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Personal Finance 101: Dumb Mistakes Lead to Financial Ruin Print
Monday, 11th December 2006 (by J.D.)This article is about Basics
Here’s a disturbing question from AskMetafilter:
I received a foreclosure notice. I have the money, but have been having a difficult time with the lender. How do I prevent a foreclosure on my house?
I purchased my house about five years ago, and set up my mortgage to be paid with an automatic bank draft. Last May, I fell for a phishing scam and had to close my checking account immediately. I called the mortgage company, and they said I was in a “window” during which they were billing, so I would need to pay by check, then set up the automatic draft with the new account later. I did that, and then set up the draft. They claim they did not get the authorization form, and I believed they were drafting the money. Several months later, I discovered they were not.
[...]
This weekend, I check my mail. I have dozens of letters from lawyers, saying that my house “is advertised in the legal notices that your lender is planning to sell your home at public auction, scheduled for sale on December 5″ (four days ago). I am in tears. The mortgage company’s office is closed for the weekend. I have no idea how to stop this. Or is it too late? What can I do?
While this situation is heartbreaking, it was also completely preventable. Forget the foreclosure. Forget the phishing scam. This homeowner is in trouble due to a lack of fundamental personal finance skills. Specifically:
- The homeowner set up automatic payments but never confirmed that the transactions were being processed.
- She checked mail so infrequently that dozens of letters regarding the situation accumulated in her mailbox.
In order to succeed financially, you must monitor your accounts. You can have great wealth but still get into trouble if you fail to exercise basic precautions:
- Check your mail. If your mailbox is on the street, check it daily. Even if you have a post-office box or a private dropslot, you should check your mail once a week. Retrieving your mail reduces identity theft and alerts you to matters that require immediate attention. Like foreclosure notices.
- Monitor your bank balance. I’ve heard many stories of people who are charged overdraft fees because they aren’t aware of how much money they have in the bank. Nowadays it’s simple to check your balance online. Do it.
Even if you don’t track every penny you spend, you should pay attention to your accounts. At least look at them from time-to-time. This homeowner’s inability to attend to these two essentials may have cost her a home.
[AskMetafilter: Foreclosure — how can I stop it?]
December 11th, 2006 at 5:49 am
I hate to admit it, but I made this kind of mistake.
When I moved house about 18 months ago, I told my electricity provider (Company A) that I was moving and that I wanted them to switch my account to my new address. I didn’t check that this had happened, or that the money was still leaving the account.
At my new address, I received letters addressed to previous tenants. After about 4 months, a final demand letter came from an electricity company (Company B) - you can tell by the envelope - not addressed to me. Concerned that the electric might be turned off, I opened it. That is indeed what they were threatening.
What had happened was that the account hadn’t been switched from Company A to Company B and Company A had mispelt my name, so badly misspelled that in fact the only similarities were the initials and the length of the surname.
After several phonecalls, I paid up the account, switched to a new company (Company C), and got late fees refunded as a goodwill gesture. At no point did Company A ever spell my name correctly, even though I corrected them every single time I spoke to them.
December 11th, 2006 at 6:00 am
I’ve come close to making mistakes like this. Just this past month I had something similar happen, though I was able to prevent problems because I was monitoring things in a low-level way.
On November 4th, I took a walk to the post office: exercise and errands in one blow. I mailed one letter — my home equity payment for the month. On the 15th, I realized that my bank had not yet processed it. I checked with the mortgage company. They hadn’t received payment yet. Because I check my online statements every few days, I caught this error in time to arrange alternate pyament. If I hadn’t, my account would have been subject to late fees and, possibly, and increased interest rate. (The check I mailed November 4th still hasn’t reached my mortgage company.)
Another similar type story: I have a friend with lots of money. He’s not rich, but he’s well off. He lives frugally and makes a good income. But he doesn’t manage his personal finances well. He gets his mail and throws it on the kitchen table. The mail will stack up for weeks or months and suddenly he’ll realize he’s two or three months behind on his utilities. So, he’ll pay them six months ahead thinking this will give him some time before he has to pay them again. So he’ll go for months, just getting the mail and stacking it on the table. And six months later he’ll open it to find that his bills are late again. Ad infinitum.
It’s important to keep tabs on the companies with which you do business!
December 11th, 2006 at 7:22 am
Semi related, this really bugs me: I get paid monthly, so I don’t have this problem, but I know tons of people who get paid weekly or bi-weekly who think nothing of paying their bills on time — by sending out checks regardless of how much money they have in their accounts. They think they can just write a date on the check when they think there is going to be enough money in there, and the company will hold onto the check until that date. Usually, they have enough in their account to cover it, but 3-4 times a year they get burned by all the fees associated with bouncing a check when a company cashes it early.
