Avoiding Future Foreclosure Crisis: Know Your Enemy; Know Yourself

by Kaitlyn Shumelda
SUNY Albany

Grand Prize Winner

More than 2,000 years ago, Chinese general Sun Tzu famously wrote, "If you know your enemies and know yourself, you will not be imperiled in a hundred battles." Sun Tzu never once had a problem with foreclosure. Coincidence? Yes and no ... foreclosure wasn't an issue in 6th century BCE China, but if Sun Tzu were living in 21st century America, this same philosophy of his would ensure that he wouldn't find himself imperiled in a modern battle against foreclosure.

Unfortunately, many Americans are fighting that battle now, or have already lost. While the causes of foreclosure are numerous, there is one common defense, powerful yet overlooked, and Sun Tzu had it right: knowledge is the key. By knowing your enemy — by understanding what foreclosure is, how it works, and how it's caused — you can learn to avoid getting yourself anywhere near foreclosure, because it doesn't have to happen. By knowing yourself — having confidence in yourself to be your own advocate and taking responsibility in properly buying your own home (and keeping it your home) — you will know how to handle yourself against the enemy. Truly, this knowledge will still be a powerful asset if you find yourself facing foreclosure, but the best thing to do is to be prepared and avoid it altogether.

So, when should preparation begin?

The high school level seems like both an appropriate and beneficial time for this. Look at the demographic: graduating high school students are typically 18-years-old. That is to say, these 18-years-olds are legally adults. It doesn't seem very responsible for schools to churn out young adults who don't even understand how to properly buy a house. Ignorance will only lead to more foreclosures, more debt, and ultimately a worse economy. Lastly, while there has been a steady increase in high school graduates moving directly onto college, there are still a little less than 30% of them who don't. If this understanding isn't provided for them in high school, where will it be provided?

Some may argue that this task lies with the parents. However, it goes without saying that not all parents truly understand foreclosure themselves. According to foreclosure statistics given by the Federal Deposit Insurance Corporation website, "one child in every classroom in America is at risk of losing his/her home because their parents are unable to pay their mortgage". So how is a student supposed to learn about foreclosure from parents who are making errors themselves? Or what if a student's family rents their home and has never owned one? They may not be privy to the intricacies of the house market; perhaps that's why they've opted to rent in the first place. And importantly, information given to students when they're learning about something should be as objective and unbiased as possible. Once they apply that knowledge, that's when it should become subjective, so as to fit their own lifestyle — the approach that was best for a student's parents may not be the best approach for the student himself/herself.

Therefore, a classroom setting seems like the best situation for young adults to learn about this topic. Ideally, the issue of foreclosure wouldn't be so complex, and could squeeze nicely into a typical high school economics class. However, that just isn't realistic. Certain concepts and terminology must be understood before foreclosure itself can be understood, and furthermore, foreclosure relates to broader and important concepts as well, like the housing market, or the economy itself. Truly understanding foreclosure and how it works is crucial to avoid it: it seems impractical to condense it into one chapter, or even one unit, of a particular class.

I believe a more realistic approach — and overall better approach — is that high schools offer an elective, something like, "Life Skills 101" to their upperclassmen. This way, the content doesn't need to be crammed into one chapter, and valuable information doesn't have to be sacrificed for time or brevity. Better yet, students would not only learn about foreclosure, but other ubiquitous topics in an American adult's life as well, like managing personal finances and even discerning what type of lifestyle they want to have, and how to support that lifestyle. Learning these things objectively in a classroom environment facilitates innovation because the students can take what they know and apply it to their own life — to "real life" outside of school. Furthermore, the content itself is an introduction of what's to come in an independent, adult lifestyle. This foresight could help them to feel more prepared for looming adulthood, and will hopefully inspire them to find their direction in life.

The main objective for this class is to have students finish the class feeling knowledgeable about foreclosure (and the other topics, of course), confident in themselves and their abilities, and hopefully having a better idea of themselves and the life they want to lead. These three goals, respectively speaking, will help students to avoid foreclosure by understanding it, by being their own best advocate instead of relying on any other person or company, and finally, with a stronger sense of self-identity, students will not only have a better idea of what they want in life (and therefore how to get it) but also spurs the innovation that will undoubtedly see them through if they do, despite their best efforts, fall into foreclosure.

Goal 1: Students Understand Foreclosure

In order to understand foreclosure, students will need to understand its smaller components, right down to the lexicon. It's very important that teachers not assume that terms commonplace to them are anything more than jargon to their students. For example, some terms that are sure to make a novice's head spin are mortgage, refinance, collateral, default, equity, bankruptcy, interest, annual percentage rate, balloon rate... these terms may be intimidating in their own right, but they're even more overwhelming when you don't know what they mean (except maybe mortgage, which literally means "death pledge"). Once again, the key is to know your enemy. Once these terms are defined, then understood by applying them to course content, the words may still be unpleasant, but at least they make sense. Being familiar with the terms is also extremely helpful when signing mortgage contracts, or any contract for that matter. If you're putting your signature on something, you should know what you're getting into.

