Real estate's 5 stages of underwater grief

Most of us equate grieving with the emotional process that follows a death of a loved one. In fact, to grieve is to mourn and process any grave loss.

At this stage in the game, the average American has lost tens or hundreds of thousands of dollars' worth of the value of their home, with 25 percent having lost so much that they now owe more than their home is worth, according to the Wall Street Journal.

I've been both an observer (in some cases) and participant (in others) in the evolution of this grief throughout this recent market decline, as it has played out in the lives of those around me and in the trending topics I'm asked to weigh in on online.

And it struck me recently that what I've been observing can perhaps be best understood and analyzed in the rubric provided by the five stages of grief, first articulated by Elizabeth Kübler-Ross, author of the seminal work, "On Death and Dying."

Originally, these were intended to apply to help understand the human emotions that play out when you or a loved one has recently passed away or been diagnosed with a terminal illness.

As the model matured, though, even Kübler-Ross herself began to understand that these stages were applicable to many other types of catastrophic losses and tragedies outside of the realm of death and dying.

Kübler-Ross's steps, as applied to losing a home's value -- or even losing the home altogether -- might look like this:

Stage 1: Denial. "Eh, the market'll bounce back pretty quick." "The government/banks/Bush/Obama/Fed won't let it get much worse." "The Realtors have a powerful lobby." "Markets go up and down -- market cycles are par for the course."

Stage 2: Anger. "Are you kidding me?!" "My place is worth 50 percent of what I paid for it?!" "This is all a conspiracy -- the government/banks/Bush/Obama/Fed were all in on this." "Those idiots who took those stated-income loans/those idiots who walk away from their homes are responsible for this whole mess." "It doesn't pay to do the right thing and pay your bills on time, I guess."

Stage 3: Bargaining. This is submitting a loan modification application that begs for a major principal reduction, or insisting that your real estate agent must have pulled the wrong comparables to arrive at such a low value. Bargaining is about delaying or postponing the inevitable foreclosure, for many who have taken hits to their income or are facing looming payment increases.

Stage 4: Depression. Those who are missing payments may stop opening the mail or answering the phone entirely. Guilt blossoms here, as does the tendency to "awfulize" and focus on the feeling that their credit will never recover, they'll never be able to find another place to live, they'll never get another home, they've lost everything, etc.

Those who aren't missing payments, but are realizing the serious extent of their lost value, may mentally spin on the feeling that they're trapped: they'll never be able to move. They'll never be able to refinance. These feelings are not reality-based, but it feels very real to them at the time.

Stage 5: Acceptance. In this context, acceptance often includes an acknowledgment that you may have made some mistakes in your earlier mortgage decision-making. It often also includes a detachment and a dis-identification from your home.

You no longer see it as your everything, who you are, or your biggest asset. You may begin to see it as your biggest liability or, more neutrally, simply a building, a belonging, a place to live -- but certainly not the only place you could live or home you could or will ever own.

At the acceptance stage, efforts to save it at any means necessary start to seem an immature flight of fancy, and your intention may shift to saving your other financial assets. In this stage, those committed to living in their homes stop railing at what is unfair and begin to express gratitude that they can still afford to make their monthly payments, when so many cannot.

But this is also the stage when people start consulting attorneys and accountants to help them decide whether to walk away.

In my observations, the manner, speed and severity at which a homeowner experiences these stages of grieving has a lot to do with how hard their local market and their home's value was hit, and with what else was going on for in their scenario, what other what other simultaneous personal catastrophes they were experiencing in the realm of their finances. Did they suffer through a long, drawn out loan-mod limbo?

Denial and bargaining might stretch out for as long as your bank seems like they are considering your workout package, and their bargaining and anger phases tend to fall in reverse order. Anger erupts only after they realize the futility of all the effort you put into the bargaining vis-a-vis your loan-mod application.

These folks tend to go from anger to acceptance with lightning speed -- many even walking away from their homes or surrendering them via deeds-in-lieu of foreclosure -- proportionally as fast as their loan mod process was slow.

Were there dozens of other foreclosures on the block or in the complex? If so, the anger stage might be more like an intense rage that banks weren't doing more to help your neighbors stay in their home, snowballing into an avalanche taking your home's value down, too.

Lost a job? Your mortgage rate adjusted and payment increased, but the value reduction made it impossible to refinance?

Any of these such events that renders someone unable to even make their mortgage payment can force owners quickly out of denial and hold them much longer in depression.

What would Kübler-Ross recommend? She would point out the eventual acceptance that most will arrive at is a blessing that ends the suffering of the earlier stages. But she might also speak on her belief that "everything in this life has a purpose, there are no mistakes, no coincidences, all events are blessings given to us to learn from."

Kübler-Ross thought this sentiment applicable even to -- perhaps especially to -- the tragedies. In the real estate sense, the tragedies could be losing value in your home or losing the home altogether. The treatment for this grief? Find the lessons, accept them, and keep on living.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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