This came up casually in conversation one day, and I was completely horrified to learn that people send out checks knowing full well there isn’t enough cash in the account to cover it. I even caught my wife doing it once or twice.
I *never* have done this. the thought never even occurred to me that there might be a situation out there where this is acceptable to do. Consequently, I have never written a bad check.
Most of the time, even if you can’t pay your bill on time, the fees for being a couple days late, especially with utilities, are far far less than the fees associated with bouncing a check. I think my electric company charges like 1% for its late fee, which would have been $2 on my all-time most insane electric bill of $200 (not that i’ve ever been late, mind you) (electric heat + really cold winter == bad).
December 11th, 2006 at 7:26 am
Also, I asked at several banks after my friends told me they regularly float checks, and every single bank said that their *policy* was that the date field is for your records only, and does not legally imply a date when the check becomes valid or invalid. In other words, their cashiers will not even look at the date field on most checks, unless its not a personal check, and the date is the expiration date.
December 11th, 2006 at 7:52 am
Something is bothering in your last answer J.D. - blaming everything on the individual.
Although it is the responsibility of every homeowner to pay attention and monitor their personnal financial information, homeowners are humans. Humans make mistakes. We aren’t all-knowing individuals (otherwise no one would be visiting your blog, wouldn’t they?).
What is troubling me in your answer is the quick answer to blame an individual as the sole responsible in an unfortunate situation. The situation is very sensitive - repossessing her house. A basic need that every individual requires to live. Moreover, the house represent the single biggest investment and wealth that the majority of american workers will ever posses. On top of that, it is harder because she is intimitated and threatened by lawyers, many lawyers. Everyone is intimidated by the court and legal system except those who know how the system works (god it’s complicated!).
That person didn’t need any negative comment. She needs support, alternative, solutions and advices.
Most of all, it seems, from what i’ve read, that she is alone against an organisation. An organisation is, by definition, made of many individuals (of which many are professionals) working collectively following codes and protocols. They are many and they know how the system works. She is alone and odds are that just like the vast majority of us, she doesn’t have a clue of what will happen!
So, is it her fault ? Yes and no. We could all blame her the lack of accountability. But who didn’t forget something? We don’t have information on her background, maybe, just maybe, she had a very hard time during that period (sickness, personnal issues, family issues, work issues, etc…).
Here is my two cents. Take a day off, asap, and visit them in person with all the information they need. If you come up forth with your side of the story, with the money, explain everything in the most honest way possible, mention that you’ve learned your lesson and come up with a financial plan that works for you and them with the money, why would they refuse and go on with the resale ? America’s economy is based on a house bubble and this situation will become more and more frequent. The mortgage company don’t want to lose their customers and their money. They have a stake in this issue and your are the key.
Good luck!
December 11th, 2006 at 8:00 am
Eric, I agree completely. This is not wholly the individual’s fault. I understand that my post might have conveyed that I believe it is.
However, I do believe the individual is equally to blame. Yes, dealing with big banks sucks, especially when the bureauecracy of the system gums things up. But you must stay on top of things to make sure problems don’t occur. A person must take responsibility for his own personal finances. This is a case of equal blame in my book, but a situation that didn’t need to happen at all if the homeowner had been paying attention even a little bit.
Your solution — taking a day off to address the problem in person — is spot-on. I’ve done this myself for financial (and other) problems. It works wonders.
December 11th, 2006 at 8:13 am
This is one of the reasons I don’t like automatic payments. Paying bills isn’t complicated or time-consuming, but dealing with the fallout of a systematic failure such as this one is.
If we keep things that _must_ get done (like paying the mortgage out of sight, there is a much greater likelihood when something seemingly trivial changes (your checking account number, your bank’s automatic withdrawal policies, your bank’s computer system, etc..) that payments will be missed.
And if one makes a conscious effort to check that the transaction did occur each month (as one ought to do), then he may as well be spending 30 seconds writing out the check to begin with!
Of course one should always check his mail, and that can be a first warning that things are amiss. That way if payments get missed one will suffer only a late fee and perhaps a small ding on the credit report..
December 11th, 2006 at 9:42 am
This post highlight an importart point of personal finance issues. There are many things that contribute to managing your personal finances that extend beyond the technical issues. Things like organization and time management. These qualities usually do not fall within “personal finance”, however they are required to effectively manage your finances. As your personal finances become more complex and sophisticated, this qualities become even more important.
December 11th, 2006 at 9:54 am
I can’t even express my thoughts on this one. None of them are polite.
