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  #1  
Old 07-22-2008, 01:41 PM
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When to accept foreclosure?

Is it just me, or is something not making sense up in this story I saw on msnbc.com today.
I'm not making a ton of money, but I'd like to think that if I were a project manager, I'd be making enough to afford the $130,000 house, especially after 7 years of equity put into it, commute be damned. 50 miles RT isn't so bad compared to other people.
Even if you put $15,000 plus 'sweat equity', for new appliances, etc. you think they'd still be able to make mortgage payments on one salary. That's not a lot at all.

Foreclosure proceeding costs, rental and deposit costs; how could that possibly be cheaper than maintaining the mortgage in a house that you own after 7 years and sucking up the commute, unless maybe you're driving a military H1 Hummer with the worst mpg known.

What's the long term cost of a foreclosure? Are people really that shortsighted?
Story is as follows...
--------------------

When the Mitchells bought their modular home in rural Platteville, Colo., north of Denver, they were among the many Americans trading a long commute for an affordable house.

Seven years later, the Mitchells are making another, more painful trade. Their housing woes compounded by the growing cost of Brian’s 50-mile roundtrip commute, the couple recently decided to let their home to fall into foreclosure. Instead, they are renting a house that is biking distance from Brian’s job.

The Mitchells had bought the house in 2001, for $129,900, with the intention of fixing it up and selling it for a profit. But in 2005, when they put the house on the market, interest was tepid at best.

The couple decided to put more money into improving the house, in the hopes that it would stand out among comparable homes in the area. In the end, they plowed some $15,000 and countless hours of sweat equity into the improvements, using credit cards and a loan against a 401(k) account to fund some upgrades.

Still, the house didn’t sell, even when they dropped the price from $126,000 to $122,000. In the meantime, gas prices skyrocketed, which added to their own expenses and made their rural home even less attractive.

The couple, who have two kids, found themselves using credit cards for everyday expenses, like groceries and bills. Even trips to church were curtailed to save on gas. Finally, they decided that their only option was to let the bank take the house.

“Sometimes, in surgery, amputation is the best solution,” Brian Mitchell said.
As the foreclosure proceeds, the Mitchells have rented a house in Longmont, west of Platteville toward Boulder, Colo., that is nicer than the one they had owned. It's also less than five miles from Brian’s job as a project manager. Although the rent is more than their former mortgage payment, Brian, 43, said that, with gas savings, they are still coming out ahead. The move into town is allowing the couple to downsize to just one car.

“It was a tough decision for us to decide to let the house go into foreclosure, but I’ll tell you what, once we made it … it was very liberating, actually,” he said.

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  #2  
Old 07-22-2008, 01:47 PM
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Their new landlord has to like that kind of dumb decision.
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  #3  
Old 07-22-2008, 01:54 PM
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I don't think the mortgage payments and commuting costs forced them to make that decision...I think it would be the unsecured debt accumulated via credit cards.

The article doesn't disclose the amount or the number of credit cards owed, but if they are making minimum payments on each and STILL having to borrow because the budget is insufficient to meet living expenses, it's probably significant.

But yeah, before I would dump the house, I would have first looked at credit consolidation or worst case, bankruptcy.
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Old 07-22-2008, 01:55 PM
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Its not just the house, sounds like they were living a life style they couldn't afford.

Every foreclosure has a story. If you pulled these people's credit you would probably see a car note or two, maybe a boat or bike note, and a ton on credit cards.

They also didn't tell you about the house, they could have bought it with no money down and sucked more than it is worth out with a refi.
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  #5  
Old 07-22-2008, 01:58 PM
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The cost of the house seems low for CO. Still, we don't know what he makes, or if his wife works etc. Also, who knows what people call a project manager. Also, a lot of people want need to live in CO. I looked into going back there about 10 years ago. I would of had to take a paycut and the cost of living was more. 50 miles isn't a long comute though. We don't know what type of loan he took out. 15 yr, 20 yr, 30 yr. ARM, Fixed other. If say a 30 year fixed at 7 years he might be just beginning to aquire some equity. The big concern was they were putting housing improvements on credit cards. I've done it. Its not smart and puts you behind the 8-ball quick. Depending on what type of vehicle, loan on it etc. It might not be easy to get ride of a gas hog etc. Also, vehicle needs might be different in CO. I did live there for a few years. Storms can come up quick. Still, it does sound like prayer financing. Then the gas price increase put them over the edge.
Tom
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  #6  
Old 07-22-2008, 01:58 PM
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You're right - it doesn't make sense.

