Foreclosing On Homeowners

NEW PORT RICHEY - Real homeowners with real problems seem to be driving the mortgage foreclosure debacle in Pasco County.

That is the bad news, according to government officials and real estate agents.

The good news is that more help is becoming available for homeowners threatened with foreclosure, and some observers report the market appears to be improving.

Chief Circuit Judge Lowell W. Bray Jr., one of three judges who work almost full time on foreclosures, said caseloads appear to have peaked in August and have been declining ever since.

In December, there was a decline in the rate of new foreclosure filings, Bray said.

"Still, there are over 3,000 pending foreclosures" in Pasco, he said.

A look at new filings in January shows the majority of home foreclosure defendants live in their homes, according to George Romagnoli, the county's community development manager.

New Port Richey, with many affordable homes, topped the list of foreclosures in January with 144 new filings, or 22 percent of the total countywide, Romagnoli reported.

Wesley Chapel and Land O' Lakes, where new homes command some of the highest prices in the county, came next at 17 percent and 15 percent, respectively. That was predictable, Romagnoli said, because those are areas more likely to have attracted investors seeking to flip properties for quick profits during the boom that ended in 2006.

Other, more affordable communities have been hard hit, the January study found.

Port Richey mailing addresses accounted for 12 percent of all foreclosure filings in January. Zephyrhills and Holiday came next, with percentages in the high single digits, the study found.

More disturbing, Romagnoli said, were the percentage of occupied and affordable homes on January's list.

He said a conservative estimate is that 65 percent of all foreclosure defendants are actual homeowners threatened with the loss of the roofs over their heads. Also, 50 percent of the loans being foreclosed on in January had balances of less than $150,000, and 24 percent had balances of less than $100,000.

In Lee County, a similar study found exactly the opposite, Romagnoli said. There, investors and speculators appear to be the main targets of home foreclosures, he said.

Judge Sees 'Creative Financing'

Bray, who until this year presided over foreclosure cases on both sides of the county, said the culprits behind the crisis appear to be unscrupulous lenders.

"There is a lot of really creative financing out there," he said. The most glaring cases involve adjustable-rate mortgages that lured unsophisticated buyers into deals they could not afford in the long run, the judge said.

"One I couldn't believe had adjustments every other Monday. I guess you had to call every week" to find out what the next payment would be.

Bray said he has seen adjustable-rate mortgages "tied to strange indexes" or no indexes at all, meaning monthly payments can go up without reason.

Some such loans, and others with high prepayment penalties, have been found to be unlawful by appellate courts, the judge said. Others leave the homeowner on the hook.

"Even if they can find another source of financing, they have to pay a prepayment penalty" for paying off the original loan before the term is up, he said. "They still get hit for as much as $9,000."

Further aggravating the situation has been a drop from the inflated home prices of a few years ago, the judge said.

Where there used to be a surplus of $40,000 or more when homes were sold at foreclosure auction, more and more homes are selling for less than the homeowners owe, Bray said.

Some lenders refuse to accept the loss and are demanding "deficiency judgments" that remain in effect for 20 years, meaning someone who is left with nothing will still owe money, he said.

'Act Early!'

Homeowners who know they are in trouble should seek help before their lender takes action and preferably before they fall behind on their monthly payments, advises Joanne Whittesley of Consumer Credit Counseling Services in New Port Richey.

Many of her clients are having trouble because of layoffs or divorces rather than ballooning loan rates, Whittesley said.

"For a lot of people we see, the problem is, the taxes and insurance have become unaffordable. Others have unexpected medical bills, and we're seeing people who were making good money who got laid off," she said.

Also, "a lot of people got loans they didn't quite understand," Whittesley said.

For instance, a teaser rate of 1 percent interest may balloon to 14 percent after six months.

"I stress in my first-time homebuyers class to understand what you sign," she said. "And the most important thing is, some people are in loans that are unaffordable, they won't be able to pay and they need to face that."

Too many of her clients have put off seeking help until it is too late, Whittesley said.

"People think, 'I'm having a bad month and I'll fix it next month' and that becomes three months," she said. "The first thing they should do is come in for counseling and come right now. Act early!"

Some homeowners, especially those who took out second mortgages to take advantage of inflated home values, may have to sell at a loss to avoid foreclosure, she said.

"You may have to bite the bullet and sell," Whittesley said. "The only reason you should take equity out of your home is if that money is going right back into the house" and will increase its value, she said.

County Offers Help

Romagnoli, the county official who studied foreclosures in January, said it is his job to come up with solutions for beleaguered homeowners.

"Keeping people in their homes is the most important thing we do," the community development manager said.

Pasco already offers no-interest loans of up to $5,000 per year as part of a growing foreclosure prevention program, Romagnoli said.

Homeowners with household incomes near or below the county average can qualify for interest-free loans to cover taxes, insurance and other mortgage-related expenses, he said.

"It's for people who can afford to make a payment but have fallen behind and just can't catch up," he said of the program.

Others who have the income to make monthly payments but made bad decisions when they took out their loans are steered toward refinancing with loans backed by the U.S. Department of Housing and Urban Development or insured by the Federal Housing Administration, Romagnoli said.

Such HUD- and FHA-approved mortgages come with no hidden costs, he said.

Longtime New Port Richey real estate broker Len Trubia said he has heard a lot of sad stories from sellers looking to get out of homes they can no longer afford. Often, Trubia said, those facing foreclosure were taken advantage of by unscrupulous lenders or real estate agents who did not look out for their clients' best interests.

"I think it's part of our job to protect people," Trubia said. Buyers and their agents should be especially wary of last-minute changes presented at closing, during which anxious first-timers often sign documents they have not read, he said.

If you can afford to, or if you need to downsize, "now is a good time to buy," Trubia said.

"I think the market has turned and we are bottoming out. People are buying," he said. "Now is the time to buy" if you intend to live in a home for the long run, he said.

"It will take a couple of years to dry up the inventory" of homes currently on the market.