud to purchase something at such a young age, and I was doing so good but one of the things I know now is that I would never 1) purcahse anything without the certainty of a career again (I had just entered the job force and was managing in retail which is never guaranteed 2) go into something that I didn’t understand (I was dealing with family friends for my mortgage and I pretty much gave them the control just signing my life away and not really knowing what anything meant.
But after I released those feelings of failure, and just knew that I had to do what was best for me, I just let it go and I honestly felt like the weight of the world had been lifted off of my shoulder. My credit is hurt and will be damaged for a long time, but I am steadily rebuilding, and I know one day I will own again, but will have gone about it the right way
Some people also have an attachment to a place that other people don’t. When I bought my house, I thought “This is the place where I want my children to grow up.” If for some reason we ever had to move, I would be devastated, simply because of all the good times together we’ve had here and the memories involved. This is MY HOME, my place of refuge from the world, and I would never want to leave it. (Fortunately, that’s very unlikely.)
I think I’d have to agree with others here–it’s emotional. I think we all try to have these grand dreams, and sometimes we do things in such an unrealistic fashion to attain those dreams that, well, when reality hits us, we not only feel like failures at our dreams, we feel like complete frauds.
Of course, when someone puts money into that grand dream only to lose it, it just makes the emotional hit all the harder. It’s like when someone starts up his/her dream business (hair salon, comic book store, restaurant, et. al.), only to have it fail soon after. There’s a period of disorientation and introspection. Some people bounce back faster, for some it takes longer.
I do agree with you, SM, in that it’s hard to feel sympathy with people who couldn’t even bother to pick up a copy of “Mortgages for Dummies,” but with the current economic situation in the world today, I’d like to see these people who stupidly got themselves into sub-prime mortgages be able to convert them into fixed rate mortgages. This is going to be a terrible mess to clean up.
@Vilrki–
You hit the nail on the head. Homes became “assets” or “investments,” which they’re not. People forgot that homes are just that–homes. They don’t pay out capital gains or dividends like mutual funds. They’re a place where you sleep at night, where you raise your kids and have Thanksgiving dinners, or a place to hide from the world when the world’s just too much to handle some days. In that sense, homes are more important than investment vehicles, and they should be treasured as such, not as things to be “flipped” on an unsteady market.
“Pack ya shyt and bounce! ” Dayum girl, I think we are related, lol
It’s all about attitude, I have seen it all growing up just in my immediate family (it’s 7 of us)
and that’s the attitude I have..Pack yo crap…….. it all depends how a person grew up. If you never had drama or been in a jam, alot of people cannot relate to what you just said
If everything was perfect or semi perfect around you growing up, then foreclosure, divorce lay offs will shock the hell outta you.
The way I grew up, it’s more like so what, lol That’s just the attitude of my family, it’s just not embarassing or emotional to us.
Perfect example: my sister called and told me she has to move, the landlord called and said they are selling the house they are renting, she was like OK. No emotional, no crying they moving in 2 months. Life goes on. The kids was not even mad or angry, lol they know the routine.
Exactly!! Our reactions are based on life experience and perspective. [-SM]
I think that you have gotten very cocky with your planning and saving. You are very thoughtless and not very smart. At any moment you can suffer a great lost and lose your home! You aren’t debt free, you have renters paying your debt. Although you pay your credit cards in full monthly, you still are relying on credit and the little you have placed in savings could be wiped out at anytime with any kind of emergency. Saving your money, paying credit card bills in full every month, and purchasing your home the right way doesn’t exempt you from ever falling on your face. Never get too high and mighty on yourself to think that this couldn’t happen to you. There are plenty of people today who has never experienced losing everything and because of this are killing themselves. You really make me wonder about your thoughts.
You don’t need to wonder about my thoughts because I say what I mean and I mean what I say. And you don’t have to like (or agree with) my thoughts, but you WILL respect them. And I strongly recommend that you think twice before slinging insults. If you can’t do that, stay off my website.
To address your points, nothing in life is guaranteed so losing a house would not be catastrophic to my family. If I can’t pay, the bank wouldn’t have to take it from me. I’d GIVE it back. My sanity is more important to me than pride, a credit rating, or money. But since you’re wondering what I would do if I loss everything - or as you say “fall on my face.” Nothing, but get back up and start over again. Simple. Been there, done that. I’ve seen worse so it’s all about perspective.[-SM]
Many years ago. One of my childhood friend’s mother (divorced single mom @ that) lost the house. I’ll never forget when we saw the sheriff show up with the movers. EVERYTHING was put out on the front lawn in a matter of hours. You could imagine the hurt, embarrassment and anger they must have felt when not only were they thrown out but it started to rain on all of their stuff. I’m telling this story because (who knows) you may find your self in a situation where you thought you could handle it but you really couldn’t.
Um…foreclosure can be financially devastating. The bank is selling your home, often undervalued in a bid to sell it.
So, if you had kept in line with your mortgage, and CHOSE to sell you could get, say $300K for your home and hold out for a price you were happy with.
With a foreclosure, the bank may dump your house for say $250K….so that’s 50k less in revenue….
Emotional stuff aside, there are very negative financial implications to not being in control of your sale
I came very close to loosing my house 3 years ago. My mom passed away and while she did have some savings, I was left to pay her mortgage and mine. I unsuccessfully tried to rent out my home but didn’t have much luck.
