Why do people not just rent their rooms out to prevent foreclosur

Question

Why do people not just rent their rooms out to prevent foreclosure?

During the 2008-2009 housing crash, why did people not just rent out rooms to prevent foreclosure?

Why do people now not just rent out rooms to prevent foreclosure? There are so many foreclosures everyday but I don't get why they don't just rent out rooms to prevent this.

Dooesn't the demand for rentals and private room rentals go up during a recession/housing crash?

Nathan Gesner · Answer

A lot of people are too stubborn or embarrassed.

An owner asked me to manage his property. It had a 1bed/1bath guest house and a very nice 4bed/4bath main home. I rented the guest house while the owner cleaned out the main house. I started advertising the main house and a week later the tenant in the guest house contacted me to say she received a letter about a foreclosure. I picked up the letter and confirmed the owner was facing foreclosure. It was in the early stages so I told him I could help him sell the property and avoid the foreclosure. He claimed it was just a misunderstanding.

A few months later, the foreclosure notice was in the paper. I again offered to help him sell it but he continued to tell me it was a misunderstanding and he would be caught up on the mortgage. More time passed and he snuck into the house to strip out all the appliances, ceiling fans, chandeliers, etc.

The house foreclosed and he lost it all. It was worth over $600,000 and sold at auction for $450,000.

Knifie Burks · Answer

Simple answer.  People don't want to live with strangers.

Mike Cumbie · Answer

@Bryan Tasumi

Is your question legal? Like "Why didn't they rent out their rooms, so that the LIEN holder was forced to let them stay after foreclosure"

Or logical? Like "Why didn't they rent out rooms to make extra money during the downturn (Bring strange people into the house with wife and kids)?

Anthony Dooley · Answer

@Bryan Tasumi your hindsight is excellent. Where were you when we needed you? Some people were foreclosed because they lost their jobs and couldn't make the payments. Investors got foreclosed because they were over leveraged and speculating that prices would keep going up. Others did strategic default and purposely stopped paying because it took the bank so long to foreclose. Unemployment was double digits and lenders dried up due to panic and new regulations. Your idea is great for a single person with no kids, but you can't trust everybody around your family.

Jim K. · Answer

@Bryan Tasumi

The problem is that you see having your home foreclosed on as an academic, bloodless event, a puzzle to be solved, not a trial to be lived through.

Here in Allegheny County in Pennsylvania, I followed the monthly sheriff's sales very closely for a period of more than three years, from 2013-2017. A number of financial commentators stated that that the majority of these homes were lush, opulent properties owned by cynical strategic defaulters well-versed in how the system worked. As far as greater Pittsburgh is concerned, that was a bald-faced little boy's lie, easily disproved by looking through the monthly list of properties being brought to auction.

The majority of late mortgage crisis foreclosures here were 3-bedroom starter homes in C-class neighborhoods. They were bought by people who were trying to get out of rentals in the ghetto, and were in many cases in neighboring areas with slightly better, but not great, school systems. These people were not sophisticated property investors and in many cases were the first in their families to own a house. It may not make sense to you that they would mortgage themselves to their eyeteeth, the absolute maximum amount a bank would state they qualified for to get the nicest possible home for themselves, but they looked around and saw that everyone else in the ghetto was doing it, and they felt that they would be stupid not to. This is is the same common phenomenon that leads most Americans to lease cars and carry credit card debt from month to month: a perception emerged that if the bank quoted you an initial monthly payment that was possible for you, you should take the loan.

When foreclosure came, it came after a long period where rates were raised on the loanholder and the prices of the property dropped, so that the homeowners were "upside-down" on their mortgage. They owed more than the house was worth with no reasonable prospect of ever paying it back.

To someone with minimal financial savvy now trying to work two jobs to make ends meet and not "lose the house," this was devastating. The idea of explaining to your family that you needed to sell the house to get out was a social taboo. So people dug in, using whatever neuroses and cognitive dysfunctional strategies they had acquired in a life of poverty to get through miserable situations to just ignore the problem. There are whole nation states that live in denial (a friend of a friend recently called the USA a "shining beacon of compassion" in the world and told me that it was inappropriate for me to bring up Japanese-American internment camps and two atoms bombs dropped on civilian populations as a counterexample to what he was saying), so is it so strange that these people just cut themselves off from dealing openly with their financial problems or making rational decisions about strategies to avoid foreclosure?

