Vulnerable homeowners at risk
With the government-funded program expected to end in 2025, low-income homeowners, particularly those belonging to communities of color, will find it tougher than ever to hold on to their homes.
The California Mortgage Relief Program which provided millions of dollars in assistance to homeowners with financial hardships during the pandemic is expected to run out of funds in 2025. According to Rebecca Franklin, president of California Housing Finance Agency (CalHFA), this will place an enormous burden on homeowners, particularly on those belonging to communities of color, who will be at risk of foreclosure.
At a November 2 Ethnic Media Services briefing, housing rights attorneys and mortgage experts discussed three urgent foreclosure threats, cautioned homeowners of scams, and encouraged borrowers to seek free legal assistance to avoid foreclosure.
Battles in probate court
Communities of color and other vulnerable homeowners face potential risk of foreclosure in three instances said Joseph Jaramillo, senior attorney at Housing & Economic Rights Advocates (HERA).
If a parent or grandparent passes away without a will or a trust, their loved ones have to go through probate court to inherit the property. Many are intimidated to do it. Families face excessive out-of-pocket fees and accessibility barriers for legal services. Property taxes have to be paid, and if homeowners insurance and mortgages are due, the property is at risk of foreclosure. Navigating the burdensome probate process can be long and arduous warned Jaramillo. “Many are intimidated to do it. The surviving family members might not be able to afford these payments or may not have clarity on who is responsible for paying them.”
Black and Latino households in particular had less net worth to deal with pandemic-related financial hardships, he added. “These homeowners consistently reported higher rates of falling behind on their mortgage payments and also being at risk of foreclosure during the pandemic.”
Though loan servicers provided forbearance and loan modifications to borrowers during the pandemic, foreclosures now have jumped back to their pre-pandemic levels. “These same households are put further at risk and the result is families losing their most valuable intergenerational asset, the family home,” said Jaramillo. Households of color will lose a key avenue of relief unless the California Mortgage Relief Program is renewed and funded to alleviate the financial impact of the pandemic.
Predatory PACE scams
Predatory Property Assessed Clean Energy (PACE) loans offer financing for solar energy and other energy-efficient home improvements with no-money-down loans and are repaid by adding an expensive assessment line item to homeowners’ property taxes. If they are not paid, the property can be put in foreclosure putting thousands of homeowners of color at risk.
According to Jaramillo, PACE home improvement salespeople frequently target elderly Californians and communities of color at trusted neighborhood locations – places of worship for example – falsely claiming these are free government programs.
Zombie second mortgages
Before the financial crisis, some second mortgage loans were split into two to help borrowers avoid large down payments. However, these loans had predatory terms and were marketed heavily before the housing crash in communities of color and lower-income neighborhoods. Jaramillo said many borrowers did not realize there were two loans, believing they were forgiven, written off, or modified under the first loan. Usually, it was the same lender that split the loans explained Jaramillo, at interest rates of 9% or more, with exorbitant payments due at the end of the loan. If borrowers tried to pay it off earlier, they’d be slammed with prepayment penalties.
When the housing market collapsed, borrowers struggled to pay their first loan or lost homes to foreclosure. Second mortgage loans were sold at a discount to to companies, sometimes without giving notice to the borrowers. As home values rise, debt collectors are resurrecting dormant or ‘zombie’ mortgages, and are going after homeowners with high interest rates and added fees.
Homeowners horror stories
Johanna Torres, program coordinator of the California Rural Legal Assistance (CRLA) shared the story of a client who fell victim to a zombie second mortgage. Saul de la Cruz bought a family home in Salinas before the 2007 financial crisis. He held two mortgage loans, the first lien through Wells Fargo, and the second through Countrywide which dissolved after the financial crisis. Cruz stopped receiving correspondence regarding the second lien and assumed it was included in the modification he received about the first lien.
In early 2021, Cruz received correspondence from the second lien mortgage servicer, who requested $14,611 to begin negotiations to avoid foreclosure. With the help of family friends, he paid the lump sum downpayment and is now struggling to keep both mortgages current. Cruz added that while consumers are expected to comply with second mortgage loan agreements, second mortgage lien holders are exempt from the industry standard laws and regulations. For example, they do not provide monthly mortgage statements to borrowers.
The experts recommended that homeowners seek legal services for home preservation counseling either through organizations like HERA, CRLA, or other legal organizations to understand the options available to save their homes.
“I urge borrowers to contact the nonprofits instead of going through scammers, lose money and potentially go through foreclosure when it could be preventable,” concluded Torres.
Image credit:Brendel at en.wikipedia.org – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4750703