Their plight is the result of a series of poor decisions that have little to do with gas prices. A doubling in gas price for that 50 mile commute equates to around an hundred thirty a month @ 20mpg.

Fixing up a house on credit card debt is economic Darwinism.
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Old 07-22-2008, 02:11 PM
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I've seen/seeing many foreclosures and that article is one of the worst examples I have ever seen, it's either inaccurate, made up or the reporter and people are the dumbest people in Platteville, CO.
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  #8  
Old 07-22-2008, 02:11 PM
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Apparently, a "project manager" (whatever that means) in Platteville CO doesn't make too much money. Assuming 126,000 at say 8%, monthly payment based on 30 yr amort. is $924.
Of course, there is no mention of other debts, car loans, etc.

Sounds to me like he got a no doc loan at below market rates, and added interest to the back end. IOW, he was a marginal borrower at best who rolled the dice and they came up snake eyes) Now, he's screwed because he can't afford the payment. Is there an SUV in his driveway? (Wouldn't want to take that bet)

Fortunately, it's his residence and Congress gave him some relief last year on the forgiveness of debt = taxable income issue.

Live and learn.
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  #9  
Old 07-22-2008, 02:13 PM
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Quote:
Originally Posted by 75Sv1 View Post
The cost of the house seems low for CO.
Tom
Very low, but Platteville isn't Boulder either.

I repaired my house with credit card $$ after using every $$ I had to buy it for cash outright. Paid it off within the year.
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  #10  
Old 07-22-2008, 02:19 PM
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Quote:
Originally Posted by kerry View Post
Very low, but Platteville isn't Boulder either.
I
...."modular" home....
Condition?"
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  #11  
Old 07-22-2008, 03:24 PM
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Sad, but this family is in for worse financial crisis in the future. With his credit effectively shot for the next 7 years and his mortgage company likely garnishing his wages at his job, he'll have even less to bring home to the family.

This is the type of fatal financial decision that can hound you for years and years to come. If he switches employers or loses his job, he'll have 60 days to repay the loan on his 401(k).

Nothing like flushing the financial toilet.....twice.
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  #12  
Old 07-22-2008, 03:52 PM
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  #13  
Old 07-22-2008, 04:43 PM
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Red face

Quote:
Originally Posted by 75Sv1 View Post
The cost of the house seems low for CO. Still, we don't know what he makes, or if his wife works etc. Also, who knows what people call a project manager. Also, a lot of people want need to live in CO. I looked into going back there about 10 years ago. I would of had to take a paycut and the cost of living was more. 50 miles isn't a long comute though. We don't know what type of loan he took out. 15 yr, 20 yr, 30 yr. ARM, Fixed other. If say a 30 year fixed at 7 years he might be just beginning to aquire some equity. The big concern was they were putting housing improvements on credit cards. I've done it. Its not smart and puts you behind the 8-ball quick. Depending on what type of vehicle, loan on it etc. It might not be easy to get ride of a gas hog etc. Also, vehicle needs might be different in CO. I did live there for a few years. Storms can come up quick. Still, it does sound like prayer financing. Then the gas price increase put them over the edge. Tom
It does sound low. I was looking at houses in the Denver metro area in the summer of 1997, and I couldn't find anything in decent shape (and within a reasonable distance of central Denver) for that kind of dough.

That 25-mile-each-way commute could be lousy, though. The Platteville-to-Longmont route on Google Maps is 18 miles, and while it's well north of the congestion of Denver and Boulder, the last five miles (the ones he'll be biking now) could very well be bumper-to-bumper. The whole Front Range was growing like cancer when I left in '01; it's probably far worse now.

Of course, the real financial cruncher with this couple, though no one in the media would dare mention it, is that they have two kids. If they'd held off on sprogging, they'd probably have been able to keep their heads above water.
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  #14  
Old 07-22-2008, 04:53 PM
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I hate to be scientific but here are the listings for Platteville, CO good luck with finding a home for less than $125,000. We should send an open letter to the author.
http://www.trulia.com/for_sale/Platteville,CO/100000-125000_price/3_p/
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Old 07-22-2008, 04:56 PM
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Why do you suppose the news reports are so full of these sorts of stories, almost all sensationalized to portray those who default on their mortgages as "victims?"

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