Who skips checking the mail for so long? Who doesn’t even bother to call and make sure the payments went through? That is so weird.
December 11th, 2006 at 9:57 am
Regardless of whether payments are made automatically or manually (by mailing a cheque), the bottom line is that it’s up to the individual who owes money to ensure that their bills are paid.
You don’t have to keep a very close eye on your bank account balance to notice that your mortgage payments (usually the largest payments anybody makes) aren’t coming out of your account. I can understand somebody missing one payment, but several months’ worth? Unless there are other factors involved (i.e. being stuck in a hospital), this is just plain irresponsible.
December 11th, 2006 at 11:26 am
“Unless there are other factors involved (i.e. being stuck in a hospital), this is just plain irresponsible.”
I agree. And even if she was stuck in the hospital, she should have assigned someone power of attorney.
She didn’t check her mail for months? I’m sorry, I have to put myself on the ‘irresponsible’ side. It should be your habit to check mail, email, and voicemail/answering machine EVERYDAY once at a minimum (except snailmail — that only comes once).
I really hope she sorts this out. She certainly doesn’t deserve to lose her house over it, even if it was mostly her fault.
As for mailing checks vs. electronic payments, I used to be of the opinion that mailing the check was better because it gave you more control over the process — that is, until my very first mortgage payment went missing from the mail. Now I pay it online, everytime. I still do it manually every month though, I just let the banks handle the postage.
December 11th, 2006 at 11:52 am
Alright, this is pestering me… how do we know the OP is female?
December 11th, 2006 at 12:21 pm
I have to agree that the poster is completely to blame for this. As JD said, financial responsibility means having a pretty good idea of how much money you should have. If the mortgage wasn’t paid for several months, how could the poster not notice there was several thousand dollars more than there should be in her checking account? This was not a $20 oversight, this is a serious balance discrepancy that she should have noticed. And not checking the mail for long periods of time? That is simply irresponsible.
I certainly hope the poster does not get foreclosed, but they really need to get their act together and get their finances in order.
December 11th, 2006 at 12:27 pm
good point. it says “She checked mail so infrequently..” in the writeup, but I can’t figure out for the life of me how that bit of info can be gleaned from the mefi post.
December 11th, 2006 at 12:30 pm
We don’t know the gender of the writer. I alternate my gender-neutral pronoun. I chose female in this case, but for no particular reason. If I were a better writer, I’d be able to do gender-neutral with out ‘he’ or ’she’, but I’m not! :/
December 11th, 2006 at 12:41 pm
JD - to be clear, I wasn’t meaning to criticize your writing style.
I was just throwing it out there since when I originally read the question on MeFi, I presumed male. When I saw your post, it made me go back to check. That’sall.
December 11th, 2006 at 4:23 pm
There’s actually something fishy about this story, unless the person involved is talking about a second home where she/he doesn’t normally live. I don’t know how it works in Texas, but where I live if a house is going to be seized for foreclosure the sheriff or some other official has to serve notice in person. It’s not done through the mail, and even if it were I would think it would have to be via registered mail that requires a signature.
So two possible scenarios are going through my mind: 1) the house in question is a second home and the owner lives in another state or town (which would explain why she/he didn’t check the mail regularly and wasn’t present for a summons), or 2) the criminals behind the phishing scam are trying to extort money from the victim by sending fake letters from lawyers demanding payment. It’ll be interesting to see how this turns out, if they follow up on Metafilter.
December 13th, 2006 at 7:41 am
One thing I have noticed about checking my accounts online is some transactions take days or even weeks to get posted to my account. I use to check my balance like this, but I got too many overdraft fees.
December 17th, 2006 at 11:04 am
Brad, foreclosure laws and procedures vary widely and wildly. Fortunately a Texas foreclosure worker has posted in the MeFi thread with Texas-specific info.
I assumed the writer was female too - I think it was the “I’m in tears” part, because we all know guys don’t cry!
I love what the online world allows me. I check my bank and credit balances several times a week, check to see what payments have gone through, etc. This is what works FOR ME. I wonder what works for people who are not as comfortable with PCs or the Internet. It sounds as if this poster may be more paper-oriented.
January 6th, 2007 at 5:54 am
I have very little sympathy for the person in the posting. If they aren’t responsible enough to ensure that their financial obligations are paid, then they should not be homeowners.
It doesn’t say that they were under financial hardship and unable to pay. No, it just wasn’t a priority for them. I don’t see why the mortgage company should have to pay for their laziness.
If they were renting, I doubt their landlord would give them several months of leeway - they would have been out on their bum already.