Monday, Nov. 27, 2006 | Leslie and James Alkire know what it’s like to have a business’s success hinge on the health of the housing market. But while the painting company they’ve owned and operated for a few years did better during the recent housing boom, their new business actually depends the cooling conditions in San Diego.
The Alkires have a foreclosure counseling agency, a venture they launched to satisfy a growing need – the rapidly accelerating number of people facing foreclosure who are wondering what to do.
The number of homeowners receiving notices of default, or NODs, is skyrocketing. The notices are sent to those who’ve missed at least one of their monthly mortgage payments. The County Records Service, which operates e-foreclosuredata.com, reported the issuance of more than 1,100 notices in the county last month. That compares to about 400 in October 2005.
And more homes are reaching the next stage in the foreclosure process: lender repossession of the home. There were more than 400 trustee sales – homes up for bid in an auction – in October, more than four times as many as a year ago. And the real-estate-owned foreclosures, when a lender hires a real estate agent to sell the home, numbered almost 200, compared to 15 in the same month last year.
Banks and lenders have responded to the influx of default notices by being open to negotiation. Foreclosing on a property is a time-consuming, costly venture, and lenders are often receptive to working out a solution with the struggling homeowner – sometimes even knocking thousands of dollars off of the loan amount.
It’s these kinds of options the Alkires and others want to tell consumers about. With all of this activity on the foreclosure front, counseling agencies are popping up around the county. Some claim to have the homeowner’s best interests at heart – they offer counseling and education without strings attached, they say.
But others bombard these struggling homeowners with promotional paraphernalia and offer to buy their homes, usually for a fraction of what the home would have brought at an auction. Homeowners facing foreclosure are often distraught and prone to listen to anything that sounds like help.
This foreclosure mania comes after a housing boom that saw home values more than double in the span of a few years. As homebuyers scrambled to purchase a home before prices went up any further, lenders responded with creative financing options. The popular “exotic” loans offer unusually low payments for the first few years before bumping up to sometimes hundreds of dollars more a month. Others who’d already purchased their homes often engaged in “equity-tapping” – pulling cash “out” of their homes with a refinanced loan.
But as prices started leveling off and dropping in many areas of the county this year, the safety net of being able to sell a home for more than a homeowner paid has vanished. And for those borrowers who counted on future salary increases to help them through the reset period, an unexpected illness or job layoff can be disastrous.
Paul Smith sounds a bit like a parent of a wayward teenager when he talks about San Diego homeowners facing foreclosure. Smith, a mortgage broker with California Home Loans Professionals, said he warned people about exotic loans for years, only to have them go to another lender to get one. Now, he said, many of them are stuck with rising payments and decreasing home values.
“These homeowners are in a bind,” Leslie Alkire said. “They’re over-leveraged. This is happening all over the city. People get into these interest-only loans, the rates start climbing. And the property [value] rates are dropping.”
About a year and a half ago, the Alkires were catching up with a friend in Virginia who was talking about his successful foreclosure counseling business. Soon, their friends in San Diego- mortgage brokers and real estate agents among them – started seeing more foreclosures.
The Alkires, whose house painting company was already doing quite well, decided that they would educate themselves on foreclosure counseling and start an agency of their own. Their company, Real Estate Solutions of California, launched earlier this year.
“We just thought, you know, this is probably a good time to start doing this,” Leslie Alkire said. “The market in Virginia wasn’t even really as good as it is here.”
But Leslie Alkire is quick to distinguish their company from some predatory investors, who are known to use public foreclosure records to find struggling homeowners and badger them into selling their homes just to “make a buck.”
“It was kind of a long process to understand what we were doing, a fair amount of education,” she said. “We’re just out there wanting to help people in situations that are desperate.”
