Altruism can be a double-edged sword because it can take away just as much as it gives.
A perfect example of such high-minded ideals took place in the state of New Jersey after the 2008 housing and financial crisis that almost brought the United States to its knees.
New Jersey was already on record as having a higher than average repossession rate due to mortgage payment defaults but the sudden collapse of the housing market made an already troubled situation far worse.
Suddenly the state was faced with the prospect of tens of thousands of homes entering foreclosure each year. This would have collapsed the housing market and related industries almost overnight. Foreclosure rates skyrocketed, but a large number of homeowners claimed that their lenders were doing so illegally. If this had been a handful of complainants nothing would have happened. But the thousands of families facing homelessness demanded that the authorities look into the matter.
After investigation it was found that some lenders were actually breaking the law when forelosing homes, due in no small part to certain documents being electronically signed. This meant that some financial institutions bent their own rules to the point of illegality.
That then led to the New Jersey Superior Court imposing a moratorium on foreclosures in 2010 for several of the biggest lenders serving the market. This moratorium lasted for two years, during which time none of these homeowners had to make a single mortgage payment.
But this protection was lifted in late 2011, and tens of thousands of New Jersey homes instantly entered the foreclosure process again with little or no warning.
Many of them had settled into a false sense of security that they’d be allowed to stay in their homes forever, but without having to pay their mortgage. In effect, the Superior Court had implied this because the moratorium could potentially have lasted a decade.
The real downside of the entire process was that although homeowners were not legally required to make mortgage payments for two entire years, that didn’t stop the banks from keeping tabs on their mortgage account. This meant that each property owner increased their overall mortgage debt, plus any interest charged on their unpaid arrears.
So for those people who had no intention of trying to keep their homes, the moratorium gave them 2-years of living “rent free”, before declaring bankruptcy.
They often did this knowing that it takes an average of 1,252 days for the New Jersey foreclosure process to complete. So many of these delinquent homeowners would have remained in their homes until late 2014 or early 2015.
The homeowners who used the moratorium to circle their financial wagons, while protected by the courts, emerged from that protection to find they now owed tens of thousands of dollars more in arrears in addition to their monthly mortgage payment.
It would have been far more expedient and affordable for these people to simply file for Chapter 13 once it was obvious they couldn’t meet their current mortgage commitment. This would have allowed thousands of people to keep their homes and not incur unnecessary additional debt. In effect, the situation was made worse because the market was not allowed to self-correct.
The best time to take action if you’re facing foreclosure is right now because the sooner you can file for bankruptcy they sooner you can either reorganize your repayments or request a discharge of the debts that are financially crippling you.