But probably more the reason, I was in a funk about my mom passing and just didn’t try to hard.
I made a decision to pay her house note, but couldn’t always pay mine. And it really was a decision. I understood that if I lost the house, it would affect my credit, there was even a chance that they might charge me the difference of what i owed minus what they sold it for. But I was ok with that. I had a place to stay and I figured i’d slowly get over it.
Well…I told a friend of mine my situation, she helped me put it up for sale and I sold it about 15 days before it would have gone into full forclosure. I even made money out of the deal.
So to answer your question - if it was me? I would move before things got to bad, I would feel really, really bad but I would keep moving and working towards getting things back in order.
I have so many friends who bought home that they would flat out say they could not afford. When I bought my home 9 years ago, I paid cash for it. I was never into keeping up with the Jones, because frankly as a child I never wanted for anything. I sold my home because I was a single mother living in the city and did not feel safe. Where did I move to? The burbs, in an apartment that I can afford! Do I feel any less because because I don’t own a home? Nope. My daughters go to the best school, my car insurance is cheaper, I feel safe, we have a place to live and if I do fall on hard(er) times, I’m humble, I have no problem moving home with the parents, at 30 with 2 children, to get back on my feet. I would never stress myself out over things. Houses, cars, men, heck things come and go, my health means more!
Hell, like you said SM, you have several months to get your ish and bounce! One, you cannot afford to pay the house note so there is at least $1000 a month you have pocketed over 3 to 6 months. Get a UHaul, storage space and cut your loses! You can recover. Stress yourself out over it and you could die. I’d go for the latter!
So what happens when the Jones go into foreclosure?
If I remember right, If the bank forecloses, sells the house, and the sale doesn’t cover the balance of the loan, then you are still in debt for the difference… I think
While I think it’s a shame that some people who bought before the craziness are seeing their housing value dropped, most of the people complaining about it are those who bought when prices were inflated.
You have to realize that every bubble bursts. Here in Seattle it’s not hit us that hard because homes are always at a premium. That said, I sold my house because a) I was having to stop working and apply for disability and b) the market was going crazy. I knew it wouldn’t last. I got lucky.
But people who were buying during that time really should have realized the exponential rise in prices (people got into bidding wars and paid up to $20,000 or $30,000 over the asking price) couldn’t possibly last. Seems to me, these are the same folks complaining about their house values plummeting. They’re not really plummeting as much as correcting.
I know in some areas the housing market’s bottom has completely fallen out, but this is the exception to the rule, as far as I understand it.
No, David, that is not true. Most home loans in the US are “no-recourse” loans.
If you have a no-recourse home loan, that means that if the market value of your house is less than the amount you still owe on the loan, you CANNOT be held responsible for the difference and the bank cannot seize any of your income or assets (other than the home itself) to pay for the difference if you default. The bank, not the homebuyer, must take the loss in the event of a default.
These no-recourse loans are one reason why we have so many defaults. Why would a homebuyer hold on to a depreciating asset if they can just cut their losses and dump it back on the bank?
Many of these people also purchased way too much square footage for their incomes. They purchased a level (or quite a few levels) above what they reasonably could have afforded.
In many cases, these homes that people couldn’t afford but purchased were far more than what they needed to live a reasonably comfortable lifestyle. The average home now is considerably larger than the average new home a generation ago (According to the National Association of Homebuilders, single family homes built in 2006 were 50% larger than homes in the 1970s, the number of homes with 3 plus baths have doubled, and the number of homes with 4 plus bedrooms has jumped from fewer than a quarter to almost 40%). The census also shows that household size and family size in a home have dropped considerably. That means that people buying houses in 2006 had far more “house” per person than ever before…but did they really *need* that much space, especially when they can’t afford that space?
Yes, everyone needs some sort of roof over their head to live comfortably–but not everyone needs to OWN that roof, and not everyone needs 2500 square feet of roof.
@David and @Mia
In addition to being emotional, foreclosures and short sales are a huge tax-burden.
Even if the loan is a non-recourse loan, there are still financial implications for the buyer. If you go into foreclosure, and/or the bank sells/agrees to a short sale of the property and the home is sold for less than the FMV of the loan, the balance may be forgiven on the bank side, but the buyer will have imputed income.
In IRS speak, this is called “cancellation of debt” (COD) income and its considered to be imputed, because it creates taxable income, where taxable income did not exist. So say a home loan was $300K but the home only sold for $250k. If the lender does not make the buyer pay back the difference, the lender in effect forgives the loan. If the balance of the loan is forgiven, the taxpayer now has $50,000 in taxable income for the tax year in which the loan was forgiven. The same goes for any type of collateralized or non-collateralized debt that is forgiven. (Keep in mind that sometimes the financial institution does not report the loan forgiveness).
Whether the situation is a short sale or a foreclosure, if the house is sold for anything less than the FMV of the loan, the buyer/taxpayer will have imputed income. This will probably be reported by the financial institution to the IRS via some time of 1099.
So now instead of owing on a house, the buyer may end up owing the IRS if they cannot pay their tax obligation by April 15th. the last thing anyone wants is to be a debtor to the IRS. I am sure that the COD issue is probably going to be addressed by legislation, in light of the financial fiasco.