Foreclosure can be foiled

Facing foreclosure on her three-bedroom condo in Westminster, Kimberly Latji avoided phone calls from her lender and watched as letters soliciting offers of help poured into her mailbox.

Latji, a nurse and single mother, is among a growing number of Southern California homeowners who can’t pay their mortgages.

About half are facing tough issues such as a divorce or loss of a job or overtime, said Richard Pittman, housing services coordinator for the nonprofit ByDesign Financial Solutions, formerly known as the Consumer Credit Counseling Agency of Los Angeles. The rest have been hit with adjustable-rate hikes they can’t handle. “In some cases, we’re talking about a 20% to 40% increase in their payments.”

Southern California is awash in ARMs and sub-prime loans, which default more often than fixed-rate mortgages, said Rick Sharga, vice president of marketing for RealtyTrac Inc., an Irvine-based company that monitors foreclosure activity.

Foreclosure rates are no longer at the historic lows posted during the housing boom, when overextended owners could more easily sell, Sharga said.

On the rise

In Los Angeles County, foreclosure activity -- homes entering some stage of the process -- rose 5% from July to August, to 2,107 properties. It was the third hike in three months, according to RealtyTrac.

In Orange County, the rate rose 9%, to 606 properties, in the same period, while Riverside and San Bernardino counties posted a steep 52% increase, to 2,717 properties. These numbers are expected to rise, he added.

As the numbers grow, so too do the bailout offers.

“When my house was in default, I got letters -- at least eight a day,” Latji said. “They were telling me they could save my house, they could refinance me so that I could have a lower payment, so I could stay where I was.”

Twice she paid a $350 appraisal fee. “They made promises, but nobody could help me.”

Deluged with pitches from foreclosure specialists -- lenders, investors, real estate agents, counselors and consultants -- desperate homeowners face a daunting challenge: how to tell the legitimate businesses from the predators who charge excessive fees, fail to deliver services, pressure them into signing away the property for little or nothing or offer lowball prices that siphon off years of equity.

“Foreclosures are public documents, so they generate all kinds of people coming to your door looking to help you,” said Benjamin Diehl, a deputy attorney general in the consumer protection section of the California attorney general’s office.

Diehl said he has seen an increasing number of complaints about foreclosure consultants who charged upfront fees, which is illegal, or didn’t deliver promised services.

Before signing anything, he recommended checking with the Better Business Bureau for any complaints against the company and rejecting companies that want to charge for steps homeowners can take themselves, such as negotiating with the lender to reduce, postpone or suspend payments, stop late fees or allow enough time for the house to be sold.

“It’s not always best to go with the flier stuck on your door,” he said. “Some of them are honest. Some of them aren’t.”

One flier led Bianca Garcia of Palmdale to act when she and her husband were four months behind on their $1,600 first mortgage and their $600 second. Garcia, an office worker, had lost income after having surgery. She and her husband, who works in construction, had received a notice of default, the first official warning from the bank that they could lose the four-bedroom Mediterranean-style house they had bought for $175,000 in 2003.

Garcia called The TerraCotta Group LLC -- a real estate and mortgage investment firm based in Manhattan Beach and founded by Tingting Zhang -- which works with delinquent borrowers to save their homes. The company offers sub-prime loans and mortgages from small companies and private investors to high-risk borrowers who have built equity but cannot qualify with a bank.

Because of their poor credit, these borrowers must pay higher interest rates and attend mandatory credit counseling, but the firm structures deals that give them time to recover.

In the case of Garcia and her husband, the company devised a plan for an investor to buy the home and sell it back to the couple a year later.

“They took my second and my mortgage and they paid it off,” Garcia said. “We were able to get $30,000 out in cash, and they did that within 30 days, even with my horrible credit.”

The firm paid out $250,000, plus nearly $10,000 in closing costs and also subsidized the couple’s monthly payments by $600 for a year. The house was put in a land trust with the deed in the name of an investor who jointly owned the property with the couple.

They are currently in escrow to buy back the house for $297,000, which includes a 10% return for the investor. Because the required counseling improved their credit, a conventional lender gave them a 6.9% fixed-rate, 30-year mortgage.

