December 2007

Current Foreclosure Crisis Affects Arkansans
By Gina Cothern

The ongoing mortgage foreclosure crisis is affecting thousands of Arkansans.  Mortgage foreclosures are widespread in lower-income city neighborhoods and in Arkansas’ rural communities.  Legal services providers are overwhelmed with the number of requests for assistance they receive.  In many cases, only 40% of clients qualify for participation in their lender’s limited loss-mitigation program, so the majority of clients end up losing their homes. 

Low-income and limited-income citizens are getting further and further behind due to circumstances beyond their control.  Factors such as stagnant wages, rising gas prices, rising food prices and increasing utility costs have a great impact on a poor family’s budget and push them over the edge.   The rapid rise in interest rates throughout the United States has caused an unexpected increase in adjustable rate mortgages.  Many unsophisticated buyers with these types of loans which have a low introductory “teaser” rate did not anticipate how much their mortgage payment would increase in two or three years’ time when their rate unexpectedly rose 3 to 5%.  In real dollars, that seemingly small percentage increase often translates to $300 or more.
Arkansas law provides lenders with several ways to dispossess people from their homes.  Judicial foreclosure and non-judicial foreclosure actions are available for real property and replevin actions are available for mobile homes.  Lenders also have the financial resources to access the justice system to execute these remedies.  The homeowner has very limited options to defend these actions or avail themselves of workout plans.  Furthermore, they do not have the financial resources to retain an attorney to assist them or the knowledge to represent themselves in court. 

Many requests for assistance come from people who have become disabled due to accident or illness.  An elderly client was involved in an auto crash and both of her legs were broken.  She was then unable to return to work.  Although she was able to continue her payments for a time with the assistance of her family, she eventually fell behind.  Her lender obtained a foreclosure and then started an unlawful detainer action giving her three days to vacate the premises.  She was put out of the home in which she had lived for over 40 years and was unable to find housing elsewhere.  Another client became disabled due to arthritis, lost her job when she had to undergo knee surgery, and was then unable to pay her mortgage note due to medical bills.  These are only two of hundreds of cases legal aid providers handle on a daily basis.

Adding insult to injury in this situation is the fact that after a foreclosure judgment, a person’s credit rating is ruined.  Most landlords check prospective tenants’ credit scores and will not rent to a person with such a mark on their record.  Some clients do not qualify for public housing because their income is over the permissible limit, but it is not enough to afford their mortgage payment, late fees and reinstatement fees.  In many areas of Arkansas, there are very few public housing units so there is a great deal competition for them.   As a consequence, persons who were homeowners are now scrambling to put a roof over their heads.

Many tenants are impacted by this crisis as well.  When their landlord is affected by rising mortgage payments, the resulting foreclosure judgment can force the tenant to vacate the property within a few days or weeks.  In Arkansas and throughout the nation, neither the landlord nor the lender has an obligation to notify the tenant of the foreclosure action.  Even though they have a valid lease, tenants have absolutely no recourse against either party and no voice in the proceedings.  They only find out about the situation when the lender posts the eviction notice.  At that point they too are scrambling to find other housing. (Click here for a CNN report about this crisis)

There may be some relief coming for these dire circumstances.  A bill pending in Congress would give tenants with leases up to six months to vacate after being informed of the foreclosure.  However, if this bill becomes law, it would not take effect until sometime in 2008.   The banking lobby is strongly opposed to a law that would force them to become landlords, even though they understand that tenants are essentially blameless.   In New York City a bill has been introduced to provide free legal representation to low-income senior citizens facing foreclosures and evictions.  (Click here for more information about this bill)

Thousands of our state’s working poor, elderly, and disabled citizens are being forced out of their homes by unexpected increases in all costs of living.  Their access to the justice system is compromised by the limited legal remedies available to them, by the limited resources of the legal aid providers, and by their own limited financial means.  The Commission strongly encourages Arkansas government to consider ways to address this growing crisis.  Our low-income families are too important to ignore.   

 

 

 

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