When Jesus Sequeira's wife, Yadira, died in 2008 from lung cancer, times soon grew tough.
Sequeira said his income plunged, leaving him unable to pay the mortgage on the couple's Canyon Country home when payments more than doubled a year later.
Sequeira hoped a loan modification might save him, but there was a glitch: Even though he was listed on the title, only his wife was on the mortgage note — a setup Sequeira said a Countrywide Financial employee suggested given her superior credit.
The arrangement, he said, turned efforts to secure a modification into a multiyear red-tape nightmare that may end in a trustee sale scheduled for May 11.
"It's like I can have a heart attack, because I don't know what is going to happen," said Sequeira, 58, who owns a small Koreatown market. "It's been like that for three years."
Consumer advocates say widows and widowers nationwide are falling into a similar bureaucratic black hole.
Although servicers will generally accept their loan payments, surviving homeowners who are not on the mortgage face significant resistance when they seek loan modifications once they've fallen behind on payments — often because they've lost their spouse's income.
"They are being told they can't do anything to prevent foreclosure," said Charles Evans, an attorney with pro bono law firm Public Counsel, which is assisting Sequeira.
The problem is growing, advocates say, and has caught the attention of federal regulators and state lawmakers.
In just the first three months of this year, the Housing and Economic Rights Advocates, a statewide advocacy group, had handled 16 such cases.
In a 2013 survey, conducted by the California Reinvestment Coalition, 44% of housing counselors said that servicers "always" or "almost always" declined to discuss loan modifications with widowed clients when they weren't on the loan. Last year, housing counselors across the country surveyed by the National Housing Resource Center gave servicers a poor rating for communication with widows, widowers and others in similar circumstances.
Consumer advocates think the problem dates to practices popular during last decade's housing bubble. They include a rise in risky first and second mortgages — including many taken out by older Americans who previously avoided getting into new debt — and securitization of loans, which has increasingly put servicers, not originators, in control of the foreclosure process.
Sometimes servicers refuse to deal with the surviving spouse, advocates say. Other times they give inaccurate information or require unnecessary documents to prove ownership of the house, stalling a modification while a foreclosure proceeds.
Often companies simply won't allow a modification until the surviving spouse assumes the loan, which can't happen until the owner is current on the mortgage — something of a Catch 22.
Survivors "make contact with the mortgage servicer to let them know their loved one has died and they ask for what next steps they should take to try to work on modification," said Maeve Elise Brown, executive director of the Housing and Economic Rights Advocates in Oakland. "That is when the misinformation begins."
The passage of the California Homeowner Bill of Rights in 2012 targeted similar issues for borrowers.
It required they be given a single representative to work with and banned servicers from so-called dual tracking — the practice of negotiating with clients to modify a mortgage while simultaneously pursuing foreclosure.
Now, rules are being proposed to boost protections for survivors. The Consumer Financial Protection Bureau is preparing to release regulations this summer that will assist widows and other so-called successors-in-interest. And the state Senate Judiciary Committee is set to vote Tuesday on a bill designed to give surviving spouses, domestic partners and children the same protections borrowers have in the Homeowner Bill of Rights, including the right to sue to stop a foreclosure or for economic damages after one occurs.
The bill, SB-1150, by Sen. Mark Leno (D-San Francisco) and Sen. Cathleen Galgiani (D-Stockton), would prevent servicers from moving forward with a foreclosure before requesting "reasonable" documentation of the borrower's death and the identity of the survivor.
Dual tracking would be barred and servicers would be required to give accurate information about mortgage assumptions and foreclosure-prevention programs, while appointing a single point of contact for survivors.
Although the bill doesn't require a modification be given — applicants must be able to show they can afford even the smaller loan payment — the intent is to give survivors a fair shot at getting one. It would, for example, allow delinquent survivors to get a loan modification without first getting current on payments.
"These people are just left out in the cold. They get none of the benefits from the Homeowner Bill of Rights," Leno said.
The proposal has drawn opposition from industry groups that say it is premature because of the pending federal regulations.
Beth Mills, a spokeswoman for the California Bankers Assn., said the state bill could open the door for a flood of people coming forward to claim interest in a deceased borrower's loan — a potentially messy process for servicers because the bill gives survivors the right to sue.
"You could have multiple claims coming forth and competing claims, siblings fighting or stepchildren," she said.
Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn., said that it was rare that a surviving homeowner wasn't also on the mortgage.
"Anecdotally, this isn't an issue that our members see very often," he said.
However, advocates say Sequeira's situation is common. He and his wife used a risky, adjustable-rate loan to purchase their Canyon Country house in 2006. Although only Yadira was on the note, their joint income was required to approve the loan, according to a lawsuit he filed against his mortgage servicer.
The loan ballooned in 2009 from $1,200 a month to more than $3,000, according to the complaint. After exhausting his savings, he defaulted in late 2010. Two years later, he received a letter, addressed to Yadira, saying she might qualify for a loan modification, but Sequeira said he submitted multiple applications that were rejected.
The mortgage servicer, Bayview Loan Servicing, denied his applications because he wasn't the borrower, made him reapply under his wife's name, demanded he prove ownership of the house multiple times, and said he couldn't assume the loan while it was delinquent, according to Sequeira and his attorney.
"It's not my name on the loan, but this is my house," he said.
Bayview Loan Servicing did not return a call seeking comment. In court documents, the company acknowledged it was the loan servicer but said it lacked information to answer Sequeira's allegations.
Despite the looming foreclosure sale, Sequeira said he hasn't given up hope he can save his house.
He has since remarried, and with his new wife's assistance, he's been able to keep his market open longer hours and make more money. He said his former wife would want him to continue trying.
"She would be fighting," Sequeira said, seated in
the home he once shared with Yadira. "She was like that."
Times researcher Scott Wilson contributed to this report.