Time to begin again
TINA and Richard Buchbinder know how it feels to lose a home to foreclosure. More than 11 years after walking away from their two-bedroom home, Richard, 43, a manager for a truck repair shop, and Tina, 37, a telephone answering service operator, recall the feelings of shame and loss. “It was hard,” Richard said. “I felt an obligation. I made a promise to pay that house note. It was emotional too. We had two kids in that house. But when we stopped and looked at what would be the right thing for our family, letting the bank foreclose on our home was the best option for us at the time.”
The Buchbinders, struggling financially and behind on their mortgage, tried to sell their home, in the Riverside County city of Perris, but didn’t get any offers. A local military base closure and subsequent job losses caused a hike in foreclosure rates that dramatically softened the local market, Tina recalled. After the foreclosure, she believed they would be renters for life. But the couple now own a larger home in Moreno Valley.
“Losing a home, as devastating as it seems, is not the end of the world,” Richard said. “You can get through it, and in some cases, you may even come out better than before. We did.”
Escondido homeowner Rogelio Alvarez, 26, would like his story to have a similar ending. Alvarez, who works for a construction company, paid $485,000 in February 2006 for a three-bedroom home, moved in with his wife and their two children, now ages 2 and 8, and began making the $3,700 monthly mortgage payments, which include property taxes and two loans, one at 11% and one at 8%.
Then business slowed. Alvarez said he has tried to find extra work but can’t make enough money to meet payments. “Every day, when I open my eyes, I am thinking about my house,” he said. “We never thought this could happen. This was our dream.”
But that dream has become a nightmare, and Alvarez now hopes to sell the home for $425,000 -- before the lender forecloses in June.
He’s not alone. Encouraged by the stockpile of wealth that accompanied surging home prices and sweeping equity gains, an unprecedented number of buyers purchased new homes or refinanced existing mortgages in 2004 and 2005. Now a season of slower sales, flat appreciation and teaser-rate mortgage adjustments has borrowers struggling to pay their bills, and defaults and foreclosures are on the rise.
From January to March 2007, lenders in the seven-county Southern California region filed 46,760 default notices, up 23% from the previous quarter and 148% over the first quarter of 2006, reported DataQuick Information Systems, a real estate information service. About 40% of owners who defaulted last year reportedly lost their homes to foreclosure in the first quarter, up from 9% a year ago.
The most common reason for losing a home is frequently tied to a job loss, according to Steve Bailey, senior managing director of loan administration for Countrywide Financial Corp.
“Where people actually lost their home to foreclosure,” he said, “64% of the time that loss was because of a significant change of income.”
Josh Nassar, vice president for Federal Affairs for the Center for Responsible Lending, a Washington, D.C.-based nonprofit, said its research indicates that of all the sub-prime loans issued nationwide in the last two years -- in particular those with adjustable rates or prepayment penalties -- about 20% will fail and result in the loss of a home.
The center’s study compared the projected foreclosure rates nationwide on loans made from 1998 to 2001 with national foreclosure rates on loans originated in 2006. It identified the top 15 metropolitan markets nationwide expected to see the largest increases in sub-prime foreclosure rates and found that 14 are in California. They include Santa Ana, which tops the list, San Diego (ranks third) and the Oxnard, Thousand Oaks and Ventura area (seventh).
For homeowners faced with foreclosure, experts say, time is of the essence. California’s nonjudicial foreclosure means that most cases in the state are handled out of court.
“The whole thing can be done in a little less than four months without the consumer ever appearing in front of a judge,” said Benjamin Diehl, deputy attorney general in the consumer law section of the California attorney general’s office. “So to give yourself the most options, you really need to take an active approach as soon as you fall behind.”
Three in a row
Although a lender could file a notice of default after one missed payment, experts say most lenders issue a default notice with the county recorder’s office after three consecutive missed mortgage payments.
The borrower then has three months from the date of the notice of default to get current with payments and any related fees or penalties.
If the borrower fails to do that, the lender can record a trustee sale notice and sell the home 20 days later. The borrower has up to five days before the public auction to settle the debt.
Once the house is sold, the lender cannot go after the borrower for the shortfall on the sale. If the borrower owed $350,000 on an original loan and the home sold for $300,000, for example, the lender couldn’t come after the borrower for $50,000.
But there are post-sale liabilities attached to second loans or credit lines that might follow a borrower after the sale. The $15,000 second mortgage on the Perris property the Buchbinders lost caused more problems for them than the foreclosure. They eventually settled the debt for a one-time $5,000 payment.
“It took us a while to get our credit back on track,” Tina said. “But we wound up getting hooked up with someone who was able to work with us and get us a loan and help us find another home. And we actually moved up to a larger home.”
