September/October 2008
Foreclosure
How San Diego Lawyers Are Making A Difference
At Padres games, on trolleys, in boardrooms and on the beach, talk of the “foreclosure crisis” permeates conversations throughout San Diego County like an enduring June gloom. According to the Federal Deposit Insurance Corporation, the annual number of U.S. foreclosures nearly doubled between 2005 and 2007 to more than 1.5 million. Some forecasts project 2 million or more foreclosures nationwide during 2008. RealtyTrac reports that California was second only to Nevada in the number of foreclosures during the first half of 2008, with one of every 216 homes in San Diego County involved in a foreclosure action.
“The main factor behind this foreclosure surge remains the decline in home values,” says Marshall Prentice, president of DataQuick Information Systems in La Jolla. “Additionally, a lot of the ‘loans gone wild’ activity happened in late 2005 and 2006, and that’s working its way through the system.” According to DataQuick, San Diego County home values at the end of May were down an average of 22.8 percent since the same time last year.The gray skies may not clear up anytime soon. University of San Diego economist Alan Gin, who compiles a monthly index of economic indicators for the school’s Burnham-Moores Center for Real Estate, is quoted in The San Diego Union-Tribune that the county’s economic slump is not likely to recover until the second half of 2009 at the earliest. The index, which fell by 1.1 percent in May, has dropped in 25 of the past 26 months. Homeowners who plan to stay in their homes and make their mortgage payments can ride out the current decline in values until sunny days return. But some face balloon payments on adjustable-rate mortgages that will soon exceed their means. Others must sell their homes now, even if they are “upside-down” on their mortgages, because of a new job, family illness or other life changes. Foreclosure looms on the horizon for many of these owners, but those who consult an attorney may be surprised to find a small ray of light.
“Many homeowners think their only option to avoid foreclosure is a short sale,” says Gary Laturno, chair of the San Diego County Bar Association’s Community Service Committee. The process—defaulting homeowners make a deal with the lender to sell the house for whatever they can get—is easy, but short sales take time, and the buyer has to be cooperative. And when it is over, the former homeowner must find a new place to live. Many people think a short sale is their only option because they’ve heard that in the news, or they know a real estate agent who suggests it.
“Real estate agents may have the best intentions,” says Laturno, who is also a Realtor and broker, “but may not understand or be familiar with other options.” Their training is different, he says, and they are not trained as counselors. “Because we have legal education, any attorney is in a strong position to be a counselor.”
One place many local homeowners are finding attorneys these days is the Home Owner Mobile Education Clinic—or HOME Clinic—sponsored by the Housing Opportunities Collaborative. The HOME Clinics began in June 2007 to assist homeowners having problems making monthly mortgage payments. The clinics, held around the county, bring attorneys, housing counselors, mortgage advisors, consumer protection advocates and representatives from other nonprofit organizations together in one place. Homeowners can talk with experts—who have agreed not to solicit business—for free and without pressure.
“Having attorneys at the HOME Clinics is unique to San Diego,” says Myrna Pascual of the U.S. Department of Housing and Urban Development, who coordinates the clinics. “The homeowners fill out evaluations after meeting with the various groups at the clinics, and they find [meeting with] us, the attorneys, a very satisfying, rewarding experience.”Laturno explains, “These issues cut across a lot of specialties—family law, bankruptcy, tax, attorney-broker, real estate, consumer attorneys, criminal defense.”
Indeed, the FBI has arrested more than 400 people nationwide in connection with fraudulent lending practices, at least six of whom were operating in San Diego. While the government pursues criminal charges, local victims of these scam artists attended a special HOME Clinic this past summer, where attorneys helped identify civil charges as well.
“[The district attorneys] wanted the victims to get civil remedies too,” says Pascual, who helped coordinate the special HOME Clinic. “The civil remedies are very complex, because people are being evicted from homes they no longer own because they deeded them over to scam artists.”
She admits foreclosure is inevitable for some of the homeowners attending the clinics. “Sometimes when you’re counseling someone, you feel like all you can do is let people know what’s coming, because you can’t stop it,” she says. At the HOME Clinics, the attorneys “felt satisfied that at least they could explain how the eviction will affect their credit, what the process is, what the timeframe is, how it will affect their ability to rent their next home.
”The need for understanding is echoed by others. “One way nonprofit organizations can help is in understanding the process,” says Gregorio Estrella of the Housing Opportunities Collaborative. “There is still a lot of misunderstanding. People are not clear on what the process is; they get a letter [from their lender], and they don’t know if they have three months or if they’ll be evicted right away.
“The problem is bad enough for English speakers, even worse for those who aren’t,” he says. “They need to have someone explain it to them in their native language. That’s where these organizations can help at the grass-roots level. At the [June and July] HOME Clinics, about 80 percent of the participants were native Spanish speakers.”
Estrella says the HOME Clinics need more attorneys who speak Tagolog, Vietnamese and other languages, because community outreach is more effective when it incorporates a cultural component. Most HOME Clinics are open to the general public, but some have focused on certain groups. The July 13 clinic, held in conjunction with the annual convention of the National Council of La Raza, reached out to Hispanic homeowners. Another clinic, July 19 at Camp Pendleton, addressed the special needs of military homeowners in all branches of service. The National Council of La Raza has targeted the HOME Clinic as a model they will replicate across the country.
