Victim of Foreclosure: Who is to Blame?

In This Article

Those who knew me before I got into real estate, often comment that I am now, much more skeptical of what people say. Some have said that I am downright pessimistic. All things considered though, I admit that I am definitely more jaded than I used to be. The reason is… I have sat across from countless homeowners whose house was in foreclosure. Let me tell you something about those homeowners. 98% of the time, it is not their fault. Or so they say.

Who is to blame?The foreclosure field is where I started in this business. The statistics suggest that the top three reasons a person goes into foreclosure are:

1. Divorce
2. Loss of Job
3. Poor Health

VictimsI agree that those are all valid but, my opinion is…They are excuses.
In my experience, about 90% of the owners who have been in foreclosure are “Victims.” How can someone who is losing their house be a victim?

I should know. I used to be one and I grew up with one as well. It was never my fault.
I always denied that anything could be my own fault. The victim I grew up with was my own brother. He blamed everyone for everything. A crazy example would be someone taking his picture as he was murdering someone. He would argue that it wasn’t him. His face was superimposed on someone else’s body and the knife in the picture is a toy and the person is not really being stabbed. It was like that all the time but, he was never to blame.

There are four things that define a victim (in my opinion)

1. They make poor choices.
2. They blame others for the results of those poor choices.
3. They turn to anyone who can help them (in this case, it would be me) and explain how their problem is not their fault.
4. They repeat the process throughout their lives.

Several years back, I worked with a frantic homeowner who was three days away from losing their house. That experience is what led to my change in attitude. Don’t worry, it does have a favorable ending.

A homeowner who had received one of my letters called me the Saturday before the auction (three days away). She was close to hysterical as I could barely make out anything she said because she was crying and her words were difficult to understand. I dropped what I had been doing and went directly to her house. There aren’t very many houses in foreclosure that surprise me when I see the inside but, this one stunned me. It stunned me because this woman’s house was beautiful. It was well decorated and she had taken very good care of it. Not a single repair needed.

Home-Runs are rare in this business…
I quickly discovered that this could be a Grand Slam!The value of the house was around $150,000 and her payoff was only about $25,000!

The numbers were $0.16 on the dollar or a whopping 84% equity!I asked her what had happened to her in order for her house to be in foreclosure. She had recently divorced and explained how her job situation had caused her to fall behind in her payments. I found myself feeling sorry for her. She seemed lost. The stress of the situation and her anxiety had overcome her and she wasn’t able to think clearly at all. All of that seemed to result in her appearing very vulnerable. It wouldn’t have taken much persuasion at that point for her to agree to sell. I was faced with a potential monster deal!

I asked her if she knew how much it would cost to reinstate her loan. Her reinstatement was a mere $4,000. That was not a large amount of money. I didn’t understand how or why she was just three days away from losing the house when she had so much equity and such a low reinstatement.

My Conscience Tapped My Shoulder Right ThenWhile she continued with her hysteria, I remember thinking that I had two options.
One option was to convince her to sell and contract the house. With the low payoff and the outstanding condition of the house, I knew I would easily get $25,000 to $35,000 for the assignment fee. The other option was to try to help her and not go for the Home Run.
In other words, her situation was not difficult to correct. My Home Run would have to come from another deal. I decided that I was going to help her.

Help Her! She said it wasn’t her fault.She had a nice VolksWagon Beetle in her driveway and I asked if she owed money on it. She said that she got it in her divorce and it was paid off. I told her to get her title, get in her car and follow me. I took her to CarMax, a used car dealership in Dallas. They were known for paying more money for trade-in’s than other dealers.

She still wasn’t sure what my plan was but when the manager came over and offered her $11,000 for it… that she realized that I wanted her to sell her car. She looked stunned and said to me, “Sell my car? I can’t sell my car! I won’t be able to get to work without a car!”
I replied, “If you don’t sell your car, you will be LIVING in your car next week!”

I told her to take $4,000 out of the $11,000 and reinstate her mortgage. With the remaining $7,000, she could use it for a down payment on another car. She argued that she didn’t want a car payment. I told her that she could either take on a car payment and have a place to park the car or she could keep her car and park it at work because that would be where she was going to live if she didn’t sell her car.

Tears welled up in her eyes and she told the manager that she wanted to sell her car to them. They cut her a check and we got into my car and I took her home.

She was a different person. The stress was gone. She was actually beside herself with knowing she really wasn’t going to lose her house. I can’t tell you how many times she thanked me. She got a confused look on her face and shook her head slightly. I don’t recall her exact words but, she said, “Wait a second. What about you? What do you get with all this?” I hadn’t asked her for anything. I felt all she needed was someone to help her think clearly. I told her that she didn’t owe me anything. She kept at me about it. She repeated that I had just helped her save her house and she would do whatever it took to thank me for it.

I had just helped a Victim…At that time, I had done some credit repair for a few people and I suggested that she hire me to fix her credit once she got settled down and was back on track. She guaranteed me several times that she would do that and continued on with her thanks and gratitude for helping her. We talked for a few more minutes and then I went home.

On my way home, I called my aunt (also in the business) and told her what had happened that day. She said, “Are you NUTS??? You could have made a ton on that one!” I said, “I know but, her solution was really too easy and I would have felt guilty with it not really being her fault.”

She replied by saying, “Well I guess you will get a little gold star next to your name when you die but, I think you are nuts.”

I knew the owner would call and hire me to fix her credit.
I would make something for helping her…The homeowner never called me. I was honestly surprised and felt slighted.

The reality of it was, she was a victim. She had convinced me it wasn’t her fault. I thought to myself, “I know a lot of people who got divorced and didn’t lose their house. In fact, I know a lot of people who had lost their jobs and some who had suffered major medical problems. None of them lost their house either. She had made poor choices and she ended up in foreclosure. That takes months.

Regardless, she came to me and I was able to get her out of the mess she was in. She never called after I helped her that day because, I had already helped her. I was of no use to her after that.

That was hard for me to accept considering how much she had to lose and how she had convinced me she would hire me to fix her credit.

Would I do the same thing today if another Home-Run presented itself like that one had? It’s hard to say. I really don’t know.
Victim or not… They are still people. It makes me think of what I have said in classes I teach. “People think this is a business about houses. In reality though, this is a business about people and the houses they live in.”

It’s not easy.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.