Then, students must understand why foreclosure happens, and must realize that it can happen in very different situations. For example, a new homeowner could sign a mortgage loan that they really didn't understand, and may have already started a slippery slope towards foreclosure. This isn't too far-fetched: 60% of homeowners wish they had better understood the terms and details of their mortgage (FDIC). On the other hand, foreclosure may seem to come out of nowhere. For instance, a family may have a mortgage that suits their lifestyle very well and they have never been late on a payment and are living comfortably. But then, the tragedy of a sudden death hits the family: besides the overwhelming grief and loss of a loved one, the family's income is now cut in half. They have new costs to cover for funeral services and possibly hospital bills, and they can't afford the mortgage, they fall behind, and eventually foreclosure is a definite possibility. In this case, the family had been responsible in choosing their mortgage, home, lifestyle, etc., but overlooked a life insurance policy. This is an investment that may seem unrelated to the topic of foreclosure, but as seen here, they do all connect. By including life insurance and other investments into the "Life Skills 101" content, students will be all the more prepared.

Goal 2: Students Become Their Own Best Advocate

Being armed with this knowledge, students will feel more competent in the arena of the home market, and more confident to take part in it. They will hopefully look forward to the task of buying their first home, and will feel empowered that they know how to do it properly. Their confidence is priceless, because it will immediately have a positive effect on their self-concept; they'll feel better about themselves, more capable, more "adult-like". But the benefits don't stop there. If a first-time homebuyer feels confident in their knowledge and capabilities, they are more likely to make a decision better suited for themselves, rather than be pressured or swindled.

This leads to an important reason why students should welcome the responsibility to be their own advocate. One of the causes of the recent foreclosure crisis was homeowners falling prey to scams. These mortgage relief scams exploited the fragile emotional state of struggling homeowners and claimed to know "secrets" that non-profit organizations did not know or would not release. The fact that many advertisements were on television and radio stations seemed to add credibility, and certainly scams who made websites appear to end in ".gov" or ".us" to feign government support appeared trustworthy. The main claim was that the company would take care of all mortgage troubles if the deed to the home was simply signed over to them — their number one priority, they'd say, was to keep you living the American Dream. Many scams, especially sent by spam emails, even used scare tactics to get troubled homeowners to sign over their deed.

First-time homebuyers need to be aware of the sad truth that there are people who will be quick to take advantage of them, who will prey on fear, ignorance, and desperation of others just to make money. Not all people can be trusted, and if an offer seems too good to be true, it probably is. It's very important to be able to rely on yourself and know that you are competent because you have prepared yourself, and that you have what it takes to make it through — this confidence is your ally.

Goal 3: Students Understand Themselves Better

Just like Sun Tzu said, you need to know your enemy and yourself to be victorious. However, at 17 or 18, it's understandable and even expected to still be figuring things out, so even leaving the class with simply a better idea of yourself and your values than you entered the class with is sufficient. The point of this goal as it relates specifically to foreclosure, though, is learning how to live within your means. Another contributor to the recent foreclosure crisis was homeowners who relied on credit and loans to live an extravagant lifestyle that they couldn't possibly afford. Having an idea of what kind of lifestyle you want, and what aspects of your lifestyle will take precedence, will help avoid that.

Students should be assured that this is something completely subjective! What's right for one may seem very unappealing to another. For example, one student may have already figured out what career they want, and that career is more important to them than where they live, or how big their house is. In this case, the student should investigate how much income that career will bring, and how they want to divide that up in order to facilitate a lifestyle that makes them happy. That's another thing students should consider — not what kind of lifestyle is popular or typical, but what kind of lifestyle is going to make them happy?

Sun Tzu wrote that the best way to be successful is to know your enemy and to know yourself. Knowledge is a powerful weapon in solving the foreclosure crisis, and providing students with this knowledge while they're in the high school level seems like the best way to remedy the problem: by preparing our young adults, they need not learn from their mistakes, but understand the task and succeed, avoiding foreclosure by taking precautions against it. For, Sun Tzu also wrote, "To subdue the enemy without fighting is the peak of skill."

References

"College Enrollment and Work Activity of 2009 High School Graduates." U.S. Bureau of Labor Statistics. United States Department of Labor, 27 Apr. 2010. Web. 15 Nov. 2010.

Elias, Stephen. The Foreclosure Survival Guide: Keep Your House or Walk Away with Money in Your Pocket. Berkeley, CA: Nolo, 2008. Print.

"Foreclosure Statistics." FDIC.gov. Federal Deposit Insurance Corporation. Web. 15 Nov. 2010. .

Ghaffer, Asa. "How to Identify a Mortgage Relief Scam." Suite101.com: Online Magazine and Writers' Network. Suite101, 14 July 2009. Web. 01 Dec. 2010.

"mortgage." Online Etymology Dictionary. 2010. Online Etymology Dictionary. 15 Nov. 2010.

Rhodes, Trevor. American Foreclosure: Everything U Need to Know about Preventing & Buying. New York: McGraw-Hill, 2008. Print.

"Sun Tzu: The Art of War." Wikiquote. Wikimedia, 5 Nov. 2010. Web. 20 Nov. 2010. .

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