California homeowners of color already face many threats to their family home. Now, more will risk foreclosure than ever as millions of dollars in pandemic-era mortgage relief is set to run out before they even know it’s there.
At a Thurs., November 2 briefing co-hosted by Ethnic Media Services and Housing and Economic Rights Advocates (HERA), housing attorneys and mortgage experts explained how homeowners can keep their family homes against these threats, while homeowners of color shared their personal experiences of struggling to preserve generational wealth.
Threats facing homeowners
Joe Jaramillo, a senior attorney at HERA, a statewide housing legal service and advocacy nonprofit, said the main threats facing vulnerable homeowners are “keeping the family home when a parent or grandparent passes away; financing Property Assessed Clean Energy (PACE) programs which risk the borrower’s home if unpaid; and “zombie” second mortgages “that haunt borrowers with unexpected bills and threats of foreclosure.”
The passing of a homeowning relative presents a threat when there is no will or trust, so that loved ones have to go through an arduous, lengthy and expensive probate court to inherit it while property taxes, insurance and mortgages pile up with an unclear responsibility of who’s to pay. Jaramillo said Black and Latino households report consistently higher foreclosure risks from this problem.
He added that PACE, which finances clean energy home improvements like solar with no-money-down loans repaid by adding expensive sums to property taxes, has put thousands of California homeowners of color at risk of foreclosure statewide.
“It sounds good in theory,” said Jaramillo, “but many salespeople and contractors target low-income households and misrepresent costs or install nonfunctioning or nonconnected improvements like solar panels.”
A third factor, he continued, are zombie mortgages: “second loans often taken out at the same time as a larger first lien mortgage, split to allow borrowers to avoid large down payments and apply part of the second to the down.”
Before the 2008 housing crash, many predatory high-interest loans were marketed heavily to lower-income homeowners assured their home values would only rise; after the crash, second-mortgage zombie lenders stopped billing because the homes were worth less than these mortgages, and homeowners assumed the second ones were forgiven, amended with the first, or gone with bankruptcy. Now that home values are up again, however, debt collectors are back with years of interest and fees.
Key help for homeowners running out
The California Mortgage Relief Program is the main way that homeowners have been able to surmount these threats, said Rebecca Franklin, president of the California Housing Finance Agency (CalHFA).
Since it was launched federally in December 2021, over 23,000 Californians have kept their homes due to the program, which offers grants up to $80,000 per home for a total of nearly $650 million dispersed so far.
However, given that the one-time billion dollar fund is projected to run out by 2025, and likely sooner, she urged homeowners to take advantage.
Unlike Great Recession relief programs, this one “is a grant you don’t have to pay back,” Franklin explained. “Often when homeowners hear about our program, they say ‘Getting $80,000 they don’t have to pay back, that’s too good to be true, this isn’t real.’ And it is real. Certain racial groups were hit harder financially due to the pandemic, and a goal of this program is to retain their generational wealth and protect these first-time homebuyers who sacrificed so much to get a home for their families.”
Even if homebuyers don’t meet the program’s criteria — “low to moderate income, it has to be your primary residence, you’re not able to own other homes in the state” — she said homeowners could contact CalHFA for housing counselors or legal services.
Even when relief like the mortgage grant is available, many mortgage services don’t tell homeowners about them, leaving many vulnerable to unknown outstanding debt, said Johanna Torres, program coordinator of California Rural Legal Services (CRLA).
Her client, Saul de la Cruz, shared his experience of this debt in the form of a zombie mortgage.
Having bought his family home in Salinas directly before the Great Recession in 2007, de la Cruz got two mortgage loans. The second company stopped contacting him during the crash. He then modified the first mortgage, assumed the second — for $14,600 — was included, and nearly 15 years later received a request from the second lender to begin negotiating to avoid foreclosure. He borrowed the money from family and friends, and is now struggling to maintain both mortgages.
Although laws like the Real Estate Settlement Procedures Act require most mortgage companies to provide regular statements to the buyer, added Jaramillo, “this is a common problem we see. These predatory lenders are not providing borrowers with the information that they should be entitled to to figure out if they really owe the amounts that are being claimed.”
Mortgage relief key to saving homeowners from crisis
As foreclosure rates return to pre-pandemic levels, grants like California Mortgage Relief are key to protecting families from losing their most valuable intergenerational asset — their family home, said Mary Day, an attorney at HERA.
Her client, Danny Bishop, shared his own story of saving his Richmond home from foreclosure caused by bureaucratic confusion and family health decline. As the previous homeowner, his mother, began suffering dementia in 2015, her sibling neglected the property and began getting cited an ultimate total above $90,000 for code violations and property tax evasions.
Day then worked with the City of Richmond, which said that $56,000 owed for code violations was a mistake, subsequently reduced to under $30,000.
“They would never tell me why they were charging so much,” said Bishop. “They said keep cleaning your backyard, good job, then one day they charged me tens of thousands.”
This bureaucratic unresponsiveness is par for the course when it comes to challenges facing homeowners who seek relief.
“The larger the entity, the more resistant they are to dealing with individual situations,” said Day. “Though there’s a tax code that gives them the discretion to give relief, they told us after six months they wouldn’t provide it. A city mistake and this tax penalty caused just this snowball effect where the family was struggling with foreclosure… and the bureaucracy was what made it difficult. California mortgage relief has been the family’s savior.”