I don't see how she could have left the settlement table without knowing it. If fact, lenders are supposed to give you all of that information before you even go to settlement.
It sounds to me like it was just poor money management on her part, and now she is trying to play dumb or blame someone else (I bet it's Bush's fault!).
It is true that some lenders and real estate agents are too "liberal" in telling people, especially first time buyers, what they can afford. They have no stake in anything after the sale, and everything to gain by pushing the buyer to a higher home price/loan.
I remember when I bought my first house, they told me I could buy a house for up to $150,000. Sure, I probably could have, but only if I ate bread and water, drove to and from work and went no where else, and used cardboard boxes for furniture! I ended up buying a house for $99K because it was crazy to think I could possibly afford to live in a $150K house at that time.
I have some young relatives who just bought a house for probably more than they should have spent (but they insisted on a single house instead of townhouse as a starter home). But I also know that they have now maxed out a few credit cards buying stuff for the house. They'll be in the hole for years.
Then they face the prospect of ever rising property taxes around here, which I'm sure they are not planning for.
Agreed...we just purchased a new double-wide log mobile home and they estimated our local taxes as well as insurance for us, it was part of the disclosure. I had the same experience when I purchased a home in the city years ago.
Like your young relatives, we just had to talk my 23 y/o stepson out of purchasing a $150,000 home with his fiance. When we finished explaining things to him, he agreed that, (again like your relatives), they could not afford maintenance or furnishings if they bought that particular house. His fiance was angry with him at first (spoiled rich brat wanted a house like momma's), but he stood his ground and they finally settled on a $65,000 starter home.
Heck...hubby and I have been saving for the last 10 years we've been married, and our new house is ~$75,000. But then, I own my own property free and clear (which much to the bank's chagrin, I refused to allow them to tack onto the note as collateral as it is not community property), and it is at the lake, so the total value will be much higher.
Now all I gotta do is keep hubby from accidentally shooting a hole in the side of this one like he did our old one, LOL!