Kansas Mortgage Defaults Piling Up in Douglas County

A year ago, Sharon Roullins thought she was getting a chance to “start over.”
Finally approved for credit after three years of trying to buy a home in the Kansas City housing market, Roullins bought a three-bedroom home off Ward Avenue in East Lawrence last June.

For the first time, her children had their own rooms. Her two grade-school aged daughters liked their new school, and for single mom Roullins, the difference from Kansas City was “night and day.”

But Roullins was in for a nightmare when foreclosure proceedings began. Foreclosure occurs when a lender acts to repossess a property, usually when the homeowners get too far behind on his/her Kansas mortgage payments.

This week, her home and four others are scheduled to be auctioned from the steps of the Douglas County Judicial and Law Enforcement Center, 111 E. 11th St. Roullins is one of the scores of Douglas County homeowners who have faced prospects of foreclosure this year.

“I really don’t know what to do,” Roullins said.

For Roullins, the downward spiral into foreclosure started with a trip to the emergency room last September. The visit was followed by a stay in the hospital that lasted into November, meaning there was little money to make the roughly $850 monthly home mortgage payment.

“Basically, I got sick, went into the hospital and just fell behind,” Roullins said. “I missed one payment, and it just kind of snowballed.”

Now she gets daily phone calls from her mortgage company asking her about the payments and letters in the mail from businesses that say they want to help her.

But Roullins said her credit score is too low to qualify for any of the programs her mortgage company is offering, and she doesn’t trust out-of-town companies whose offers to help seem too good to be true.

She can’t find the real estate agent who sold her the house, nor does she possess the expertise to sell the house herself. She also doesn’t have the money to hire a lawyer.

Rash of foreclosures
The number of foreclosures has increased across the country, and Douglas County is no exception. In the first four months of 2007, the Douglas County Sheriff’s Office — which presides over the sale of homes that go into foreclosure — auctioned 39 homes. Comparatively, in the first four months of 2006, 28 Douglas County homes were auctioned at a sheriff’s sale.

That’s a roughly 40 percent increase.

Many more homeowners, closer to 80, have received notices from the sheriff’s office that auction was pending unless they paid up on their Kansas mortgages.

Robert Baker, education coordinator and counselor at Lawrence’s Housing and Credit Counseling Inc., said a main reason for the increase in foreclosures is a change in the economy.

“The economic times aren’t quite as heady as they were in the go-go ’90s,” Baker said. “So, if people have any kind of economic setback — serious health problems, reduced income, that sort of thing — it is going to affect their ability to pay all their bills, and sometimes that affects their mortgage payment.”

Jonathan Becker, a bankruptcy and real estate attorney, lists four reasons for the rise in foreclosures: a lessening of credit standards, an increase in the kinds of home purchase loan options, a lack of home value appreciation, and a decrease of new homebuyers’ financial experience and education. Combined with any catastrophic event such as a job layoff, reduced income, illness or car accident — “you’ve got a recipe for foreclosure,” he said.

Although foreclosures in Douglas County have jumped, those who deal with the Lawrence housing market say the community is not nearly as bad off as other parts of the country where waves of homeowners have defaulted on mortgages. For the first quarter of 2007, Kansas ranked 34th in the country for foreclosure rates, according to RealtyTrac, a Web site that compiles a database of foreclosures nationwide.

“We haven’t seen it here, but it doesn’t mean it isn’t coming,” said Doug Stephens, president of Stephens Real Estate Inc.

Baker, the housing and credit counselor, said higher housing prices in Douglas County have precluded many lenders from issuing riskier loans. Known as subprime loans, these lending options are made to borrowers with below-average credit scores and require little or no money upfront. And according to Baker, they are much more likely in a market where homes go for $50,000 or $80,000, not $200,000.

However, Becker said he is starting to see a lot more owners come into his office who are caught with loans that carry mortgage interest rates that are suddenly going up.

In the past few years, companies have offered low-interest, adjustable rate mortgages — but the low rate lasts only a few years. After that — for up to 28 years of a 30-year mortgage — the interest rate has a good chance of moving higher.

In the next few years, millions of these mortgage loans are expected to reset at higher interest rates, meaning homeowners will see a dramatic jump in their monthly mortgage payments.

“The 2-28 loan was becoming the welcome mat into the house. It’s now becoming the prison bars when the 28 (years) kicks in,” Becker said.

Seeking options
Instead of traveling the bankruptcy route, many homeowners opt for dealing straight with their mortgage company in attempts to save the home.

Baker said the first mistake is to not act immediately.

“The longer you are delinquent and the more you owe, the less options you have. So start early,” Baker advised on seeking help, whether it comes from a certified mortgage default counselor, lender or even a relative who could loan the money.

Becker said many mortgage companies operate on a calendar that starts the foreclosure process rolling when payments are more than 59 days late. Letters are issued and attorneys contacted. At that point, Becker said, the homeowner has to cover not only the missed payments but also the mortgage company’s attorney fees.

“Once you get to the 59 days, the alarms go off,” Becker said. “Automatically add on $800 to $1,000.”

Looking back, Beerbower said she recommends that those approaching foreclosure stay on top of the problem. The effort can take hours, but most mortgage companies will work with borrowers who are seeking a remedy.

“They don’t want to repossess your house. If they foreclose on your house, they have to market it to sell it,” Baker said.

SOURCE: The Lawrence Journal-World