Is Foreclosure for You?

Been here, done this. I also had to make these painful choices, although it was a decade ago. In my case it was triggered by being transferred to another city and not being able to sell or rent my house in the first city for over 2 years, during which time I had to maintain both payments. Finally gave up.

Banks talk a lot about "working with you" and I eagerly called the first time I got one of their letters offering "help". Their idea of "working with you" was pay your loan off in full. I was shocked, but there was not any give at all (extending payments, lower interest, ANYTHING). I desparately wanted to make this work, not only for myself but to keep the house from sitting empty in a struggling neighborhood that I loved.

The upshot? I finally gave up, the house was foreclosed, and the bank sold it for about 15% of its value. How did that help anybody? But as a banker friend explained, the bank has no real incentive to try to make this work, whatever they say.

The good news is that I painfully rebuilt my credit, bought another house, and am doing fine. But I learned NEVER to believe that finanacial institutions care the slightest bit about you.

Here's my way too crazy suggestion. READ your mortgage documents before you sign them. Don't ASSUME your property taxes and insurance are included in the payment. And for the love of god, don't take out a loan with a payment of $1660 a month when you're only making 50k a year. The story makes it sound like losing her job is what caused this problem, but she was only taking home probably 3200-3500 a month in the first place, and her mortgage payment, even without taxes and insurance, was HALF OF THAT. That is absolute insanity.

Secondly, bankruptcy should only be used as a last resort. It is a way out for people who have no other choice. If you declare bankruptcy just so you can save some money and clear up debt you don't want to deal with, you are essentially stealing from the companies you owe money to. You agreed to pay them money and are backing out. If you have no other options, fine. But if you do, and you choose bankruptcy because it easier, that is the moral equivalent of stealing. It may be legal, but waht doesn't make it right.

Additionally, when you declare bankruptcy, you are costing every other person who deals with these companies money. The corporations are just going to pass the costs of written off loans to the customers. So stop thinking that the only people hurt by the written off debt in bankruptcy are big bad corporations who deserve it. The people who will ultimately be hurt are people who are laidd off from their jobs, or the people who can no longer afford the products from these companies because of higher prices due to losses from bankruptcies.

All that having been said, I whoever loaned her the money for her house was out of their mind.

We were in a very similar situation. We did set up and escrow account. We paid the first year's taxes at closing and at closing set the payments for the new tax value of the property. The first bank sold the note right after we purchsed the home. The senond bank gave us an escrow refund of $5000+ and lowered our mortgage payment by $500 per month at the end of the second year. We called and told them about the new tax rate but they assured us this was truly an overage. So at the beginning of the third year the new mortgage company increased the mortgage payment back to the original amount and added another $500 per month to recoup the shortfall from the second year. We had a loss of income during this time and after fighting for too long, we ended up filing Chapter 13. We had PMI so again everyone got theirs while we were left holding the bag. We now rent in the same neighborhood, do not have to pay taxes, insurance, or homeowners dues and our payment is about half of what we were paying monthly. I hated filing Ch 13, but it seemed like our only option and now are back on the road to financial recovery.

I agree with Mike and CMSMail. This poor soul was fleeced from the beginning and it just went downhill from there and she is the one stuck while everyone else involved made their share. Her best bet is to file Chapter 13 Bankrupcy because she's in a "damned if you do and damned if you don't" situation and will end up paying and eventually walking awy anyway but with more debt then if she cut her losses NOW and filed, and your credit is ruined anyway once you file forclosture and such, they'll try to tell you it's not so you'll work with them but the truth is once you contacted them as nobal as it sounds they flagged you immediately. So whats to lose by filing - nothing that wasn't already a mess to begin with thanks to some theif in the very beginning of this whole mess.