Alkire said they’ve counseled dozens of clients since the beginning of the year. They usually discuss a handful of options for each case. Reinstatement is coming up with a lump sum to make up the payments the homeowner missed. Forbearance is similar, but it splits up the outstanding amount and adds it to future payments. Sometimes refinancing is an option, if the homeowner still has good credit and has some equity built up. Homeowners can declare bankruptcy, but Alkire and only recommend that as a last resort. They can sell their property to an investor. Or a third party, like the Alkires, can negotiate with the lender to release the homeowner from the original loan – and re-issue it for a smaller amount, often thousands less.
“Basically, this is exactly what the banks will do to your house if you allow them to repossess it – try to recoup whatever money they can at an auction,” she said of the last option, on which the Alkires claim a 100-percent success rate. But often, banks can keep more money if they renegotiate with the original homeowner than if they hire a real estate agent or try to sell the home at an auction. In those foreclosure-identified sales, buyers are looking for a steal, not to help the bank recoup its money.
The Alkires acknowledge there are some situations with circumstances beyond their expertise or experience.
“I’m not a lawyer,” Leslie Alkire said. “Many attorneys may differ from us on what’s the best option.”
Mary Otero is the executive director of the San Diego Home Loan and Education Center, one of six nonprofit homeowner counseling agencies in the county that have been certified by the federal Housing and Urban Development department. Otero has been at the center for 22 of its 29-year existance. Her biggest concern is that people are calling “kind of late” in the foreclosure process. If they called earlier, she said, they’d have time to consider more options.
The HUD certification includes built-in accountability – not only do the agencies’ staffs have to be educated on a variety of topics, but each office is visited every couple of years by a HUD monitor.
Otero said her best educator has been her years of experience, her on-the-job training. It’s for that reason that she said she’s concerned about the startup agencies in town.
“I hope they know what they’re doing,” she said. “If they don’t have enough experience, they could be bad.”
But Otero, Smith and others worry less about novice foreclosure counselors than they do about predatory investors.
“Be very careful about the foreclosure scam artist,” said Jeffrey Cawdrey, bankruptcy attorney and president of the San Diego Bankruptcy Forum. “There’s a fair amount of them out there. They wax and wane depending on what happens in the economy.”
Cawdrey and others said it’s important for homeowners facing foreclosure to find out what their options are before they sign anything. Scam artists may charge outrageous fees for making easy phone calls, or produce documents that actually sign the deed of the home over to the investor. There are some elaborate schemes where these people steal the equity from the home.
“It’s just like in a natural disaster, when unscrupulous contractors jump into the scene,” he said. “Over the years, I’ve bumped into a few of them. Most pros and government agencies will warn of these types of bottom-dwellers.”
Though it may seem like the last person a struggling homeowner would want to talk to, homeowners should call their lenders and let them know their situation, Cawdrey said.
“As soon as you go into foreclosure, you are deluged,” said Lauren Crandall, spokeswoman for the national nonprofit agency Homeownership Preservation Foundation. The agency runs a hotline, 888-995-HOPE, which connects struggling homeowners to trained counselors. Last month, the hotline received 347 calls from California, which made up 10 percent of its total calls.
“Most people who call are pretty worried,” said Dean Caldwell-Tautges, director of education and counseling for the agency, who estimated 10 percent of the California calls were from San Diego. “They clearly feel the heat.”
“We talk about a lot of things in society, but finances aren’t one of them,” Crandall said. “Let alone telling someone, ‘Wow, I got my third foreclosure notice and I don’t know what to do.’”
These agencies share a hope that with education, homeowners will be able to hang on to their properties and come up with strategies to avoid losing their homes – either to scam artists or to lenders.
And when the foreclosure business isn’t so good anymore, the Alkires say their entrepreneurial sense will kick in again.
“We might have another business one day, too,” Leslie Alkire said. “We’re just that kind of people.”
Correction: The original version of this story incorrectly referred to the County Records Service’s website as e-foreclosuresdata.com. The correct name is e-foreclosuredata.com. We regret the error.