Editor's note: The names of the husband and wife whose house is in foreclosure have been withheld out of concern that their bankruptcy will endanger their job security.
The pink house near the end of a quiet Lithonia cul-de-sac doesn't stand out among the other tidy ranches in the middle-class neighborhood. But to the 10 people who call it home – as well as the stream of neighborhood kids who stop by for a warm meal or a bit of conversation – the house is an invaluable source of solace.
The woman who owns it, a youthful West Africa native who works for a high-end travel agency, bought it nearly a decade ago for $99,000. At first, she lived in the house with her mother and her three children. She soon married, and her husband moved in, followed by her mother-in-law. Last month, her 23-year-old daughter gave birth to her first grandchild. Two other relatives are crashing there until they can get on their feet.
The homeowner at the hub of this small community has stabilized the lives of those around her. Yet her situation is as precarious as theirs. For five years, she's fought off foreclosure and struggled through a bankruptcy with the hope of saving the home she loves.
Despite the crammed quarters, the mood inside the house is orderly and harmonious. On a recent Saturday afternoon, smoked turkey legs simmered on the stove, the start of an African stew to be prepared the following day. Twinkling Christmas lights cast a warm glow over the living room. The mantel was hung with white lace, and a blooming white poinsettia sat at the center of the hearth.
"It's peaceful here," says the woman's husband, a boisterous truck driver who's quick to talk politics and insists that the children's friends call him "Dad."
"It's a refuge."
When asked what the family would do if the house, which is in the midst of a lengthy foreclosure, were taken from them, he says he and his wife wouldn't panic.
"We'd go somewhere else and keep on pushing," he says. "No matter what goes on with this physical house, things will work out one way or the other. But I'm preparing for the other."
The family in the pink house is among the thousands in metro Atlanta who've stumbled upon hard times and landed in foreclosure. Like so many others, the Lithonia couple sought the protection of the federal bankruptcy statute. Under Chapter 13, the couple hoped to pay down the past due amount and, after they were caught up, continue making their monthly payment.
But it wasn't as simple as that.
Their attorney, Howard Rothbloom, is a bankruptcy expert who's willing to devote time and resources to those who seldom have resources of their own. Rothbloom says this case – and dozens of others he's handled in metro Atlanta – are indicative of a nationwide trend: Lenders are aggressively targeting homeowners who've fallen behind on their payments. Rothbloom and others claim that lenders are tacking on unsubstantiated, possibly illegal fees that total thousands of dollars, making it difficult for borrowers to keep their house even after they pay off the past due amount. Lenders also have been less than willing to negotiate a better rate for borrowers in foreclosure. And often, lenders inflate a borrower's payoff amount – making it impossible to sell or refinance the home.
"I've been doing this work a long time, over 20 years," Rothbloom says. "And it just drives me crazy. It's getting more and more difficult to save a house. Maybe you can stall the foreclosure, but everything is stacked against you. The system's broken."
A law review study published last month looked at 1,700 recent Chapter 13 bankruptcies and found that, "Far from serving as a significant check against mistake or misbehavior, the bankruptcy system routinely processes mortgage claims that cannot be validated and are not, in fact, lawful."
The study states that mortgage companies often "lack the required documentation necessary to establish a valid debt" and that "the legal system does not substantiate the amounts that lenders assert that consumers owe."
"These problems can cripple a family's efforts to save its home," according to the study, published in Texas Law Review. "[M]ortgagees' behavior significantly threatens bankruptcy's purpose of helping families save their homes."
On Dec. 7, President-elect Obama put it more succinctly. At a press conference in Chicago, he told the crowd, "We have not seen the kind of aggressive steps in the housing market to stem foreclosures that I would like to see."
Rothbloom thinks homeowners in Georgia – which has among the least consumer-friendly lending laws in the country – have been particularly hard hit. For starters, the state allows "non-judicial" foreclosures, meaning a judge doesn't have to verify how much the mortgage company claims a homeowner owes.
What's more, Rothbloom has noticed that the companies are fighting harder than ever – even in this housing-market meltdown – to foreclose on homes when the homeowner has filed for bankruptcy. And the courts are doing little to keep the lenders in check.
