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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 my in-laws had that experience a little over two years ago. I’m torn about sharing their story. Odds are they will never read this, but I think they would hope that someone could learn from their mistakes, which led them to foreclosure.  I apologize for the length of this post, but there is no way to tell the story in 500 words.

Spending More Than They Made

My in-laws have never saved money.  My father in-law worked in the construction industry and could do just about any job, including heavy equipment operation. When he worked, he made good money, but jobs always ended. He wasn’t ever really “a fireball” as my mother-in –law said on more than one occasion. It wasn’t unusual for him to go into a sort of depression and not work for some time after a project finished. As a result, she was always hustling to fill in the gaps, working at an astounding number of different jobs, often multiple ones at a time. In the late 90’s she got licensed as a realtor and scored a job with a contracting company in her major American city that was experiencing off the charts growth.  She worked out of a model home in a development, and would be the sole realtor in selling all the speck houses. Her lowest priced houses were in the mid $300’s, and she sold some for over $1 million.  When the development was sold out, they’d move on to a new one.  She was paid a salary plus commission and was raking in the money.

For the first time in her life, she was the main bread winner. I remember when she was so excited to go buy a new SUV because she was able to do it in her name alone. Did she need the new SUV? Well, that wasn’t the question.  During this period, my in-laws remodeled their kitchen, bought new TV’s, and landscaped the back yard, complete with a fish pond. They both got LASIK surgery.  They took some trips, went to the casino, and sent us tons of gifts. The family never talked about money, but when we went to visit, we saw the kind of homes she was selling and assumed she was doing very well.

Expensive Habits

My father in law has always had a few habits that are not relevant to the point of this story. I think if you can afford your habits and they only hurt you, it’s your choice. I try not to judge. My father in law could not afford it, and ran up huge credit card debt.  We did not know about it until years later, but they had taken out a second mortgage to cover the amount owed. When my mother- in- law started making big money, they refinanced everything into their mortgage and ended up with a huge payment.  They were easily able to make this payment plus buy all the other things they felt they could afford with her new income. I remember having the conversation with my husband at one point that I hoped she was putting something away for a rainy day, but we never asked. As the daughter in law, I certainly wasn’t going to bring it up.

Rainy Days

Turns out the rainy day came. The real estate market collapsed, my mother in law’s company folded and she was out of a job.  Not long after, my father-in-law was laid off as well, so they were down to no income and a huge mortgage payment plus regular bills. They skated along for a while with temporary work, but eventually they couldn’t make the payments. Long story short, a couple in their 60’s lost their home to foreclosure.

They were luckier than many because my sister- in- law had a friend with a rental who agreed to let them live there. With my father- in- law old enough to draw social security, and my mother- in- law working a minimum wage job at a laundromat, they could afford it. 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. For the first time in maybe forever, 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 a now 12 year old SUV. My mother in law is 64, and we are praying that she won’t have any major health issues until she is eligible for Medicare.  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 in laws 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 in-laws 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 in-laws 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 lost it trying to keep up with house payments.  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 in-laws aren’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? Should we have given money to my in-laws?

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

58 comments

  1. That’s actually a really sad post :(

    I don’t like lending money to family members, mainly because I have been bitten before.

    We once lent about $300 to my brother and sister in-law because they were in a bit of trouble. 3 years later and we have only seen $50 of it returned.

    I’m annoyed we lost our money, but i learned a good lesson about giving family members money. So looking at the positives – it wasn’t a complete waste.
    Glen @ Monster Piggy Bank recently posted..70 Million Lotto DrawMy Profile

    • I think you always have to consider it a gift, thinking you probably won’t get paid back.

    • MomofTwoPreciousGirls

      I don’t understand how people can take advantage of their family and borrow money and never pay it back!

      My husband and I have had to borrow money from family, but we always write up and sign an agreement and pay it back exactly as we specify! Although, we once had to borrow a significant amount from his grandparents to pay off a 401k loan (I know, young and stupid) after I left my job to avoid the taxes. We had a home for sale and when it sold, they were the first to get their money…they were absolutely shocked to get their money back…they had been burned by family too apparently. Sad…

      • I would not be able to sleep if I didn’t pay it back, but most people I’ve know who loaned money or co-signed for a family member got burned. If I ever did give money, I’d probably consider it a gift and be happy if it got paid back.

