KCTV5 Investigates: Missouri's foreclosure settlement money - KCTV5

KCTV5 Investigates: Missouri's foreclosure settlement money

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Julie Hernandez calls her home on Kansas City's south side a bungalow.

"It's just a quaint, little, comfortable house," Hernandez said.

For almost a decade Hernandez lived there with little worry, spending her free time in the backyard playing with her dogs. Three years ago that peace ended when her home fell into foreclosure, debt collectors started calling and property appraisers started lurking around her home.

"They'd drive through my driveway taking pictures of my home, and getting out and walking around. You know that's scary," she said.

While her foreclosure story might sound familiar, the circumstances surrounding Hernandez's housing nightmares are different from many tales told during the housing crisis. For starters, Hernandez was not in over her head when it came to the size of her mortgage. In 2009 the outstanding balance on her home loan was just over $115,000. Plus Hernandez never missed a payment and as her lawyer Floyd Finch explains Hernandez even built up equity in her home.

"Maybe $30,000, something like that," Finch said.

But after going through a divorce and the recession taking a toll on her hair-stylist business, Hernandez faced tough economic times. So when Bank of America called one evening, offering to cut her mortgage payment in half if she enrolled in the federal government's Home Affordable Modification Program, known as HAMP, Hernandez jumped at the opportunity.

"I thought, well, ‘Wow this is great'," Hernandez said. "And of course I trusted them, why wouldn't I?"

Looking back now, Hernandez regrets trusting the bank, because for the next several months she says the bank kept losing her loan modification paperwork. More than once, Bank of America claimed she sent or faxed the documents to the wrong address or number.

"After about eight months, we were like, OK, this is dirty," she said.

Hernandez continued paying her mortgage, but her attorney Floyd Finch says that did not keep the bank from trying to foreclose on Hernandez's home. Not once, but twice.

"The second foreclosure I called up the bank's lawyer and said, 'you don't want to do this. 'We have a client here that's done everything right," said Finch. "She's made all the payments and we are clearly going to beat you in court."

Eventually lawyers for Bank of America dropped foreclosure proceedings, but not before the bank reported Hernandez as delinquent on her mortgage and caused her credit rating to drop almost three hundred points.

"It's destroyed," Hernandez said, referring to her credit score that once topped 700. "I think it's in the fours. I can't even get approved for a car loan."

Currently Hernandez's attorneys at the Kansas City law firm of Finch and Campbell are helping her maneuver through a program called Independent Foreclosure Review (IFR). It is a free process set up between the federal government and big banks. IFR is supposed to be a transparent and expeditious process in which an independent third party (chosen by the banks) reviews the loan papers of people like Hernandez whose mortgages were allegedly mishandled by big banks. An estimated 4.3 million people qualify for the program, but so far less than 200,000 people have signed up. Finch thinks he knows why. Based on his experience the process is protracted, unorganized and the third party charged with reviewing Hernandez's loan paper work rarely communicates.

"There are certain deadlines set forth in this program and they just blow them off," said Finch. "We send letters reminding them that they missed the deadline and we don't get any response."

Theoretically if the lawyers working for Hernandez are successful in negotiating the IFR process, the bank could be forced to modify her loan as originally promised and compensate Hernandez up to $100,000 for mishandling her account. But Finch doubts Hernandez will ever see a dime from BOA.

"I think eventually somehow we'll get the bank to see the light and they will come forward with a reasonable resolution that will let her stay in her house and get a new mortgage," said Finch. "But the odds of them paying her, writing a big check for her pain and suffering are pretty small."

That is why earlier this year when the federal government and 49 state attorneys general reached a record $25 billion settlement with five of the country's biggest mortgage providers, Hernandez and her attorneys held out hope that she might get some financial assistance. When the settlement was announced, foreclosure rates across the state were still alarmingly high. In Jackson County, for example, one in every 547 homes sat in foreclosure. Missouri received a lump sum of nearly $40 million from the settlement and most assumed Missouri Attorney General Chris Koster would direct the money to programs aimed at easing the effects of the foreclosure crisis. That did not happen.

While Koster would not agree to an interview with KCTV5, in an email his spokesperson stated that "because of revenue shortfalls in the state, we made the decision to treat the mortgage settlement funds the same way other settlement funds are treated. In the majority of cases, Attorney General Koster has given settlement funds to General Revenue for the legislature to appropriate."

Once the money landed in the hands of lawmakers in Jefferson City, Gov. Jay Nixon pledged the almost $40 million to state colleges and universities and the legislature agreed. The idea was to offset $106 million in cuts to higher education, but that decision was not without controversy.

Former state senator Joan Bray, a Democrat from the St. Louis area, objected to the move.

"Don't get me wrong, I am a big supporter of higher education," she said. "But when money comes in for a purpose, and such a basic purpose as housing, it should be used that way."

Bray is now chairwoman of the Consumers Council of Missouri, a nonprofit organization advocating for the interests of individual consumers, especially in the areas of personal finance.

"Housing and people's homes are sort of the bedrock of our communities," Bray said. "And the fact that money didn't go to help more families in trouble with their homes was a real miscalculation in the right way to go about things."

Finch agrees.

"It's frustrating to see that money taken away from people who have actually been harmed by what the whole attorney generals' lawsuit was about," he said.

Bray believes Missouri should have used the roughly $40 million to set up a foreclosure mediation program, similar to the ones already helping people in states like Illinois and New Jersey.

"Missouri is a non-judicial foreclosure state, meaning a bank can proceed with foreclosure without going to court," Bray said. "But in a mediation process you would try to get everybody in the room, calm down and then listen to each other, deal with the facts and see if you can keep people in their homes paying their mortgages."

Even if mediation helps just a small number, Bray believes it is a better long-term solution as opposed to simply using the money to partially plug a gap in the state education budget.

"Property taxes from your homes fund the schools," Bray said. "And when you end up with a bunch of unoccupied homes the crime increases. It's just there so many ripples from the effect of causing an earthquake in home ownership."

Meanwhile Hernandez continues to feel the aftershocks of her own housing crisis, wondering whether she will find another foreclosure notice in the mail every time she returns home from work.

"I'm a strong person, but this is breaking me," Hernandez said. "Unless you're in it you don't get it, you just constant fear all the time."

To see where other states are spending their settlement money, click here.

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