Ferndale couple challenges loan firms to keep home out of foreclosure

(Source: By John Stark, The Bellingham Herald, Wash.) FERNDALE — As Bela and Candace Pataky see it, their home has been threatened by the collapse of a housing bubble created by giant financial firms.

While many of those firms got billion-dollar bailouts, the Patakys are still struggling to keep their home out of foreclosure.

They have lots of company. Foreclosure sale notices are filed on Whatcom County homes every day, and at least 100 Whatcom County homes have been sold in foreclosure since Sept. 1.

Unlike many others, the Patakys have been able to delay the foreclosure process in court, by challenging the legal procedures of the loan servicing firms that handle vast quantities of home mortgages across the country. But they may have to turn to the bankruptcy process as their last chance to keep their home.

Bela Pataky made a good living as a construction manager and superintendent until May 2009, when he lost his job in the collapse of the construction industry. Suddenly, he and his wife found themselves struggling to keep up with mortgage payments on their home and its modest mortgage of about $250,000.

“I got knocked out of work because of what happened on Wall Street, and people borrowing money to buy homes they couldn’t afford,” Pataky said. “I wasn’t one of those.”

The Patakys responded to their financial crisis in two ways: They tried to get help through federally sponsored homeowner relief programs, and they tried to work things out with their mortgage holder, GMAC. Both approaches proved frustrating and mostly futile.

Despite months of effort, the Patakys said they never opened a meaningful line of communication to GMAC or the companies that serviced their loan on the giant lender’s behalf.

“They won’t let you talk to the people who make the decisions,” Bela said. “You’re not allowed to do that. They’re very busy.”

They did pursue the federally sponsored mortgage modification program with GMAC, and repeatedly sent financial information to the company.

The result: They were offered a $4 reduction in their monthly mortgage payment.

Since the mortgage was federally insured through FHA, the Patakys said they contacted the U.S. Housing and Urban Development office for help, and they managed to get a six-month forbearance agreement on their mortgage in January 2010, just a few weeks before their home was scheduled for a foreclosure sale at the Whatcom County Courthouse.

During that six-month period, the Patakys said they continued to try to get new financing or other new arrangements with GMAC, and submitted all the financial documents the company requested.

But their efforts were rebuffed — apparently because by taking advantage of the “forbearance period” that had been offered to them, they got too far behind on their mortgage to qualify for a modification.

In August 2010, they got another foreclosure notice: Their home would be sold at auction on Nov. 19, 2010.

The notice listed LSI Title Agency as the trustee handling the foreclosure, but calls to LSI got nothing but recorded messages.

In desperation, they hired Bellingham attorney Gregory Thulin, who found what he considered to be legal defects in the foreclosure process and filed a lawsuit on the Patakys’ behalf in Whatcom County Superior Court.

Among other things, Thulin contended that LSI appears to have no physical presence in Washington state, although state law requires a mortgage trustee to maintain such a presence. Calls to LSI’s in-state phone numbers connect to a different firm, Executive Trustee Services, according to the lawsuit.

In a sworn declaration in Whatcom County Superior Court, Thulin said he tried to call potential legal defects to the attention of LSI and Executive Trustee Services. But he had no luck in reaching anyone in authority at either firm by phone or by certified mail.

Thulin’s lawsuit succeeded in getting Judge Steven Mura to issue a temporary restraining order blocking the November foreclosure sale, a week before it was scheduled to occur.

“We had to hire an attorney, which cost more money, to stop them from selling the house,” Bela said.

But keeping the court order in effect would prove to be too expensive for the Patakys.

In court filings, GMAC attorney Ann Marshall of Seattle challenged Thulin’s legal objections to the handling of the Pataky foreclosure, and noted that the law requires plaintiffs who get a court order blocking foreclosure to continue to make their mortgage payments to the court while legal questions remain unresolved. The law also requires those plaintiffs — the Patakys — to put up cash to compensate the foreclosing firms for their losses and legal fees, if the plaintiffs should wind up losing the case.

Mura agreed. He ordered the couple to start making their $1,799-a-month payments into a court account, and to put up $5,000 in potential compensation for the lender and servicers, if they wanted to keep their court order in place.

As the Patakys see it, they have one more hope of saving their home: A Chapter 13 “wage-earner” bankruptcy filing. Under Chapter 13 of federal bankruptcy law, the debtor gets a court-approved plan for repaying all debts on an extended schedule, and a foreclosure can often be avoided. Bela said he’s in position to work out his debts that way now, because he’s working again as a construction superintendent in Canada. He said if he didn’t have dual citizenship, he would probably still be out of work.

During his jobless period, the Patakys sold jewelry, a boat, and Bela’s cherished Harley-Davidson motorcycle to keep as many bills paid as possible.

“We’ll get rid of everything else if need be, but not our home,” Bela said. “This is the last thing we’re trying to save. … You have no idea how much it hurt to sell my Harley.”

He also notes ruefully that since he was first laid off, the appraised value of his home has dropped from near $300,000 to about $245,000 today, while missed interest payments have swelled the principal. That leaves the Patakys owing more than the home is worth and making it that much more difficult to work things out with lenders.

Candace Pataky said she’s been discouraged to learn that touted government relief programs for homeowners don’t seem to deliver the goods. The couple’s attempt to use the much-publicized Home Affordable Modification Program, or HAMP, got them nowhere.

“I would like to know who really has been helped,” Candace said. “Has anybody been helped?”

One recent congressional report estimated that HAMP had helped about 800,000 households — far short of its stated goal of three million to four million. The report also estimated that eight million to 13 million homes will face foreclosure by the end of 2012.

Besides fruitless attempts to work things out through HAMP, Candace said a promising “bridge loan” program via HUD also proved to be a dead end.

The Patakys took heart when the HUD program was announced in October 2010. Regional HUD officials said $56 million in short-term loans, at low or no interest, could be made available to rescue Washington state homeowners in arrears on their mortgages.

But when the Patakys sought more information, they learned that the bridge loan program isn’t up and running yet.

HUD spokesman Lee Jones said the agency hopes to be ready to start making the loans by January or February. The agency is in the process of selecting an organization to administer the program.

Jones said he is well aware that January or February will be too late for many: He has personally fielded more than 150 calls from agonized homeowners who got his cell phone number off an agency press release.

“All I can say is, we want to make sure that when the program starts, we do it right,” Jones said.

Reach JOHN STARK at 715-2274 or john.stark@bellinghamherald.com . Read his Consumer Protection Blog at blogs.bellinghamherald.com/consumer.

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A service of YellowBrix, Inc. Publication date: 2010-12-22


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