I normally don’t post “one-liners” like this, but Yahoo has an article on how some consumers are using the law to their advantage to slow down their mortgage foreclosure. If you might find yourself in that situation it’s worth the three minute read.
Extreme Makeover Home Foreclosure. What went wrong?
There was a little foreclosure in the news that caught my eye yesterday. A home featured on Extreme Makeover Home Edition is facing foreclosure. Milton and Patricia Harper of Lake City, Georgia were the lucky recipients of a complete home makeover turning their old home into a 5500 sq. ft. mansion. It took 1,800 people to get it accomplished. The estimated cost of the home and donated materials? $450,000. It looks like the dream is over for the Harpers.
Though this is somewhat original, I feel I’ve read something similar in the past. Often it turns out that people get themselves into trouble either furnishing the home, or paying for the utilities that the home requires. Many people forget that home maintenance is not free. It’s not often provided by the game shows, but in this case it was. As if the Harpers weren’t lucky enough the family received a quarter-million dollars – including a home maintenance fund and scholarships for their three Harper children.
In this case, the Harpers may be losing their home for an entirely different reason. Depending on what you read they either took out $450,000 or $575,000 in loans against the home. The loans were to start a business. It appears that the business isn’t doing so well considering the news.
I’m generally a pretty risky guy. I have a lot of my money in aggressive growth funds. One of the things that has always stopped me from going all out on a business venture is this problem that the Harpers encountered. Instead, I would look to build businesses slowly and not risk losing my home like the Harpers might.
Every now and again, I get e-mails from readers asking for advice. I always stress that I’m licensed to give individual financial advice. However, I often opine with what steps I would take if I found myself in a similar situation.
This week’s e-mail comes from Candi (as always names have been changed for anonymity and to stimulate readers’ imaginations). I’ve paraphrased it to put a focus on the important information:
Hi, I briefly read some of your articles. I need financial help and don’t know if you can help. I have made poor financial choices in the past. I am in debt and can’t seem to get a helping hand.
- I was a Prosper client in the past, but never was able to get funded. My credit score has dropped and therefore couldn’t continue w/Prosper.
- I am married w/ three children and a baby due in a couple of months.
- I have foreclosed on an investment property and gotten evicted on the home lived in. I have no home of my own to live in and I’m very stressed out about this.
- I am now trying to get a home to live in, but because of my past history can’t even rent something. I was looking itno rent to own programs in my area and they want big down payments because of my eviction/foreclosure. I need $5,000-$8,000 for a down payment and would like to consolidate my debt.
- My biggest debt is the family van w/ a balance of $17,000 and my husband’s work car w a balance of $1,800. Both monthly payments equal to $680
- I have various other personal loans, totaling $5,000.
If someone could just fund me what I owed and let me borrow the down payment for my home, I know I can get back in track. Ideally I want to only worry about a house payment and repaying whoever can consolidate my debts. I have a stable job working for the state I live in. I worked there for nine years. My husband also has a stable job as a wheelchair/elevator installer. I am very trustworthy and though my credit history might say something else. Please let me know if any help is available.
This e-mail hit me like a ton of bricks. Though the desperation seems obvious here, the unedited e-mail was even more explicit.
Often times I write about why America needs to wake up financially, but I don’t typically have the pulse of the problems. They usually come to me in statistical form, not from a real person with a very real problem.
Here is my response to Candi (edited for “publishability”):
- Transportation – How much is the family van worth now? What could you get if it were sold? I know you owe $17,000 on it, but perhaps if you talk to the dealership, you can trade it in for used Kia Sportage. If your current van is worth $14,000 to the dealer, perhaps you’ll only owe $3,000 plus the price of the Kia. I’m seeing a 1999 Kia Sportage on Ebay for $1,600. This would take the total cost of your family van from $17,000 to $4,600. If your husband’s work car is worth more than the $1,800 you might be able to sell it and buy a cheaper. If it’s worth $6,000, you can sell it, pay off the $1800 you owe on it and have $4200 left over, enough for the Sportage or a good chunk of down payment. If nothing else these two moves should help you look better to landlords. It shows that you are willing to make moves to turn things around. I think at that point, with two steady jobs, I think you could draft up a very convincing piece of paper of income and debts that may make you seem like a better person to rent to. Here are some hints to Save Money on Cars, but in your unique circumstance, I wouldn’t necessarily look to stick with the car you own.