  2. Sorry to hear about the situation with your in-laws. It’s difficult because you never expect income to dry up, but it’s always a possibility. It’s crazy how many foreclosures there have been, and for how long it has been going on. I heard that within the next couple years people who foreclosed will actually be getting back into the housing market because their credit will be restored (or the foreclosure will have less of an impact or will not show up in their report).

    btw the length of the post is not an issue, didn’t seem overly long to me.
    DC @ Young Adult Money recently posted..Why You Should Not Paint Your ApartmentMy Profile

    • Thanks, DC. I get going and can’t shut up sometimes. I think lots of younger people can come out of foreclosure hopefully with better habits. I love owing a home and would hate not to be able too. My inlaws just don’t have enough time to buy again, at least I hope they wouldn’t take a mortgage in their 70′s.

  3. Mandy - Money Master Mom

    I think you were right not to lend your in laws some money. Money wouldn’t have fixed the situation, only extended the inevitable. It was probably harder to sit and watch, but better for everyone involved. (you financially, and other benefits for your in laws)

    Tough love is a difficult business but much better then enabling poor decisions.

    My hubby experienced some tough love when he was asked to leave home at 18. He was making some really poor life decisions and his mother didn’t want to watch, nor subsidize these choices. At the time he was really upset, but now (12 years later) he can see how beneficial it was that his mom took a tough line. He has blogged about it at if you’re interested.
    It’s sad to think about people so late in life struggling to make ends meet, but it sounds like they are starting to realign some value and priorities.
    Mandy – Money Master Mom recently posted..Free your spending, time, and energy with 3 easy wordsMy Profile

  4. What a sad, but in some ways (the way they responded), positive story. My only experience with foreclosure is on the other side. I’ve had friends who go in and scoop up foreclosed houses for peanuts and resell them.
    AverageJoe recently posted..Two Guys and Your Money #16: Ghostly Tales of Financial Horror and Asset AllocationMy Profile

    • Someone bought and sold their house within a few months of the foreclosure. It was in pretty decent shape with the remodeling they did, and they didn’t trash it like lots of folks going into foreclosure.

  5. Their story is a pretty common one in our area, and I’m glad that they seem to have learned a lot from the experience. I hope we keep these lessons as a communal memory to prevent something like this from happening again, but it seems like people are starting to get stupid and irrational about real estate all over again… *Sigh* Maybe if there’s another RE bust down here we can buy some more foreclosures.
    Mrs. Pop @ Planting Our Pennies recently posted..Lame Friends and Sunk CostsMy Profile

  6. The house next door to ours got foreclosed on and we didn’t see it coming. One saturday they had a garage sale and then that week they were gone! It was very strange.

    Somebody bought the house at a steal and they are slowly fixing it up! I wish we could have bought it but it was just bad timing for us.
    Holly@ClubThrifty recently posted..Sir John Templeton’s Definition of DiversificationMy Profile

    • That’s kind of how we found out. They were treading water, so we thought. Then we get the call that they have to be out in 2 weeks. Luckily, they found the rental they are in now. I’m not sure I could take them in, but would if we’d had to. You wouldn’t put them on the street.

  7. The troubled economy in the US destroyed so many people’s lifestyles. I saw shows on TV of real estate tycoons that lost everything. I believe we all need to save for a rainy day, but when the money is free flowing many of us forget that. I am very sorry to hear about what happened to your in-laws.

    I sometimes wonder if the dreadful drop in the economy over the past 4 years is what has helped so many younger folks (20′s and 30′s) to be so financially conscience. Having witnessed so many foreclosures and bankruptcies seems to have encouraged the younger crowd to really pay attention to their spending.
    Tackling Our Debt recently posted..Blog Post Swap: Sharing a PF Interview with Natalie from Debt and the GirlMy Profile

    • I don’t know how it couldn’t affect young people in some way. Obviously my husband and his sister were not at home for this event, but many families with small children have gone through foreclosure. Hopefully, it will make a generation of savers, like the people who lived through the Great Depression.

