Don't Let Foreclosure Destroy Your Mind

Karl Frank, a financial planner with A&I Financial Services, has seen three of his clients go through the painful twists and turns of losing their most valuable asset, with different results.

One couple, Sally and Mike, purchased a $500,000 home with no down payment as the Denver area was approaching the peak of its real-estate boom. Sally was a part-time employee and Mike was a full-time government worker, and their cumulative salary totaled less than $100,000 per year.

Soon the interest rate started to balloon, and with one child in college, and another two approaching college age, the couple sold their home at a loss and pulled out all the funds from their retirement accounts and "lost 40% to Uncle Sam" on those assets, Frank says, due to early-withdrawal penalties. Sally got a second job to make ends meet.

"Colorado real estate was going so well and they got into a home they just didn't belong in," Frank says. "Their lifestyle went from living the good life, living the dream to just depression. They're still kind of struggling with that, but we kind of lost touch because they no longer have an account with us."

On the other end of the spectrum was a school administrator who earned $150,000 per year and planned to profit from the local real-estate boom. He acquired rental properties, and purchased an $800,000 luxury home. He spent another $200,000 to improve the house, which was in the popular neighborhood of Harvey Park near the University of Denver. He planned to sell it for $1.4 million.