- Focus on the Basics – From the desperation and lack of home, I think Candi should focus on the basics like food, shelter, clothing, etc. Anything extra (like the cars) has to protect their income and that’s all.
- Sell Anything Extra of Value – This is much like the above advice. If you are homeless, you won’t have a place for the stuff, so you might as well sell it. As George Carlin once said, “A house is just a pile of stuff with a cover on it – That’s what your house is, a place to keep your stuff while you go out and get – more stuff!” If you have less stuff, you can get a “smaller cover” which will be cheaper. It’s a financial win-win – you make money from your stuff and save money storing it.
- Look for Outside Help (community/friends/employers) – Religious institutions can help in situations like this. Other times a friend can help. Perhaps one of your employers can front you some money for a place to live. You’ll then have to live on limited income for a bit, but if you reduce your monthly expenses, you could do okay.
- Look to Eat Cheaply – There are a lot of cheap foods. A diet of beans and rice might not be ideal, but people have historically lived on much less. Just be sure to add a little fruit and maybe some cheap meats to get more nutrition. I know a lot of people who get a lot of expensive junk food.
- Make a Game of It – It’s going to be tough with 3.8 children. When I was little, my mom used to include me in the bargain shopping. She’d have me on a treasure hunt to find coupons that could save money. I’m the first to admit that I was weird, but this was FUN. The best part was the receipt at the end that showed how much we saved. Using simple division to determine the percentage of savings, I had two scores (net and percentage savings) to try to beat the next time we went shopping. I got very good at math as an added bonus. One might also draw a similar parallel to some parenting tactics displayed in Life is Beautiful.
- Day Care? – If you have three kids (and the fourth one coming), it may make sense not have a job and save on day-care expenses. I don’t know if you have this expense. If you are making $24,000 after-tax on your job and require a car, professional clothes, etc… and day care is costing you $20,000 it may make sense not to work.
- Exercise (though check with your doctor since you are pregnant) – This sounds extremely bizarre. However, in the situation you are in, it’s
easy to get depressed. Exercise is very good at making you feel better than yourself. Many times it’s free. Plus if you are eating cheap foods, exercising may help maintain your overall health – again check with your doctor. (This message was brought to you by Lazy Man and Health.)
So there you have it? Did I miss any obvious things? What would you recommend?
The following is a guest post from Rich Credit Debt Loan. The site focuses on mostly on topics of wealth building, a pretty rare trait amongst personal finance blogs. I encourage you to sign up for his RSS feed.
Right now, the news is filled with images of foreclosed properties, falling home values and pretty much bad news all around for the housing industry. Does that mean that now is the best time to take advantage of the housing crisis? Yes and no! Is investing in real estate a good idea? Yes and no! While there is no perfect solution for making money, there are many opportunities out there right now that could make a difference in your financial future. However, you’re going to have to tread carefully before you jump in with both feet.
For the first time in many years, it is a buyer’s market in real estate. Homeowners are desperate to unload their properties before they foreclose and auction sales are continually moving property for pennies on the dollar. Technically, this is a great time to pick up some really cheap property to turn into an income stream.
The main problem right now is that banks are often too shaky to offer you a loan that you can leverage to make that extra income. Unless you have perfect credit, you may find that it is almost impossible to get a loan right now. For those of us that prefer to leverage debt instead of sinking our own money into an investment property, it is a very stressful period. There are all of these properties out there, and it’s difficult to take advantage of them.
This doesn’t mean that you have to give up however. There are still plenty of ways that you can start leveraging debt to make more money. The good news is with so many foreclosures the renters market is incredibly strong. If you can find a property in good shape, that has not been trashed by the previous owners that foreclosed, you can start making money right now.
The key is finding those properties that are in decent shape. Not everyone that goes through a foreclosure trashes their home, but it is pretty common. Before you even think about buying a property at auction or from the bank, you’re going to need to make sure that it is completely inspected. It is a great idea to go to the property yourself just to make sure.
If it is in good condition, it may be the right time to snap up that bargain and rent it out. Otherwise, you may find that you’ll have to hold onto that property for a few years before you can sell it at a profit.
Now, let’s talk about some alternative financing for the down payment (an example of good debt) since getting a loan from a bank is a little tough right now. Peer to peer lending is a great alternative to a traditional bank loan and you have the added benefit of getting a little more control over the interest rates you’ll be paying. Many people are leveraging debt by using p2p loans at low interest rates with great terms. It’s a lot easier to make extra money on a rental property when you’re not paying high interest rates to the bank.
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