  8. Sad story. Sadder that its someone close to you. :( Doesn’t Medicare only cover up to 100 days of nursing care related to hospital stay? What is she going to do if she lives to 80+? Have they thought about who is going to cover nursing home care?
    Veronica @ Pelican on Money recently posted..Why You Will Never Be RichMy Profile

    • You can get Medicaid, which is a state program for very poor people. Adults have to be disabled or blind, unless you are pregnant and have small kids. So if they became disabled, they could go on state aid, which covers nursing home care in “designated facilities” Probably not the nicest facilities, but it’s better than nothing. My father-in-law has veteran’s benefits as well, but I believe space in a home would be limited. We’ll have to cross that bridge when we come to it, I guess.

  9. Kim, isn’t it amazing that it was so easy to see the writing on the wall? It is like some people just don’t understand the basics of income and expenses. My parents have been floating along for years, I dread the day when they come to me for help. It isn’t that I wouldn’t help them it is that I have to then sell it to my wife lol
    Evan recently posted..Comparing Mortgage Rates a Generation LaterMy Profile

    • It is hard to watch your family go down in flames. Ours never asked us directly for money and we didn’t volunteer. I’m not sure what we would have done if they had asked.

    • It is hard to watch your family go down in flames. Ours never asked us directly for money and we didn’t volunteer. I’m not sure what we would have done if they had asked.

  10. Wow, that’s scary and probably the reason that Mrs.CBB and I work so hard at saving money. I’m sorry to hear about your inlaws situation and you are right we need to stop spending so much money and put our security first before all this pleasure. Now that we know that our mortgage is paid off we are able to sleep better at night. I can’t imagine having debts hanging over our heads that are so far out of reach that if an emergency occurred we wouldn’t know what to do. An emergency plan is always optimal in these situations. Great post. Mr.CBB
    Canadian Budget Binder recently posted..How We Renovated Our First House For Under $25,000My Profile

    • That must be a huge relief to know that you own your house and no matter what, you will still own it. I hate to think about the worst thing that could happen, and I always assume I will be able to bring in money, but you honestly never, ever can know for sure.

  11. 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!
    Catherine recently posted..Paying More For Loyalty?My Profile

  12. 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!
    Jason recently posted..1-Year Blogoversary Giveaway! Apple iPad Mini, $100 Amazon GC, $50 Paypal Cash!My Profile

    • 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.

  13. I agree what a sad reality. Thank you for sharing though. That situation is my worst fear. I try to remember that I need to save now in my younger years while I am able. Never know how things might change.
    Blair@LifeDollarsandSense recently posted..Wedding Gift Dispute-How Much is Acceptable to Give?My Profile

  14. 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
    Lou Rodriguez recently posted..How to Get the “Big Boys” Help in Deleting Credit ErrorsMy Profile

    • 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.

    • 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.

  15. 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.
    Brian recently posted..Using Planwise to create a money planMy Profile

    • 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.

  16. 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.
    Cat recently posted..My stats for the month of October 2012My Profile

    • 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.

  17. 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..
    Savvy Scot recently posted..Inspirational Motivation for TodayMy Profile

    • 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.

  18. 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.
    Pauline recently posted..Breeding cattle as an investmentMy Profile

    • 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.

    • 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.

  19. That’s really unfortunate that people learn from their mistakes. We really shouldn’t consider some loan or mortgage as an asset because it is still a liability unless you pay it in full. Maybe your in-laws doesn’t know about short sale that time so they weren’t able to do it. Hopefully this post will reach a lot of homeowners who are under mortgage or foreclosure but especially does first time buyer so they learn from the mistakes of others.
    Polly recently posted..What is an Order to Docket?My Profile

  20. Steven Melocowsky

    This unfortunate circumstance that happened to your in-laws is a all too familiar story for many families. I was just reading how some of the banks are a bit more open now to negotiate with homeowners who face foreclosure but so many people purchased homes that were well above their means and income level that the banks can only do so much. It sounds like your in-laws have kept a positive attitude throughout this ordeal.
    Steven Melocowsky recently posted..John Deans Named One of Hartford’s Top AttorneysMy Profile

  21. Great read. Scary because I recognize myself in them. 20 years younger, but same mistakes. Struggling, but still have the house so far. Have learned the lessons — believe me! I have learned them as of about 4 years ago. Problem is that our family company is flatlining and I can’t get a leg up to actually start saving. At the same time. I’m paying what I can and facing all the bills that are the consequences of past bad decisions. Even bankruptcy isnt a good option because majority of our debt is in our house of which we are under water. So I see the problem. Take responsibility. And am afraid time will run out before we can fix it. I guess that’s where faith and hard work come in.

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