Homeowners in foreclosure are not deadbeats. When we said earlier that most people in foreclosure made unwise decisions, that does not mean they were deadbeats or unethical.
It means that, in 20/20 hindsight, they should have done something differently. Most owners facing foreclosure are honest, ethical, and financially responsible people, but they are in a bind.
You can work with most of them, most will make good tenants, and they can even provide valuable assistance in your negotiations with the lender.
Why do people find themselves in these situations? Among the most common reasons are the following.
• People have a lack of adequate health insurance combined with large medical bills. If someone needs continuing medical care, he or she is more likely to try to keep up with health care costs than the mortgage payments.
• Adjustable rate mortgages were affordable when the home was purchased. Now, interest rates have increased significantly, and many people can no longer afford the higher monthly payments.
• People have employment-related circumstances, such as layoffs, long-term disabilities, or job transfers. If you have been transferred to a new job but cannot sell your old house, you might have to let the lender take it.
• Divorce, separation, and death can result in inadequate income to continue making the payments.
• People have spiraling financial problems. Suppose John has some temporary cash flow problems and runs consistently late on his mortgage, credit card, and car payments. His credit score will sink dramatically as a result. Then, when his car needs major repairs, he must come up with the cash for the repairs or trade the car in for another one. John probably does not have the cash, and his poor credit score means the new car will have very high interest rates and high monthly payments. John’s financial problems get worse. He needs the car to get to work, so he cannot allow it to be repossessed. In all likelihood, the mortgage payments will suffer.
Once you understand that people in foreclosure arrive there for a variety of perfectly understandable reasons, you are much more able to find them, negotiate with them, and work out solutions to your mutual financial advantage.