The firm doesn’t put every house in trust. TerraCotta bailed out another homeowner who had poor credit but plenty of equity with a five-year, interest-only second mortgage at 12.99%.

However, the company can’t help everybody. “If we think they can no longer afford the property, it doesn’t make sense to give them a loan,” Zhang said. Others wait too long to seek help. “We had a gentleman calling us last week. The house was going to sell at 10 o’clock and he called us at 8 o’clock. There was nothing we could do.”

Acting early is best.

“For the person who is still in that first early stage, one to three months behind, the lender is usually more receptive to the possibility of a workout plan,” said Pittman, of ByDesign Financial Solutions, whose services are free.

Counselors negotiate with the lender’s loss-mitigation department while prodding homeowners to slash expenses and raise cash by renting out rooms, holding garage sales, refinancing car loans to lower the payments, borrowing against a 401(k) or liquidating other assets.

But sometimes, he said, homeowners simply must sell.

“It is hard for a person to give up their castle,” Pittman said, “but it is better to sell it on their terms and at least get some equity out of it instead of walking away with nothing.”

Still not enough

Like many homeowners in trouble, Latji, the Westminster condo owner, wanted to hold onto her home. Plus, her teenage son, the only one of her three children still living at home, didn’t want to change schools.

Latji had gotten into financial straits after taking six weeks of unpaid leave from her job as a nurse. She was paralyzed with grief after the loss of a young patient who was like a son to her. To stave off the foreclosure sale and support her own son, for whom, she said, she receives no child support, she worked 70 hours a week and borrowed money from relatives. But that still wasn’t enough.

Nearly three months late on the loan and about to let the bank take her house, she called Ron J. Anderson, a real estate agent with Century 21 Success in Signal Hill who specializes in foreclosures.

His business cards and fliers read: “You’ve got options.” “Foreclosure happens.”

Anderson advised Latji to sell. “He just gave me peace of mind,” she said. “He said, ‘It’s too hard to make those payments.... This happens all the time. Don’t beat yourself up.’ ”

The sale closed earlier this month.

“I was ready to let it go into foreclosure and just let it go,” Latji said. “And now I’m walking away with $50,000.”

gayle.pollard-terry@latimes .com.

*

(BEGIN TEXT OF INFOBOX)

Steps to keep that roof over your head

Homeowners who are behind on mortgage payments may be able to avoid foreclosure without getting ripped off and hold on to their houses or sell for the best price. Here are some steps to protect your home and your credit rating:

Act immediately. If you take unpaid time off from work or lose a job, contact your lender to negotiate extra time to pay. Explain the situation to the loss-mitigation department and ask for a temporary suspension of payments, a payment reduction or a repayment plan. Lenders don’t have to agree to any change in a mortgage payment but are more likely to do so when contacted early.

Refinance or tap into your equity. If you have good credit, work with the lender to extend the loan and reduce the payments, or buy time with a second mortgage if that’s the only way to save the house. If you have bad credit, be prepared to pay higher interest rates.

Get reputable credit counseling early. Obtain a referral for free assistance from a nonprofit service such as ByDesign Financial Solutions at (800) 750-2227. When calling, it is important to mention a default notice. The federal housing department, at (800) 569-4287, also recommends agencies, as does the nonprofit Homeownership Preservation Foundation, at (888) 995-HOPE.

Be wary. Check out foreclosure firms with the Better Business Bureau at www.labbb.org. If you believe you have been wronged, complain to the consumer protection office of the county district attorney’s office or the state attorney general’s office.

Protect yourself. Don’t sign any contract under pressure or sign away your property without making sure the deal is fair. Consult a credit counselor, lawyer or a real estate professional you trust. Don’t make mortgage payments to someone other than your lender. Get all promises in writing and obtain copies of the contract.

Sell only if you must. To get a fair price, contact a real estate agent, who will need time to find a buyer, and if possible, reject deals that take all of your equity.

-- Gayle Pollard-Terry

Sources: ByDesign Financial Solutions, California attorney general’s office, U.S. Department of Housing and Urban Development, National Consumer Law Center.