The public has a general impression that the foreclosure crisis is due entirely to subprime loans. While some borrowers’ inability to meet balloon payments is certainly a major contributor to the current situation, lawyers in their regular practices and at the HOME Clinics see a variety of other causes as well. Attorneys’ ability to be neutral yet compassionate makes a difference to homeowners at all stages of financial crises.
One woman who attended a HOME Clinic had lost her home to foreclosure while she battled a disease. She had a good job, so the volunteer attorney suggested she improve her credit rating by continuing to make the payments on her two-year-old car. Although this seems like advice that could come from anyone, the woman was visibly comforted to hear from an attorney that something so simple would make a difference.
Another woman, who foresaw that she would not be able to make her upcoming balloon payments, was trying to refinance her loan through her bank. Following some miscommunications with the bank, she thought she might have a cause of action for breach of contract. The volunteer attorney did not find a cause of action but was able to help the woman develop a plan of communication that would resolve the conflict.
One family’s 80-year-old mother had signed an adjustable 30-year mortgage just a few years before her death. The family thought they might be able to sue the lender for fraud or for preying upon the elderly, but they did not want to keep the house. They did not realize until speaking with the volunteer attorney that they could sell the house and still maintain a cause of action against the lender. This family, too, was strengthened by this newfound freedom to make a choice, rather than feeling they were without options.
Of course, sometimes homeowners cannot avoid foreclosure. Attorneys play a variety of roles then, too.
“Bankruptcy attorneys are busier they were a year ago,” says William Fennell, who generally represents creditors in bankruptcy proceedings. “We’re all seeing a lot more cases, and more situations where multiple pieces of property are held by debtors. Some are filing for bankruptcy because they’re in foreclosure, or trying to stave off foreclosure with bankruptcy. It postpones or slows it down, but bankruptcy doesn’t necessarily stop the process.
”Jim Bliesner, director of the City/County Reinvestment Task Force, points out that investors are filing civil suits against lenders, who they say misled them on the value of loans purchased on the secondary market. The task force is working to establish a land bank, which would use grant money to purchase foreclosed homes. In addition to creating affordable-housing opportunities, the task force aims to prevent the blight that can occur when vacant foreclosed homes remain on the market too long.
“We need to lobby in D.C. to get land bank money,” says Bliesner, suggesting a way attorneys can help move the task force forward.In these and many other ways, the attorneys in San Diego County are helping people weather the current crisis. Through their collective efforts, they can dispel the myths of foreclosure and lead the community to brighter times.
For more on the HOME Clinics, see www.HousingCollaborative.org.
Elizabeth Blust is a 3L at California Western School of Law. She can be reached at egblust@ law.cwsl.edu.
“The main factor behind this foreclosure surge remains the decline in home values,” says Marshall Prentice, president of DataQuick Information Systems in La Jolla. “Additionally, a lot of the ‘loans gone wild’ activity happened in late 2005 and 2006, and that’s working its way through the system.” According to DataQuick, San Diego County home values at the end of May were down an average of 22.8 percent since the same time last year.The gray skies may not clear up anytime soon. University of San Diego economist Alan Gin, who compiles a monthly index of economic indicators for the school’s Burnham-Moores Center for Real Estate, is quoted in The San Diego Union-Tribune that the county’s economic slump is not likely to recover until the second half of 2009 at the earliest. The index, which fell by 1.1 percent in May, has dropped in 25 of the past 26 months. Homeowners who plan to stay in their homes and make their mortgage payments can ride out the current decline in values until sunny days return. But some face balloon payments on adjustable-rate mortgages that will soon exceed their means. Others must sell their homes now, even if they are “upside-down” on their mortgages, because of a new job, family illness or other life changes. Foreclosure looms on the horizon for many of these owners, but those who consult an attorney may be surprised to find a small ray of light.
“Many homeowners think their only option to avoid foreclosure is a short sale,” says Gary Laturno, chair of the San Diego County Bar Association’s Community Service Committee. The process—defaulting homeowners make a deal with the lender to sell the house for whatever they can get—is easy, but short sales take time, and the buyer has to be cooperative. And when it is over, the former homeowner must find a new place to live. Many people think a short sale is their only option because they’ve heard that in the news, or they know a real estate agent who suggests it.
“Real estate agents may have the best intentions,” says Laturno, who is also a Realtor and broker, “but may not understand or be familiar with other options.” Their training is different, he says, and they are not trained as counselors. “Because we have legal education, any attorney is in a strong position to be a counselor.”
One place many local homeowners are finding attorneys these days is the Home Owner Mobile Education Clinic—or HOME Clinic—sponsored by the Housing Opportunities Collaborative. The HOME Clinics began in June 2007 to assist homeowners having problems making monthly mortgage payments. The clinics, held around the county, bring attorneys, housing counselors, mortgage advisors, consumer protection advocates and representatives from other nonprofit organizations together in one place. Homeowners can talk with experts—who have agreed not to solicit business—for free and without pressure.
