Volume 35, Number 2

Why is it Important to Prevent Homeowner Foreclosures?

Mobius Staff

It’s been a long time since I’ve written about legal issues, but now is a good time to retrieve that gauntlet.

Almost two years ago, I got hired as a foreclosure defense paralegal at a legal aid, non-profit law firm. And around two years later, my work in this area will be done though the issue will remain, but more about that later.

Specifically, I and a group of three attorneys functioned as our firm’s Foreclosure Defense Team, providing legal services for homeowners in danger of losing their homes to foreclosure due Covid-related economic issues who had applied for relief through the Homeowners Assistance Fund (HAF), a program that was included within the super-structure of the American Rescue Plan.

This federal HAF money was allocated to the states and Tribal governments as block grants that allowed these entities to administer and distribute as they saw fit, within the federal guidelines thus allowing for localized flexibility as opposed to a one-size-fits-all approach.

In my state, eligible homeowners could receive forgivable loans for up to $40,000. If they were still in the house one year after the money was disbursed, the loan was taken off the books.

Boom! Just like that the homeowner’s mortgage gets reinstated while maintaining the terms of the mortgage, which is especially critical considering current interest rates.

Our state sub-contracts to a pair of legal aid organizations to provide legal services to program applicants.

The reality of the situation is that providing legal services to these homeowners is utterly crucial because, sadly, some were very close to losing their homes by the time they applied for assistance through my state’s HAF program. In many cases, they tried and tried to fix things. They didn’t know about this program, and it ended up being that last ditch lifeline.

Literally, we saw cases where the homeowner faced a sheriff’s sale within days. Even some cases where the sale had already been held and a confirmation hearing (required in my state to confirm the sale in a court of law) was coming up very quickly.

We had one case that came in shortly before the confirmation hearing where the attorney showed up at the hearing, explained that the homeowner had just applied for HAF and asked that the hearing be postpone in order to allow enough time for the application to be processed. My colleague got the postponement, the homeowner eventually got relief from the program and eventually their court case got dismissed.

In a nutshell, that’s our role in providing legal services to homeowners in the HAF program. We keep the wolves at bay. We make sure the homeowner is given the time and space for their application to be processed.

Or as I prefer, it’s our job to prevent fuckery.

As for my role, I was the first point of contact for our entire service area. I’d review the referrals as they came in along with any accompanying documents. I would also review their HAF application, search court dockets, perform property record searches.

I learned a lot about county Register of Deeds.

I’d do the intake and assign the case to the proper attorney and then do whatever follow up that needed to be done. This sometimes included extensive client services, as well as working with our various partners through the program’s overall organizational umbrella.

Because HAF is specifically a Covid relief program, homeowners were required to state an adverse Covid effect. Thankfully, documentation was not required, but I always asked new clients “what were the circumstances that led to the situation you’re in now, and what role did Covid play?”

What I take away from this experience is that Covid was an economic disaster in my state and all over the country.

The average person has no idea.

I found that I heard many of the same stories over and over and over again. This tells me that while there were a few different themes and some variations on themes, the overall situation was one of economic devastation.

We know unemployment suddenly skyrocketed. That was a common story I heard. Homeowner gets laid off. Can’t find a job for months or in some cases years due to Covid. They’re finally able to find work, but sometimes not in their field and with much lower pay.

Another common theme involved parents with children. Parents found it difficult if not impossible to get childcare for their children and had to stay home from work to take care of them. The same issue plagued parents with school-age children. Schools closed in-person learning. Suddenly, children were doing their schooling remotely. Again, in these cases, parents had to stay home from work to watch their children. And in these cases, because their children were at home 24/7, the food bill went up dramatically.

And then there were the issues involving the illness itself. Homeowner gets Covid and can’t work. I frequently heard the story of families where over and over again, the parent or the other parent or the children would get Covid, and whenever that happened, the whole household had to isolate, so the parents could not work. Their ability to work would get constantly interrupted, sometimes leading to the parent getting fired from their job.

I had clients tell me of getting long Covid and not being able to work their fulltime job as they had previously. Or maybe they possessed or developed risk factors that would not allow them to work at the jobs that were available.

And worst of all, I heard stories of breadwinners who got Covid and could no longer work. Or breadwinners who died, leaving the surviving homeowner well short of the income necessary to pay the mortgage.

I had one client tell me that her husband got Covid and died one week later.

According to the U.S. Treasury, at the peak of the Covid pandemic, an estimated 2.4 million homeowners had fallen three or more months behind on their mortgage. Many or most of those should have received a forbearance where their payments are put on hold. However, in many of those cases, when the forbearance ended, the lender required that that money be paid back in full immediately.

