A Personal Example of Why Foreclosures Happen

As many of your know, I sell many bank owned properties and have heard many stories that ended in a foreclosure.  I have heard all types of sob stories about how someone never thought it would happen or doesn’t know how to deal with it once it has happened.

However recently it pains me to see this happening to someone I know.  I have always seen the conclusion and for the first time I am seeing the steps that lead to it as they progress – and it seems like nothing I can say or do will prevent the ultimate conclusion.

My friend, it is sad to say, does not manage money well.  She spends a lot on things that are not necessary and refuses to cancel a number of unnecessary monthly expenses.  She earns less than what she is saving but refuses to do the math that points this out.

Because of this, she is having a difficult time making payments on two properties she owns.  One of these is her primary residence, while another is a property she received from a relative.  The relative had no need for it any longer so she quit claimed it to my friend.  The problem is the property is underwater – she owes more than it is worth.

My friend’s dream is to one day sell both properties and buy a larger primary residence.  The problem is the second property is already underwater – while the primary property is worth about the same as their loan amount.  Given current price trends, this is unlikely to happen.

The second property remains unoccupied and I have strongly recommended for her to put renters in.  Both she and the relative who initially owned it are strongly against this – mainly because they fear renters will destroy it.  I have tried showing them that math that renters will help them recover at least some of the monthly payment – but they prefer for it to remain empty for the foreseeable future.

I also offered the possibility of a short sale – but they wanted to hear none of that.  The sad thing is – in their stress to keep both properties – they have fallen behind in payments for both.

While I doubt they will lose their primary residence it does look very likely they will lose the second property to foreclosure.  This would be a huge shame because if they just put renters in they would probably be able to afford to keep it – and even if they cannot afford to keep it a short sale would hurt their credit far less.

Of course the biggest problem is she refuses to believe that a problem exists.  Her finances are fine, according to her, but then she asks me questions about how long banks will wait before foreclosing on a property and from other family members I have heard that payments are in arrears.

All of this is very sad.  The vast majority of properties I seen foreclosed were very preventable.  The problem most often is the failure to admit to oneself that there truly is a problem and there is a solution to every problem.