“Having attorneys at the HOME Clinics is unique to San Diego,” says Myrna Pascual of the U.S. Department of Housing and Urban Development, who coordinates the clinics. “The homeowners fill out evaluations after meeting with the various groups at the clinics, and they find [meeting with] us, the attorneys, a very satisfying, rewarding experience.”Laturno explains, “These issues cut across a lot of specialties—family law, bankruptcy, tax, attorney-broker, real estate, consumer attorneys, criminal defense.”
Indeed, the FBI has arrested more than 400 people nationwide in connection with fraudulent lending practices, at least six of whom were operating in San Diego. While the government pursues criminal charges, local victims of these scam artists attended a special HOME Clinic this past summer, where attorneys helped identify civil charges as well.
“[The district attorneys] wanted the victims to get civil remedies too,” says Pascual, who helped coordinate the special HOME Clinic. “The civil remedies are very complex, because people are being evicted from homes they no longer own because they deeded them over to scam artists.”
She admits foreclosure is inevitable for some of the homeowners attending the clinics. “Sometimes when you’re counseling someone, you feel like all you can do is let people know what’s coming, because you can’t stop it,” she says. At the HOME Clinics, the attorneys “felt satisfied that at least they could explain how the eviction will affect their credit, what the process is, what the timeframe is, how it will affect their ability to rent their next home.
”The need for understanding is echoed by others. “One way nonprofit organizations can help is in understanding the process,” says Gregorio Estrella of the Housing Opportunities Collaborative. “There is still a lot of misunderstanding. People are not clear on what the process is; they get a letter [from their lender], and they don’t know if they have three months or if they’ll be evicted right away.
“The problem is bad enough for English speakers, even worse for those who aren’t,” he says. “They need to have someone explain it to them in their native language. That’s where these organizations can help at the grass-roots level. At the [June and July] HOME Clinics, about 80 percent of the participants were native Spanish speakers.”
Estrella says the HOME Clinics need more attorneys who speak Tagolog, Vietnamese and other languages, because community outreach is more effective when it incorporates a cultural component. Most HOME Clinics are open to the general public, but some have focused on certain groups. The July 13 clinic, held in conjunction with the annual convention of the National Council of La Raza, reached out to Hispanic homeowners. Another clinic, July 19 at Camp Pendleton, addressed the special needs of military homeowners in all branches of service. The National Council of La Raza has targeted the HOME Clinic as a model they will replicate across the country.
The public has a general impression that the foreclosure crisis is due entirely to subprime loans. While some borrowers’ inability to meet balloon payments is certainly a major contributor to the current situation, lawyers in their regular practices and at the HOME Clinics see a variety of other causes as well. Attorneys’ ability to be neutral yet compassionate makes a difference to homeowners at all stages of financial crises.
One woman who attended a HOME Clinic had lost her home to foreclosure while she battled a disease. She had a good job, so the volunteer attorney suggested she improve her credit rating by continuing to make the payments on her two-year-old car. Although this seems like advice that could come from anyone, the woman was visibly comforted to hear from an attorney that something so simple would make a difference.
Another woman, who foresaw that she would not be able to make her upcoming balloon payments, was trying to refinance her loan through her bank. Following some miscommunications with the bank, she thought she might have a cause of action for breach of contract. The volunteer attorney did not find a cause of action but was able to help the woman develop a plan of communication that would resolve the conflict.
One family’s 80-year-old mother had signed an adjustable 30-year mortgage just a few years before her death. The family thought they might be able to sue the lender for fraud or for preying upon the elderly, but they did not want to keep the house. They did not realize until speaking with the volunteer attorney that they could sell the house and still maintain a cause of action against the lender. This family, too, was strengthened by this newfound freedom to make a choice, rather than feeling they were without options.
Of course, sometimes homeowners cannot avoid foreclosure. Attorneys play a variety of roles then, too.
“Bankruptcy attorneys are busier they were a year ago,” says William Fennell, who generally represents creditors in bankruptcy proceedings. “We’re all seeing a lot more cases, and more situations where multiple pieces of property are held by debtors. Some are filing for bankruptcy because they’re in foreclosure, or trying to stave off foreclosure with bankruptcy. It postpones or slows it down, but bankruptcy doesn’t necessarily stop the process.
”Jim Bliesner, director of the City/County Reinvestment Task Force, points out that investors are filing civil suits against lenders, who they say misled them on the value of loans purchased on the secondary market. The task force is working to establish a land bank, which would use grant money to purchase foreclosed homes. In addition to creating affordable-housing opportunities, the task force aims to prevent the blight that can occur when vacant foreclosed homes remain on the market too long.
“We need to lobby in D.C. to get land bank money,” says Bliesner, suggesting a way attorneys can help move the task force forward.In these and many other ways, the attorneys in San Diego County are helping people weather the current crisis. Through their collective efforts, they can dispel the myths of foreclosure and lead the community to brighter times.
For more on the HOME Clinics, see www.HousingCollaborative.org.
Elizabeth Blust is a 3L at California Western School of Law. She can be reached at egblust@ law.cwsl.edu.