Short Sales and Your Clients’ Stages of Grief

Rather than try to post a blog entry of 5 pages, I have decided to spread this post over the next few weeks.  Last year our Short Sale Focus Group compared a short sale client with someone dealing with a significant loss.  Back in 1969 Dr. Kubler-Ross published her best selling book On Death and Dying.  We have taken parts of her research to better understand our clients.  By combining research we came up with the following:

While certainly less severe, lessons learned from a forty year old book designed to help people cope with dying can provide insights into customer behavior when dealing with Short Sales. 

In her 1969 best selling book, On Death & Dying,Dr. Elisabeth Kubler-Ross illustrates how people and loved ones deal with terminal illness.  Most people have trouble envisioning dying themselves; instead, they feel that there will be some dramatic accident that will bring their demise.  The notion of slowly slipping away in a hospital bed with no control over the final outcome is just not possible to visualize.  In any case, the thought of growing old or dealing with a life threatening illness is beyond their grasp.  In a similar fashion, most homeowners can not conceive the possibility of losing their house to foreclosure.   The most common mindset is that it could happen to someone, someone they might know, even someone on the block they live on… but certainly not them.

In her research, Dr. Kubler-Ross discusses five different stages of grief that both the patient and family members go through before they are finally comfortable and accept the situation for what it is.  This article attempts to glean the lessons from each stage and apply them to the mindset of a homeowner who is underwater and facing foreclosure.  Both the terminally ill patient and the homeowner are facing a loss, albeit one is more severe than the other, both will start down this journey of discovery that will eventually lead to acceptance.

Just as EKR discusses modern science being able to monitor, stabilize, and regulate medication to prolong life, our former economy did the same to home values.  Prior to the collapse of 2006 (or whenever you would like to attribute the housing bubble burst) homeowners were using their house as  ATM’s, investment vehicles, net worth inflators, or insurance policies for emergencies.   

For most, the thought of losing their house after such a severe run up in equity is still incomprehensible.   They continue to hold on to the notion that they still have equity or that they might be just a little underwater, which is nothing to worry about. 

Achieving the American Dream of home ownership has also played a role in the collapse.  Not very long ago, home ownership eluded many people.  It required sacrifice, saving, and long term planning.  First time homeowners purchased starter homes and worked hard and saved harder to purchase that next “move up” home  They continued down this path which eventually led to the “trophy home” and if things were very good, a vacation home.

Just prior to the collapse, during the mid 2000’s, Wall Street became very good at packaging loan pools and the demand for more and more loan pools led to lower and lower quality loan pools.  Lower quality loans made it easier and easier for the first time home owner to purchase the “McMansion” and the vacation home at the same time. 

Without the notion of sacrifice, there is little keeping these homeowners attached to this new version of the American Dream, getting it all now, and not waiting, saving, or dreaming for anything.  As things get tough, they operate under the impression that someone will bail them out.    This notion of holding on to hope is very powerful.  Dr. Kubler-Ross goes to great lengths to demonstrate that even patients that have arrived at the acceptance stage still have hope for that miracle cure to save them.  Homeowners continue to wait and hold onto hope for their miracle cures that have come and gone.  Cures such as; loan-modifications, HAMP, or HAFA have done little to date to solve the problem.  This is not to suggest that these programs have not helped at all, or will continue to help, but it is a fair statement to say that each of these programs have not done the job intended when they were rolled out  to the people.

Dr. Kubler-Ross outlines five stages that a person goes through starting with denial and eventually leading to acceptance.  Each stage must be experienced but not necessarily in this order. While we are not talking about death, we are talking about significant loss, in this case, the loss of a home.  It is also important to remember that a person can experience any stage more than once.  For example, they can experience Stage One: Denial and move on to Stage two and then circle back to Denial again.

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