The bulk of these people dislike lawyers see their work as largely trickery anyway. Were they supposed to go to a guy in a suit and a downtown office next to the courthouse for help? Or are they to respond positively to a short sale investor who shows up at their door with predatory gleaming eyes obviously trying to make a buck of their misery while emphatically stating that he's there to HELP YOU.

People hurt, Bryan. Being brought up in misery leaves scars. People's brains shut down to deal with crisis situations. We are not a wholly rational species always making the best decisions for ourselves, choosing the one wisest option from a variety of possibilities.You might call that being stupid or being ignorant or being weak. It's your right. But at least acknowledge the possibility that it had more to do with being damaged and being in an untenable situation. The same learned set of behaviors that get you through being beaten as a child aren't the ones that get you through a financial crisis. You might learn to shut away parts of your memory to avoid thinking about how horrible certain things in your life are. Your Swiss cheese memory might not help you deal with mortgage foreclosure paperwork scheduling issues.

Chris K. · Answer

@Bryan Tasumi

For me, an underwater mortgage is an underwater mortgage. In such scenarios, one could argue that it is better off getting foreclosed or doing a deed in lieu. That's especially true when you consider the extent of that crisis. For instance, some areas still haven't fully recovered to 2008-09 levels.

It's also worth noting how absurd the lending situation was back then. The video below is from a comedy show but it really wasn't that far off from what actually happened.

https://www.youtube.com/watch?v=RjlBu7wpDjk

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Matthew Olszak · Answer

@Bryan Tasumi Or why don't folks just do a short sale? Many times, its because they just can't handle the stress of the situation and prefer to bury their heads in the sand. Others (mostly uneducated) have been burned by predatory lending and predatory modification firms, and don't believe anyone in the industry.

I've spoken with these types many times. Folks who I approach for a SS listing, and it goes like this:

- "Fine, but you deal with the bank"

"Great, I just need you to sign the listing agreement and a few other forms"

- "I told you I'm not signing anything! Get the bank to agree and I'll go to the closing"

Then I again explain how the process works, and those types still don't want to hear it. Ok, fine, I'll share the interior photos I took with my clients and they can buy it at auction in a few months.

Here in Illinois, you can stretch out a foreclosure case 3-4 YEARS easy by paying an atty $500/mo. And still, yet again I find many owners just burying their heads and they get foreclosed on in 9 months. That could have been 4 years of saving $$$ and paying only the legal fees (sorry to the note holders here, its just the reality in our messed up state).

But they want the calls to stop, the letters to stop, the uncertainty to stop, and for the situation to just disappear. They can't handle the stress so they just ignore it.

Account Closed · Answer

Having dealt with God only knows how many people in foreclosure over the years, many simply are "don't wanter's" They don't want the stress any more. Owning property isn't everything in life.

Jennifer T. · Answer

Most people want nothing to do with having tenants.  Especially as roommates.  Many people make poor financial decisions and, when things start getting personal like their home, that usually just makes it even worse.  My friend and her husband very purposely chose her being a SAHM, instead of going back to work, even if that meant they would be foreclosed on.

For some people, even renting out spare rooms may not have saved their home.

And other people?  They just flat out gamed the system.  And that's the story of how I got a smoking deal on my first home.

My personal duplex was a foreclosure.  I don't think the previous homeowners started out meaning to scam the system. But that was exactly what happened.  They bought the house in 1987 for around $38K.  Took out a huge second in (I think) the late '90s.  I'm pretty sure it was for more or close to what the house was worth.  But those were the high flying, free wheeling days of mortgages.

Then, Hurricane Katrina hit NOLA and the MS Gulf Coast in 2005.  This house was fine, overall, and didn't flood.  SBA loans were plentiful for folks in affected areas.  The previous owners took out an SBA loan out, with the house as collateral.

The house was foreclosed on in 2010 with $270K in bad loans.  At no point up through 2010 was it ever worth anywhere near that much.  In fact, I bought the house in 2011 for less than $100K.  I don't know when the foreclosure process started, but I strongly suspect they stopped paying the loans shortly after getting the SBA loan lump sum.  The house would have been majorly upside-down after that loan.

Why do people not just rent their rooms out to prevent foreclosur

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