Gregory Nave wanted justice after he was bilked out of $3,495 by a foreclosure consultant, but the state Attorney General’s Office told him there were no laws to protect against the kind of scam that victimized him and thousands of other Arizonans.
Nave, a 62-year-old military veteran, is still facing foreclosure despite sending thousands of dollars to a California attorney who appeared on a television infomercial and promised to renegotiate the terms of home loans with lower monthly payments. The attorney helped Nave delay the foreclosure proceedings, but then stopped returning phone calls.
In hindsight, Nave said the demand for up-front payment should have been a red flag. But he was desperate to keep his Avondale home, and the infomercial seemed legit.
“I figured, hell, why not? It’s an attorney,” he said.
The problem, as Nave learned, was that there is no Arizona law to keep foreclosure consultants honest. The industry is completely unregulated, and laws protecting against fraud and false advertising are ineffective against the types of scams that trap people who are trying to avoid foreclosure.
According to the Attorney General’s Office, complaints have been filed against nearly 300 foreclosure consultants during the past year.
Jennifer Boucek, a lobbyist for the Attorney General’s Office, said prosecutors may charge scammers under the Consumer Fraud Act, but the investigations often take months. By that time, most companies have closed or moved on, and the homeowner’s money is unrecoverable.
That might change this year, though, as Sen. John Nelson, a Republican from Litchfield Park, has introduced a bill to ban up-front payments charged by foreclosure consultants. It’s one of at least 16 bills that target the state’s foreclosure problems by seeking new regulations on businesses or offering new protections to homeowners.
The effort to help homeowners in jeopardy of foreclosure is a new strategy for legislative leaders, who last year attacked the mortgage crisis by regulating mortgage lenders to prevent them from locking borrowers into deals they don’t understand or can never afford. They also passed a law to allow banks to sue homeowners for losses incurred when homes are resold after foreclosure, which was later repealed after objections from special interest groups.
Tempe pollster Mike O’Neil said part of the rationale for the shift in focus could be an attempt to curry favor with voters, who are generally angry at federal bailouts of large financial firms that got into trouble because they made or purchased risky loans.
“Anything that’s perceived as helping financial institutions won’t be well received,” he said.
Democrats have sponsored several bills that would provide relief to homeowners facing foreclosure. A few of them would have far-reaching impacts, but are likely to fail without Republican support. One bill, for example, would allow people to occupy their homes after foreclosure as long as they pay rent.
Republican bills, on the other hand, would require banks to at least talk to homeowners about alternatives to foreclosure, put a stop to loan gimmicks that allowed people to buy homes they can’t afford, and shift the municipal sales tax burden onto the buyers of foreclosed properties and off the lenders who initiated foreclosure.
Even if all the bills pass, Arizonans will continue to lose their homes at an alarming pace.
The state has one of the worst foreclosure rates in the country. Last year, 163,210 Arizona homeowners received a foreclosure notice, according to California-based RealtyTrac. That amounts to one in every 16 homes in the state. Only Nevada, which saw one foreclosure for every 10 homes, was is worse shape than Arizona.
The Center for Responsible Lending, a nonprofit research organization, estimates Arizona will see another 300,000 foreclosures by the end of 2012.
Economists said too much damage has already been done, and foreclosures won’t taper off in Arizona until the jobs market recovers and the rest of the subprime loans work their way through the system.
Scottsdale economist Jim Rounds said full recovery is a couple of years away. Another wave of mortgage-rate resets will splash down in the next two years, he said, which means the state won’t see the foreclosure rate return to normal until 2013. Rounds referred to an analysis by Credit Suisse that shows billions of dollars in adjustable rate mortgages due to reset in 2011 and 2012 nationwide.
“We still have significant ARM resets in 2011 and midway into 2012,” Rounds said. “And we have people who are still losing their jobs.”
In December, Arizona’s unemployment rate was 9.1 percent, which was up slightly from 8.9 percent in November. A year ago, the state had 6.6 percent unemployment.
Jay Butler, a professor of real estate at Arizona State University, said the state’s economy will have to rebound before the foreclosure rate slows. Right now, the biggest threat to homeownership is job loss.
“It’s all built around the job market,” he said. “And that’s the big issue, because no one knows where the jobs will come from.”
The Legislature is considering a series of tax cuts and business incentives that lawmakers hope will create new jobs and promote economic recovery. But that won’t alleviate the immediate pressure on distressed homeowners.
Rep. Michele Reagan, a Scottsdale Republican, said forcing lenders to provide options to homeowners would be a good way to start the recovery. She said her own research shows only 8 percent of homeowners who sought mortgage modification have been able to renegotiate the terms of their home loans.
“I’m angry that more people who could get help cannot,” she said.
Nave, who retired from his job as a correctional officer to take care of his ailing wife, said he will hold out as long as he can. He said his house, which he and his wife purchased in 2004, represents his “American dream.”
“I don’t sleep good at night any more. I’m trying to figure out how to get out of this nightmare,” he said. “I’ve learned a hard lesson, and I don’t know how to rebound. I’m so dead inside. I’m a beaten man in my own country.”
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