Could you lose your house over a water bill?

The Consumerist tells a chilling story about tax liens.

"Say you fall behind on your property taxes, or choose to make your car payment instead of the water bill. It doesn't take much for some municipalities to file a tax lien against a homeowner, often a debt of only a few hundred dollars [...] Those liens are often sold to companies that tack on substantial interest rates starting in the 18% range, and upwards of 50%. These lien buyers also charge huge fees to redeem the liens and avoid foreclosure. [...] redemption penalties in Georgia, Iowa, Mississippi, New Jersey, and Texas all exceed 20%."

"There is the Baltimore woman whose $362 water bill was sold off to a lien buyer. Interest and fees caused the amount to balloon up to $3,600. She couldn't pay and lost her house.

An 81-year-old woman in Rhode Island owed $474 on her sewer bill. The tax lien buyer snatched up her lien for $836 and then made a huge profit by selling her house for $85,000."

"The consequences of homeowners not understanding their rights or the process of a tax lien sale is devastating for individuals, families, and communities."

Ten Worst Money Mistakes Anyone Can Make

"Money get back,
I'm alright Jack keep your hands off my stack."
-lyrics to Money by Pink Floyd

FreeMoneyFinance.com says there is just one rule to managing your money:
Spend less than you earn over a long period of time

While this is great advice, you can still lose your shirt by making one these Ten Worst Money Mistakes.

1. No Emergency Fund
Things happen; the washing machine breaks, car needs repairs, kids need braces, and so on. Borrowing money to pay for life’s emergencies will just put you deeper in debt. Protect yourself by keeping six months of living expenses in a SAFE place. Safe means not in stocks or any investment that can lose value suddenly. CDs are nice but the money is locked up for months or years. I keep six months in a savings account. It earns peanuts but it’s always there if I need it.
Corollary: if you use your emergency fund, pay it back ASAP.

2. No Will
57% of Americans have no will, including 69% of parents with kids under 18. If the parents die the State will decide how the money is allocated.

3. Not Enough Insurance
Insurance is the ultimate emergency fund for really big events like the total loss of your house or car. Consider also an umbrella policy on your house that covers lawsuits and liability like someone slipping on your icy sidewalk. Our umbrella policy paid off when a small leak was found in our underground oil tank.

4. Marrying the Wrong Person
Marry someone who agrees with your money style. A miser and a spendthrift are incompatible and divorce is expensive.

5. Not Saving
Put away at least 10% of each paycheck for future expenses like a new car, college tuition, vacation, etc. Don’t borrow for these big ticket items. The only item that is just TOO big to save for is a new house.

6. Too much house
Speaking of houses, don’t buy more house than you can afford. Don’t count on overtime or a future raise to pay the mortgage. Put as much money down as you can, say 20%, and aim to pay off the loan within ten years. The interest on a 20-30 year loan is a monster. My parents bought a $70,000 home but the total mortgage payments over 20 years would total $240,000.

7. Waiting to Invest
Don’t wait for a “good time” to invest. I’ve had stocks plunge to half their value and thought they would never recover. But they did. The NY Lottery (which I don’t recommend) says you have to Play to Win. Likewise you have to invest to make any gains.

8. Being in Debt
Debt eats your money. The goal is to earn interest and make money, not pour it down a hole to make someone else wealthy.

9. Not maximizing your Career
Your job is where you’ll earn most of your money. Even a small raise in pay will accumulate over the years to a nice amount. Work hard and get paid what you’re worth.

10. Over Spending
This violates the prime directive (spend less than you earn) and is a sure way to go into debt. Everyone says, “I don’t earn enough”, but in reality it’s how you spend, not what you earn that makes a difference. Boxer Mike Tyson earned $300 million in his career, but it wasn’t enough for his lavish lifestyle. He filed for bankruptcy in 2003, owing $27 million.

Bottom Line

Check out the full article at Ten Worst Money Mistakes Anyone Can Make. It contains dozens of useful links for Estate Planning, emergency fund planning, Insurance planning, etc, contained within the story.

Financial Mistakes

'Neither a borrower nor lender be' – Shakespeare’s Hamlet

Check out the USAToday article Eight Money Missteps that can really hurt you financially.

1. Don’t Raid your 401(k) – most states protect retirement accounts from bankruptcy claims. "Some people use their IRAs, and then they wind up in bankruptcy, anyway. So now, they're bankrupt and they don't have any retirement."

2. Don’t walk out on a mortgage – sell the house.

3. Don’t ignore your credit card balance

4. Avoid debt-consolidation firms – most are scams

5. Don’t co-sign a loan for a friend or relative – you’ll regret it later when they default. You’ll lose a friend and your money.

6. Don’t use Payday loans – the interest rate is an outrageous, 391% to 521% annualized.

7. Use a Reverse Mortgage only as a last resort – the fees are high

8. Don’t stiff Uncle Sam by not paying your taxes. He will catch you and the penalties are stiff.

Bottom Line

In short – avoid loans, pay your debts, don’t sacrifice your retirement.

The true Mortgage Crisis

"We must stem the spread of foreclosures and falling home values for all Americans" - President Obama

In response to this quote the New York Post points out that there is no national market for homes and no national price for homes. Instead, most of the United States will pay for the folly of a few misguided individuals in mostly just five states, California, Nevada, Arizona, Florida and Michigan. In Nevada, 1 in 76 homes are in foreclosure and 47% of the mortgages are "under water" (i.e. the mortgage exceeds the value of the home). The national median for foreclosures in 1 in 949 homes; just 1 tenth of 1 percent, hardly a National crisis. NY is 1 in 2,271, Vermont 1 in 51,906 .

So what is unique about the 5 states with high rates of foreclosures? They had the most extreme housing pricing bubble. Even though California home prices fell 20.8% last year, they were still 50% higher than they were just five years ago. Eventually bubbles must burst and extreme prices brought back to reality.

So what's happening now? By looking at sales, you can see the free market is
working very well... Falling home prices are not the problem, they're the solution... If something becomes too expensive, cut the price. Or move.

Bottom Line
Most subsidized homeowners are NOT poor but they took on too much debt, often by refinancing in risky ways to "cash out" thousands more than the original loan. Nearly all subprime loans were for refinancing, not buying a home.