It’s important to acknowledge that the prospect of losing your house can be a psychological blow as well as a financial and practical one. You can’t avoid these emotional realities—you’re not a machine—but facing them can help you approach your foreclosure in as calm and rational manner as possible.
Dealing With Fear
If you’re like many homeowners, the thought of foreclosure triggers fears of ending up in the street. So let me reassure you: It just doesn’t happen like that.
Foreclosure is an orderly process. You’ll get notice before the process starts and before the house is eventually sold, if it comes to that. And these days you will most likely have at least several months after the foreclosure sale before you will actually have to move out. This is because homes put up for sale at public foreclosure auctions often fail to garner an acceptable bid. So the property ends up with the lender—which then must locate someone else who wants to buy and occupy it.
Even if the property ends up in the hands of a new owner at the foreclosure sale, in almost all states the new owner will have to give you a formal written notice to leave. Typically, you’ll have from three to 30 days. And if you don’t leave at the end of that period, the new owner will have to go to court and get an eviction order. In other words, you’ll almost certainly have enough time to make new housing arrangements.
Grieving for Your Loss
You may not have thought of it in these terms, but you are likely to go through a grieving process when faced with the loss of your house. It’s something like what you might experience if you were contemplating the loss of your marriage or career.
In her seminal book On Death and Dying, psychiatrist Elisabeth Kubler-Ross identified five stages that patients commonly experience when given a terminal prognosis. To a lesser extent, people facing the possibility of foreclosure often go through similar stages, which are:
- Denial (This isn’t happening to me!)
- Anger (Why is this happening to me?)
- Bargaining (I promise I’ll be a better person if…)
- Depression (I don’t care anymore.)
- Acceptance (I’m ready for whatever comes.)
Denial. People commonly ignore the first warning signs of impending foreclosure—the missed payment, the call from the lender, even the formal notice of default that is the prelude to a foreclosure sale. Envelopes are unopened, notices go unread, and phone messages are quickly erased. Homeowners know something bad is happening but cling to the hope that something—anything—will come along to bail them out or that they can ride out the current situation until the housing market rebounds.
Anger. When it finally dawns on them that they might actually lose their house, they become angry—with themselves, their spouse, the lender, or maybe the president of the United States. After all, it must be someone’s fault that they signed a variable interest note that would reset much higher in a year or two, or that they bought a house they obviously couldn’t afford in the hopes they could refinance their way to an affordable mortgage.
Bargaining. Anger gives way to negotiation. They tell themselves that if somehow they can avoid losing their home they will make all their mortgage payments on time, hew to a strict budget, and even get a second job, if necessary.
Depression. As the foreclosure sale draws nearer and negotiations with their mortgage servicer drag on, the reality of the possible loss of their home sets in and they may become physically ill and unable to deal with the daily grind. Each day begins and ends in fear.
Acceptance. The state of depression turns into a state of acceptance that the foreclosure is coming and must be dealt with—which results in:
- a search for new quarters
- a plan to fight the foreclosure
- a visit to a bankruptcy attorney, or
- a resolve to remain in the home as long as possible, payment free.
Avoiding the “American Dream” Trap
Owning real estate—as opposed to leasing or renting it—is commonly equated with achieving the American dream. We take for granted that owning a home is superior to renting one, especially if you have a family. Indeed, politicians and community activists are wringing their hands over the prospect of the American dream being lost for the millions of homeowners who face foreclosure.
To a large extent, we have been sold on this idea by industries that stand to benefit from a robust housing market and governments that depend on property taxes. There are, however, many more important aspects to the American dream than owning a house. Democracy, freedom, public education, and economic opportunity come to mind.
Your House Is Not Your Home
You will likely have an easier time of dealing with foreclosure if you understand (and remind yourself regularly) that your house and your home are not necessarily the same thing. A home is where you and your loved ones live. It’s about your neighbors, your memories, and shelter from the storm. Your home is where you sit down to a family meal, entertain friends, and get in touch with your creative side by arranging furniture, hanging art and family portraits, or changing the wallpaper. A home is where you can relax after work or return after a trip.
In essence, home is a concept you can take with you whether you buy another house or end up renting. Sure, you would probably rather stay where you are, but the fact that you may have to move should be seen for what it is: a temporary interruption in your life from which you are certain to recover. In fact, finding a new place to live can open up new opportunities, new friends and neighbors, new community activities, and a different perspective on life.
You Are Not Your House
In the same way as your house is not your home, you are not your house. It’s deeply ingrained in our culture that the size and location of the house we live in indicate our value as human beings. For example, given the opportunity, most of us would prefer to live in a large house with a stunning view. It’s not because we need a large house—average household size has gone down just as average house size has gone up. But for most of us, a large fancy house provides the status and self-esteem we crave.
Home Ownership Is Overrated
From my own experience, and having counseled hundreds of bankruptcy clients, I believe home ownership to be vastly overrated. As you may remember from your days as a renter, renting has definite advantages. It offers freedom from the economic burdens and stress every homeowner feels when faced with the need to pay for rodent control, a new paint job, a new roof or furnace, an expensive city assessment for road improvements, increasing property tax, broken water pipes, and a variety of other problems that homeowners are naturally heir to.
If you need to relocate, get away from neighbors, or travel over long periods of time, renting gives you flexibility that you lack with home ownership. And if you want to stay put, a long-term lease is a good hedge against having to move before you are ready.
If you’re putting an inordinate amount of money into your mortgage, you quite likely are making sacrifices in other important areas of your life, such as your family’s health, your children’s education, charitable contributions, or visits to far-flung relatives, to name but a few common expenses. Living in poverty-like conditions just to remain in your house doesn’t make a whole lot of sense to me, especially if your house is worth a lot less than what you owe on it. You should think twice about holding on by your fingertips to a house that is not likely to appreciate in value any time soon and which is unlikely to ever produce much equity.