Rothbloom recalls one client who recently wrapped up a Chapter 13 bankruptcy. The client had paid back all the arrearage and was ready to move forward. Then, Rothbloom learned that the lender had added about $8,000 in fees to the mortgage while the bankruptcy was being worked out. As soon as the client emerged from bankruptcy and thought the house was saved, the lender initiated another foreclosure.
"Chapter 13s are done the same way they've always been done," Rothbloom says. "The aggressiveness of the lenders and their abuses has changed."
For the couple in the pink house, the downward financial spiral started shortly after 9/11. First, the wife -- whose name was on the mortgage -- was laid off. There simply wasn't a huge demand for travel agents in the aftermath of the terrorist attacks.
While she was collecting unemployment and looking for work, her husband made up the difference. He earned decent money as a self-employed truck driver – until the engine went out on his rig.
"The finances really, really got to us," the wife says.
"It wasn't for lack of trying," her husband piped up. "We're hardworking people. I never miss a day of work."
Their mortgage – which originally carried an astounding 18 percent interest rate – was proving too much for their income. Even after refinancing it down to 11 percent, the couple fell behind on their $1,000 monthly payments.
By then, the wife was working again – although she had to take a pay cut. A full year after she was laid off, she had found a sales job. She made cold calls in an attempt to sell computer software. Her husband also saw his earnings slashed after he went to work as a hired driver for a shipping company.
"We did our best," he says. "We weren't splurging. We were spending on what we needed to live."
But the rising costs of everything from property taxes to gas to food was killing them. "Everything's going up but your check," he says. "How do you expect people to live? It just don't make sense."
In November 2003, their mortgage company initiated foreclosure proceedings against the couple's home. A month later, the wife filed for Chapter 13. Due to what her attorney considers to be an accounting error on the lender's part, the bankruptcy took a whopping five years to resolve. But because the mortgage company has provided conflicting numbers on what the homeowner owed, they're still grappling with foreclosure.
At first, the lender claimed that the homeowner had accrued $7,100 in arrearage, and that the balance of the loan was $98,000. Rothbloom considered $7,100 to be a reasonable amount for his client to pay.
Later, however, the company came up with a different figure. According to court documents filed by the lender, the homeowner owed $22,900 instead of $7,100. The lender also claimed the homeowner was 18 months behind in payments, rather than five, as previously thought. And the company said the balance of the loan was $118,600 – arguably more than the house was worth.
Rothbloom contested the lender's calculations. The homeowner even provided copies of checks that she considers to be proof that she wasn't a year and a half in default.
"I don't trust the system," she says. "I don't trust it at all. We keep sending money down the tubes."
Because the courts weren't able to determine how much the couple truly owed, they couldn't sell their home. And they couldn't refinance it, either. Instead, they paid off the $7,100, making the last payment this year. They're now waiting for a judge to decide whether they owe the full $22,900 that the lender alleges. A trial has been set for January.
Rothbloom is confident that the couple will keep their home – but only because he aggressively fought the lender in court.
"Look at what we've been through," he says. "There are thousands of people who file cases in this district, and many of them wound up losing their houses because of mistakes by lenders. It's tragic."
If he fails to convince the judge that the couple owed just five, rather than 18, payments, then Rothbloom will advise the homeowner to reinstate bankruptcy proceedings. If that fails, the couple likely will be forced out.
The irony is that the couple is finally doing well again, financially – and are trying to make up for several payments they missed after filing for bankruptcy. The wife got a job with the travel agency arm of a major credit card company. The husband recently paid off the lease-purchase of a new rig and is working for himself again.
"We don't want pity," the wife says. She says they want to find a payment they can afford, one that allows them to stay in their home.
If the couple isn't able to keep their home, Rothbloom wonders what good that will do the bank in a market where houses aren't selling.
"In this economy, you see people who did everything right in life, and they're still hard hit," he says. "I see lots of people who come in and say, 'I don't know what I'm going to do. I don't know where we're going to live.' I never saw that before."
He also says that unless lenders start negotiating with homeowners as aggressively as they once fought them, everyone – banks and borrowers – will lose.
"I think we're going to enter this very odd situation where we have families that don't have houses and we have tons of houses that are empty," he says. "We're going to have lots of homeless people, and the homes are going to be people-less."
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