Three months may not seem like a lot of money, but generally the lenders would not accept payment if it was not payment in full, so often the three-month delinquency became an 18-month default.

Since the passage of the American Rescue Plan, $6.6 billion has been distributed to 500,000 homeowners. It should also be noted that in my state, 29 percent of the approved applicants were Black, which is well above the percentage of Black residents. However, only eight percent of approved applicants were Latinx, which is disproportionately low. Sixty-six percent were white, somewhat above the overall white percentage of the state’s population.

I’ll leave it to others to determine the overall success of HAF nationwide and in my state. I will say that the program saved a ton of homeowners in my state, and I’m very proud of the role I got to play. I was on the receiving end of a great deal of gratitude expressed by the homeowners we were able to help keep their homes.

It was a very special opportunity for me though there were times, when the referrals were coming in hot and heavy, that I felt under siege. During those times, my only real view was from my own windshield, as it were.

But I also had some great big-picture opportunities as well. And in so doing, there were a few lessons I learned.

First, any disaster preparedness plan must include some version of HAF. We know that Obama/Biden had drafted a pandemic contingency plan that Giant Baby Man promptly tossed in the garbage. I don’t know if their plan included foreclosure relief, but I have to believe that it did especially because HAF was modeled after a homeowner relief plan used during the Great Recession.

Second, some form of foreclosure relief should be available all the times, not just during times of severe economic crisis. Shit happens. Life happens. For people outside the top 10 percent, homeownership is the surest path toward significant assets and generational wealth. Helping people stay in their homes helps preserve communities and allows for more municipal stability.

I’m not exactly sure what this would look like and how it could be done—just look at the clutching of pearls over student loan relief. It could be a combination of federal and state funds, maybe through smaller grants or larger lower interest loans, which would especially prove useful given current mortgage rates. For instance, I know that FHA is shortly starting a high interest relief program that would use deferred funds from one’s mortgage to provide monthly relief from higher payments dues to loan modifications.

Third, heirship issues involving homes can be extremely problematic and can create extremely messy situations involving the deed. For instance, the homeowner dies without a will. If there’s just one child, it will still be difficult for that child to take over the property. If there’s multiple children, the problems multiply accordingly.

However, the existence of a will does not necessarily solve these problems. Worst case scenario is that the house is left to multiple heirs with no guidance for succession. This is a recipe for disaster, especially if the heirs are not in agreement about what to do with the house. For instance, one heir wants to live in the house, but the other heir wants to sell the house. Maybe one heir could buy out the other, but what if they don’t have the resources to do that?

Sometimes, an heir can demonstrate that they are the one showing interest in the house. They are living in the house, paying all the bills and taking care of the maintenance. They may get granted a Successor In Interest by the lender. Or maybe not. Maybe they submit an Affidavit of Heirship. That might or might not work.

The best bet for the homeowner who wants to keep the house in the family is to discuss the situation with the heirs-to-be and identify the heir who actually wants the house and then file documents with their Register of Deeds transferring the deed to that single heir upon death.

This heirship situation is particularly prevalent among Black homeowners where the home is the greatest source of generational wealth. Some studies estimate that more than half of homes owned by Black homeowners are owned as heirs property, a situation that threatens the physical and financial security of Black families.

Without a clear tile, property can come under dispute. Also, without clear title, the heirs may be shut out from relief programs and may be barred from obtaining homeowner’s insurance or receiving home repair grants and loans.

A big part of the problem is lack of access to legal services that could prevent immediate land loss, resolve heirs property and clarify ownership status, and prevent heirs property from occurring in the future.

Historically, people of color have had difficulty receiving access to legal services. I know that in some cities there has been a concerted effort to establish free or low-cost legal clinics to provide estate planning to facilitate an orderly transfer of property from generation to generation.

But let’s face it. Black homeowners, homeowners of color, have long been under attack. Redlining pushed Blacks into certain neighborhoods where they actually had to pay more to buy and maintain their homes. The sub-prime crisis disproportionately targeted Black homeowners.

And just recently I came across a situation in a part of Brooklyn where Black homeownership is fairly high. Unscrupulous parties sought out Brownstones that were paid off. They searched for an heir with little to no stake in the property and would buy their “share” for a paltry amount. Then they would file a civil suit against the other heirs, forcing them to either buy them out for an outrageous sum or sell the house.

The result generally is that these people are able to buy valuable properties for nowhere near what they’re worth and then sell for a small fortune.

I actually got to meet one of the attorneys taking on these parasites. It was an honor.

Again, it comes down to access to legal services. Parasites like that do tend to back down or seek other pastures when they encounter push-back.

And this brings up the last thing I learned that I feel the need to mention.

Legal aid needs more funding. Period. End of story.