Because they are not in the business of managing properties, “most lenders don’t want to foreclose,” said Bailey of Countrywide, where the loss-mitigation and foreclosure “work-out” departments each month service about 40,000 cases nationwide and save about 4,000 loans from foreclosure.
In about 50% of all foreclosures, the borrower never contacts the lender but either sells short or defaults and leaves, said Jordon Ash, a loan counselor with the Assn. of Community Organizations for Reform Now, a nationwide nonprofit established to help low- to moderate-income people become and remain homeowners.
One borrower who did take action was South Los Angeles homeowner Alvin Clavon, 34, who talked to HUD-certified housing counselors at ACORN before contacting his lender, Irvine-based New Century Financial Corp.
Clavon and his wife, Debbie, 35, bought their California bungalow in Hyde Park for $205,000 in April 2003. The couple refinanced twice from 2004 to 2005 to consolidate debt. But in July 2006, Clavon lost his job, and things began to fall apart.
“There were many nights where we worried ourselves to sleep,” Clavon said.
Relocation plans
New Century, which filed for Chapter 11 bankruptcy protection last month because of a sharp rise in loan delinquencies, agreed to temporarily suspend collection in April, and the Clavons listed the home in the low $500,000s. They plan to relocate to Alabama and have until May 26 to sell the home and settle with the lender.
“Every effort is made to keep borrowers in their homes,” said Laura Oberhelman, a spokeswoman for New Century.
Experts offer the following advice for homeowners facing foreclosure:
When approaching a lender, contact the loss-mitigation department. Be prepared to talk candidly about your situation and what you have done to rectify it -- selling a car to meet payments, for instance.
Ask about reasonable solutions, such as repayment extensions, forbearance (a temporary payment reduction or delay) and loan modification options with reduced interest and lower payments or a term increase that includes the default balance. Consider refinancing to a better loan with a reputable lender.
Even in dire financial situations -- in which, say, the borrower foresees no income for six months -- Bailey said most lenders can help.
Many banks will allow for a “short sale,” in which the lender takes less than it is owed to allow the property to be sold and often forgives the balance.
Selling a home can take time, so act early. Set a realistic price that you know the lender will accept. And be clear about financial implications -- such as whether any shortfall will be considered taxable income after the sale.
If there has been a temporary gap in monthly income, but you can’t work with the lender or sell, Ira Rheingold, executive director and general counsel of the National Assn. of Consumer Advocates, recommended talking with a knowledgeable bankruptcy attorney about filing for Chapter 13. A trustee-managed reorganization plan can prevent creditors from pursuing additional payments and determine realistic monthly payments.
Even owners with no equity are not without options.
“If there is no equity, the investor is going to face the loss too,” Bailey said. “So they’re more likely to be willing to work with you.”
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Where borrowers can find help
There are many sources of counseling and information for borrowers in default. Among them are:
* Americans for Fairness in Lending, www.affil.org
* Freddie Mac’s online guide to avoiding foreclosure, www.freddiemac.com; under “Buying and Owning a Home” click on “Owning and Keeping a Home,” then “Avoiding Foreclosure.”
* Freddie Mac’s Don’t Borrow Trouble Hotline refers callers to appropriate local agencies for education, counseling and legal advice, (800) 477-5977.
* L.A. County Department of Consumer Affairs Real Estate Fraud and Homeowner Assistance Program, (800) 973-3370, lacountydca.info
* Los Angeles Neighborhood Housing Services, (213) 381-2862, www.lanhs.org
* National Assn. of Consumer Advocates, (202) 452-1989, www.naca.net
* NeighborWorks America, www.nw.org; click on the icon for “NeighborWorks Center for Foreclosure Solutions,” (202) 220-2300
* U.S. Department of Housing and Urban Development
has certified counselors, (800) 569-4287, www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.
Choose “Search Online.” Select “California.”
For legal help:
* American Bar Assn., www.abanet.org. Select “Legal Help.”
* Legal Services Corp. hotline can help you find a legal services office in your area, (202) 295-1500, www.lsc.gov
* Los Angeles County Bar Assn. Attorney referrals, (213) 243-1525
* National Assn. of Consumer Bankruptcy Attorneys, (202) 331-8005, www.nacba.org/attorneyfinder
If you believe you are victim of mortgage fraud:
* If Freddie Mac owns the loan, (800) 437-2838
* For other lenders, contact the L.A. County Department of Consumer Affairs, (800) 593-8222, dca.lacounty.gov
* To file a complaint with the Office of the Attorney General, (800) 952-5225, ag.ca.gov/consumers/general.php
-- Michelle Hofmann
