In an insightful and intelligent article for the Harvard Law and Policy Review, Rachel Labush, a staff attorney at Community Legal Services of Philadelphia, shared her experience defending low-income homeowners facing foreclosure in Philadelphia. She explains how she holds mortgage companies to the terms of the contracts they have signed and to the laws that govern their conduct.
Here’s what happens: the Federal Housing Administration (FHA) is supposed to provide loans to help low- to moderate-income minority homebuyers, as well as first-time homebuyers, access home ownership affordably. The benefit of this program is twofold: borrowers are given the assurance that they cannot be foreclosed upon without being reviewed for a loan modification or other “loss mitigation” option, and the lender is insured against default by FHA insurance. Under the Distressed Asset Sales Program (DASP), mortgage company may assign FHA loans that are in default to the U.S. Department of Housing and Urban Development (HUD) and cash in on the insurance before completing a foreclosure. After the HUD takes over the mortgage, it strips it of its protections and auctions it off to private investors.
The problem is that this process is happening without the homeowners ever even being made aware that they have options to avoid the foreclosure. People who qualify for loan modifications, forbearance, or repayment plans are still having their mortgages stripped of FHA protections, some even while in the middle of applying for relief. Lenders are not doing their part to ensure that homeowners are properly reviewed for assistance, and people are wrongfully losing their homes because of it. According to the article, more than 400 properties in Philadelphia have gone through DASP, and none of these homeowners had been notified before their mortgages were stripped of the FHA protection they paid for.
More than 101,000 former FHA loans have been sold to HUD through DASP, with HUD essentially rewarding bad servicing with insurance payouts. In Philadelphia, the new investors who have purchased these mortgages have done everything from refuse to reduce or defer any part of the debt, to demanding a year of “trial payments” before allowing a modification, or requiring huge down payments to even be considered for a modification. If and when a modification is offered, the terms are far inferior to those the borrower should have received through the FHA. This is blatant consumer abuse, but unfortunately, many homeowners do not have the resources to fight it.
If you are facing foreclosure in Chicago or the surrounding areas, you should immediately contact an attorney to ensure that your rights are fully protected. Atlas Consumer Law is well versed in foreclosure law and can potentially help you keep your home. To learn more about how we can help, please contact our firm today at (312) 313-1613.