Quote Originally Posted by retailguy

But, the fact remains. If you put 20% down on a house, you are not likely to EVER lose that house in foreclosure. If you put down less money, the odds of having a crisis related to ownership of that property go up exponentially the less down payment you had.

I just spoke with a woman today. In her early 50's. Husband got sick, lost his job. They owe 115,000 on a 110,000 house, and their income got cut by 2/3rds... They HAD good credit. Their dream turned into a nightmare.... They WILL lose this house. He has no insurance, no job, no money and won't likely return to work. IF they had equity, at least they had something to sell. Now they have to beg the 2nd mortgage lender to let them short sale it....

It HAPPENS.
Whether or not a forclosure will happen isn't necessarily affected by how much equity you have in it. It becomes a cash flow problem. If you do not have the cash to make the mortgage payment for X months, the lienholder will foreclose. If the lady you mentioned and her husband have no income, it wouldn't matter if they only owed $50,000 on the house. If they don't make the payments thay will still lose the house eventually. The difference is that after the lienholder sells the property and recovers their costs, there MIGHT be something left for the original owner. Alternatively, the couple could make a quick sale themselves, to get out from under the mortgage, but they still would not have the house. Its lost either way.

What I did was as a young couple with my wife. If we made a mistake, we had time to recover. For us, buying the first two houses was not unlike starting a business. Both were undertakings to make money, and we really were careful in how we did it, even though it stretched us financially..

It strikes me that the people in your example have more problems than just the lack of equity in their house. Negative equity in their house, no insurance and apparently no savings of any sort, even though their best earning years may have passed. I'm not blaming them, because I have no idea what the causes may have been for the situation they are in, but they seemed to have piled risk upon risk upon risk. That is never wise, and it becomes less wise the closer you get to retirement.

I'm surprised the lender(s) didn't require mortgage payment insurance with the negative equity situation.