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.
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.
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.
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?