During Foreclosure and Financial Hardships, It’s the Little Expenses That Count

Even without the threat of facing foreclosure, homeowners are already burdened down with so many extra fees and hidden costs in their everyday expenses that it is becoming increasingly difficult to keep on top of all of the monthly bills. From cell phone and other service disconnection fees, to increasing costs on credit cards and other personal loans, to rising government expenditures that must be funded, it can feel as if people work half the year for the government and the other half of the year for their various involuntary expenses.

Cell phone fees have really gone through the roof in recent years, although the cost of cancel a contract has always been unreasonable. Homeowners who have no other option than to cancel luxuries like cell phones in order to keep up with their mortgage payments may face over $200 fees for every line they cut off. This can add up to more than half of a mortgage payment if every member of the family has their own personal line. Then, it becomes a matter of continuing to pay on the cell phone just to avoid paying even more in cancellation charges, but either option will create a drag on the monthly budget and lead more quickly to foreclosure.

Disconnection and contract termination fees apply even to many other technological services, such as satellite television, cable, or DSL internet. In good financial times, homeowners may enjoy these small, somewhat useless luxuries; however, when their finances take a turn for the worse, they will feel trapped by these services which can each carry several hundred dollar termination fees. Too often, it seems that the choice is between making a $1,000 monthly mortgage payment, paying $400 in various luxuries for one month, or paying $900 in various luxury termination fees. For homeowners low on cash, “none of the above” may become the default option (literally).

Credit cards have also begun increasing costs in numerous ways. First of all, the minimum monthly balance on many credit lines has doubled in an effort to encourage consumers to pay back the credit card balances in less than 187 years, as was the case with the previous minimum requirements. But for homeowners who were just barely able to make the minimum or slightly more, these increases may be too much, leading to credit card defaults. Second, credit card fees have also risen as the financial centers have realized that these fees represent the most profitable aspect of the plastic death-traps. Over-the-limit fees, late fees, yearly fees, and so on are all pure profit generators for the banks, even if they lead directly to bankruptcy, collections, or foreclosure.

Government at the local level has also been raising costs in the face of budget crises due to the foreclosure debacle. Property taxes, which had risen on the wave of inflated home values and greater suburbanization of former farmland, will bring in less money as homeowners become renters and property values fall. Instead of cutting some of the services or tightening their own belts, as the private sector will have to do during a recession, governments have been raising fees or attempting to make up for the lost revenue in other ways.

Government fees will most likely be generated increasingly through arbitrary policing activities, such as handing out more speeding tickets at the risk of catching fewer actual violent criminals. Minor drug offenses may lead to more forfeitures of property as government simply confiscates anything of value and refuses to turn it back over to the original owners. News stories have been reporting recently on the seizure of property in safe deposit boxes by governments, as well as states lowering the forfeiture times of unclaimed property from over a decade to just a few years. Since government does not produce anything and only takes from one group of people to reward another, such actions are not especially surprising,  but are disturbing during an economic slowdown after such a great increase in revenue during the real estate boom.

The expenses mentioned so far do not even consider any of the fees homeowners face when they begin to miss payments on their mortgages. Late fees are immediately applied by the banks to the homeowners’ accounts, which then begin to accrue interest. Owners who do not pay back the late fees and the interest on the fees, but continue to make normal monthly payments will begin to fall further and further behind, as their payment only covers the originally-calculate principal and interest — not the interest that keeps accruing on previous late fees.

But if missing a mortgage payment is bad, falling into foreclosure is far worse. Once the bank hires local attorneys to pursue the lawsuit in court, legal fees are immediately added to the balance of the mortgage. These can start out at a few thousand dollars but may end up over $10,000 before the homeowners figure out a way to stop foreclosure or lose their home. Court costs can also substantially add to the mortgage balance, with filing fees, sheriff’s sale costs, and eviction costs being charged to the homeowners, making it increasingly unlikely they will be able to come up with enough money to pay off the debt. With the reluctance of lenders to do short sales, and the failure of loan modification programs, the foreclosure crisis is shown to be the massive land-grab that it is.

So homeowners in foreclosure are left to blunder their way through a financial maze laden with devious traps. Even if they are able to avoid falling into pit of credit card fees, they may be hit by the poisonous dart of speeding tickets or some other trick designed to empty their wallets. The governments that they set up to protect them from such predators, unfortunately, have become the most powerful of all the revenue-generating agents, profiting from higher property values during the boom and increased government fees related to foreclosures during the crash. Banks, seeing their insolvency showing, have become more frantic to take every little amount of money they can, from $40 fees to slightly larger minimum payments.

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