Weekly Edition

Forestalling Foreclosure

Mortgage mess keeps legal aid lawyers busy

As the avalanche of home foreclosures in Virginia shows no sign of abating, legal aid lawyers have revamped their practices to help people try to hang on to their homes.

The Virginia Poverty Law Center will devote three sessions to foreclosure issues at its annual statewide legal aid conference in Virginia Beach next month. The Southwest Virginia Legal Aid Society kicked off a counseling program in July, with consumer law specialists and attorneys working out of Christiansburg and Castlewood. Lawyers at Legal Services of Northern Virginia say they’re planning new programs focusing on the Hispanic community.

The demand for foreclosure help is so great in Northern Virginia that the legal aid office reports the emergence of a new industry on its turf – former real estate operatives charging homeowners to help with foreclosure issues.

Don’t look for relief anytime soon, said an analyst who tracks local housing trends. John C. McClain, senior Fellow at George Mason University’s Center for Regional Analysis, follows housing trends in Virginia and the Washington area. He reported last Wednesday that foreclosures were up slightly for the period from Aug. 8 to Sept. 9. “It’s not turning off yet,” he said.

Larry Harley, director of the Southwest Virginia Legal Aid Society, said helping homeowners can be a three-stage process. He explained that the first step is counseling. “We talk with them about income and expenses to see if there’s anything we can do.”
The next step is to work with lenders to ask for forbearance or a lower house payment. Finally, lawyers can get involved to file bankruptcy or challenge a foreclosure in court. Harley said that there are 14 attorneys in the Southwest Virginia program, ready to go to work if the counseling and negotiation are not enough to help families in distress.

One of the most effective legal tools is a close review of loan refinancing documents, said Jay Speer, executive director of the Richmond-based Virginia Poverty Law Center. “If the homeowners have refinanced within three years, you look for Truth in Lending Act violations,” he said.

Such lender mistakes are common. “They were so busy sucking in the money they didn’t pay attention to the details,” Speer said. “You can rescind the loan and stop the foreclosure.”

Prince William woes

James Scruggs with Legal Services of Northern Virginia said that his area has so many people facing foreclosure that private entrepreneurs are trying to get in on the act, charging hefty fees for trying to do what the legal aid lawyers and counselors have been doing for free. These homeowner advisors are former mortgage brokers, loan officers and real estate agents. “They have some knowledge” of the business, said Scruggs, although they are not attorneys.

Scruggs said the private advisors generally review loan documents and prepare a demand letter to try to negotiate a lower payment for the homeowners. The fee is often substantial. “They’re taking quite a bit of money” for their services, Scruggs said.
Prince William County remains the poster child for the devastation of irresponsible lending, based on its off-the-chart foreclosure figures and reports from consumer advocates. The rate of foreclosure in that D.C. bedroom community was the highest in the nation in the last quarter of 2007, according to the Center for Regional Analysis.

The lending industry targeted the many Hispanic immigrants in Prince William with subprime loans and adjustable rate mortgages, Scruggs explained.

“Most of the people we’ve seen are Hispanic,” Scruggs said. They were at a disadvantage as homebuyers, he said. “They don’t speak any English. The mortgage ads were in Spanish. The closing documents were in English.”

Reviewing the loan documents, Scruggs said that his office finds “essentially made-up numbers,” citing fictional income sources he has seen on lender-prepared applications.

And the lenders made no inquiries about immigration status. “There is no question that many of the people who bought homes were not in the country legally,” he said.

Despite the huge numbers of foreclosures in Prince William, Scruggs said that his agency’s office in Manassas doesn’t get a proportionate number of calls for help. “Prince William is a great mystery,” he said.

“It appears that people just abandoned their homes. They were struggling to pay the mortgage, they felt unwelcome, they may have chosen to just leave,” Scruggs said, noting the strident anti-immigration sentiment that emerged in Prince William.

Far from Northern Virginia’s concentrated clusters of foreclosed houses and plummeting home prices, Harley said his legal aid agency assisted more than 40 Southwest Virginia families in the past three months, with three outright success stories.

“Our efforts clearly have helped save the homes of at least three families,” he said. “They definitely would have lost the house if we had not been able to get in there and negotiate a lower rate.”

“We know the work is never-ending, but we’ve chosen to work with people who need the legal services the most. We sleep very well at night knowing we’re fighting the good fight.”

© Copyright 2008, by Virginia Lawyers Media, all rights reserved