In the foreclosure crisis, Massachusetts is far from the worst hit state. Still, lenders there filed more than 22,000 foreclosure petitions this year, and half of those properties have already been seized.
Pierre Solon and Katty Familia lost their Boston home in a foreclosure battle that illustrates how the crisis continues to hit low-income families the hardest.
Solon, an immigrant from Haiti, and Familia, an immigrant from the Dominican Republic, run the Little Wonders Daycare Center in Boston. For the past two years, they've been fighting to get their home back.
Making Sacrifices To Buy A Home
In 2006, the couple bought a green clapboard house in Boston's Hyde Park neighborhood. Familia says they both took on extra work to pay for it.
"We [made] a lot of sacrifices," she says. "Sometimes we [didn't] even have food. He got two jobs; I got two jobs. I lost one; he lost one." And that is when they started falling behind on their payments.
The couple paid $584,000 for the house and made no down payment. Instead, they borrowed the entire amount.
But after Solon and Familia fell behind on their monthly mortgage payments, Wells Fargo, the loan servicer, foreclosed on the property. A year ago, the couple moved out and sought help from Nadine Cohen, an attorney with Greater Boston Legal Services.
Earlier this month, Cohen found out that Wells Fargo auctioned off the house to a private investor for $115,000 -- a fraction of the original price.
"I think the bank could have offered them a modification of their loan for twice that amount," Cohen says. "But the bank would not do that. They would rather see the homeowner displaced from their home with their children, and then sell it to an investor for $115,000."
Flipping The House For A Profit
Two weeks after that sale, the investor who bought the home flipped the property to another investor for $270,000, making a profit of $155,000.
"Everybody has made money off the backs of low-income homeowners," Cohen says. "The broker made money, the investor made money, the servicer makes money, and the homeowners lose out."
Familia says the sale of her home at such a low price is "ridiculous," adding: "I think the banks -- they play with ... people like we are a little toy."
This foreclosure story is complicated, and assigning blame is not straightforward. Familia and Solon took on more debt than they could afford. But Cohen says they were encouraged to do so by their California-based subprime mortgage lender, Fremont Investment and Loan, which is now defunct.
"They were given two mortgages, and those mortgage payments were almost $5,000 a month, [which was] more than their income," she says.
Fremont Investment and Loan was later sued by the attorney general of Massachusetts for deceptive loan practices, and the company went bankrupt and shut down.
Wells Fargo's Offer
By then, the company's loans had been securitized and sold to investors. Wells Fargo has been servicing some of those loans, including the one made to Solon and Familia.
Michael DeVito, an executive vice president for Wells Fargo Home Mortgage, would not comment about this particular case. He says that fewer than 2 percent of Wells Fargo customers have gone into foreclosure, and that the bank does all it can to help borrowers keep their homes.
"Wells Fargo has been successful [at] helping over half a million customers reach an affordable payment plan through a loan modification program," DeVito says. "It's always preferable from Wells Fargo's point of view to keep the customer in the home.”
Another Wells Fargo official says the couple had fallen more than $150,000 behind in their payments, which the borrowers do not dispute. The bank offered Solon and Familia a chance to modify their loan through the federal Home Affordable Modification Program (HAMP).
Participating in the program could have lowered their monthly payments. But because Solon and Familia had fallen so far behind on their payments, it would have increased their mortgage to more than $600,000. So the couple did not go ahead with the modification.
A Push For Mediation
Paul Collier, a Massachusetts attorney who works with families facing foreclosure, says that rather than auctioning off the home at a fire-sale discount, Wells Fargo could have worked out a deal that benefited the bank and the family.
"And what the bank got out of it was taking the home of a family who could afford a fair-market price for that home in order to punish them for having been victims of a predatory mortgage," he says.
Collier supports a proposal by Boston Mayor Thomas Menino that would require mortgage lenders to participate in mediation with homeowners before initiating foreclosure proceedings.
Losing A Dream
If approved by the state Legislature, it might help others, but Cohen says it would come too late to help Solon and Familia get their home back.
Familia says she worked for the past 20 years to be able to purchase a home for her family. Now, she, her husband and three children are living in an apartment.
"I prefer to go back [to] my country," she says. "At least [you can say] your house is yours."
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