Life Lessons from a Broken Dream
August 24, 2011Recently I read an article in the local newspaper written by Kathy Gosnell Seiler, a copy editor for the Los Angeles Times. She, like many homebuyers in the last six years, bought a home with mostly borrowed money hoping to experience the dream of owning her own home. She, like many homeowners, refinanced her mortgage several years later to help pay for improvements. She, like many borrowers, found herself trapped in a variable rate loan when she couldn’t refinance because her house was underwater. And she, like many ex-homeowners, lost her home because she could no longer afford to make the payments. Sadly, her story is not unique, but what really sets her story apart is what she says toward the end of her article:
“I can’t find a life’s lesson here; no insight into why this has happened to so many people.”
It’s said that if we don’t learn from past mistakes, then we are destined to repeat them. While losing a home can be devastating, don’t make it worse by failing to learn these very important life lessons:
Life Lesson #1 – Don’t bite off more than you can chew
When I moved from Aurora, IL to Sonoma, CA, I was shocked at how much the lenders were willing to give me to buy a home. At the time, lenders were willing to lend me THREE TIMES more in California than they were in Illinois, despite the fact that my income hadn’t changed. Against my better judgment, I took the plunge.
Life Lesson #2 – Don’t blindly trust anyone who gets paid for selling a product
When I financed my home in California, my mortgage broker used creative financing to lend me 90% of my home’s value. Both he and my realtor convinced me that I could afford it, when clearly I could not.
When someone gets paid for a transaction, there is always going to be a natural bias in what they think and say. This is one of the reasons that I’m glad I work for an unbiased financial education firm. Because I don’t get paid for selling a product or service, I can offer objective guidance regarding financial decisions without a conflict of interest. I only wish my mortgage broker and realtor were able to say the same thing.
Life Lesson #3 – Don’t ignore the warning signs
In 2006, property values started to plummet. Rather than wait to see what happened next, I put our home on the market and sold it for much less than I wanted, but I knew it would be better to get out while I could. I’m the lucky one, though. Too many waited until it was too late, only to find themselves stuck in a home they could not afford.
Unfortunately for Kathy, these lessons come too late. When she bought her home in 2005, I wish I could have said, “Can you really afford this?” When she refinanced in 2007, and her loan officer “assured” her that it would be “easy to refinance” before rates went up, I wish I could have offered a different opinion. When her neighbors “started defaulting on their loans,” or when one homeowner “negotiated a short sale,” while “two others went into foreclosure,” I wish I could have pointed out the warning signs. In the end, I could say these are life lessons I can offer her, but the most important one may be the one that she has taught me:
Life Lesson #4 – Don’t let emotion cloud your judgment
“The house was meant to be my refuge, a place where I could plant perennials and know I’d see them flower year after year, an investment for my daughter and me after years of renting.”
Kathy fell in love with the idea of owning a home. It was her dream home, and she allowed her emotions to control her actions. When things were getting bad, and a short sale was suggested, she writes:
“It felt like a gut blow. Sell my home? My refuge? My garden full of flowers and fruit trees?”
It’s easy to look back and say “you should have done this” or “you should have done that,” and perhaps that’s how we learn from our mistakes. What we can’t do is deny that there were mistakes we can learn from. Kathy says she will recover, and I believe her, because I know deep down inside, she has learned a few life lessons, whether she realizes it or not.