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CHICAGO
— Cash-strapped, jobless and denied a loan
modification,
Del Phillips
faced the same straits as millions of homeowners who
risk losing their homes to mortgage lenders.
Some have
struggled unsuccessfully to keep their homes, and others
have just walked away. Phillips decided he wanted
revenge and was willing to ruin his credit record for
it.
When a
short sale didn't work out as planned, the 32-year-old
Chicagoan opted for Chapter 7 bankruptcy liquidation, a
move that will leave Phillips with little except for the
scant possessions in his one-bedroom condo. It also will
leave his lender, Chase, with little except for,
eventually, a condo that has lost value. Meanwhile,
Phillips continues to live there, mortgage-free.
"I
don't feel shameful for what I've done," Phillips
said. "I've gotten past being shameful."
Phillips'
move may seem an extreme riff on the difficult decisions
homeowners make to unburden themselves of debt owed on
properties that have lost substantial value. Lawyers and
housing counselors say, however, that personal
bankruptcy filings are becoming more commonplace as
debt-holders seek sums due them, particularly on second
"piggyback" mortgages used to buy homes.
"It's
a big trend," said
Dan Lindsey
, a supervisory attorney at the
Legal Assistance Foundation of Metropolitan Chicago
. "Banks are having a hard enough time dealing with
the first mortgages. The second (mortgages), there's no
equity there to collect, so they're being charged off
and sold to debt buyers and rearing their ugly heads
later. It's a drastic last resort to file Chapter 7, but
in some cases it's appropriate."
Phillips
bought the one-bedroom condo, tucked into a courtyard
building, in
May 2007
for
$212,500
, securing a first mortgage of
$159,375
and a
$53,125
second note, both from
Chase Bank
, according to county records. In
January 2009
, he lost his public affairs job, began drawing on his
savings and, in
April 2009
, after the government began its Home Affordable
Modification Program, applied for a mortgage loan
modification from Chase.
Customer
service representatives with Chase, he said, told him to
keep paying the monthly mortgage of about
$1,400
while he awaited a decision on his application. In
September, the still-unemployed Phillips was turned down
for a modification because, as the letter stated, his
hardship "is not of a permanent nature."
Phillips
decided to stop paying the mortgage and try to sell his
condo in a short sale, in which a homeowner sells the
property, with the lender's approval, for less than the
amount owed on the mortgage. A short sale typically does
not tarnish an individual's credit history as much as a
foreclosure.
Short
sales have been portrayed as a salve in the housing
crisis, although lenders have been slow to approve them.
In Phillips' case, though, an approval for the offer on
his condo came with a catch. Chase notified Phillips
that it would still have the legal right to pursue him
at a later date for the approximately
$54,000
owed on the second mortgage.
"A
short sale may satisfy the first lien, but the customer
could still be responsible for the second lien,"
said a spokesman for Chase, while declining to discuss
Phillips specifically.
Phillips
sought help from Neighborhood Housing Services of
Chicago Inc.
, a federal government-approved counseling agency, which
broached the idea of filing personal bankruptcy.
"(Phillips)
did everything right. He had good credit, and then he
lost his job," said
Michael van Zalingen
, director of homeownership services for Neighborhood
Housing Services. "If your lender isn't interested
in helping you, or the only thing you qualify for hurts
your household, I don't think you have any moral
obligation to stay bound in that mortgage or paying to
that company when it no longer makes economic sense for
you."
Phillips
bristled at the bankruptcy suggestion, but after
consulting with an attorney, in late February he filed
for Chapter 7 bankruptcy, not the Chapter 13 that would
have negotiated his debts, including those with Chase.
"My
other option was to say, 'I'll roll the dice with the
bank,' " Phillips said. "Will they really come
after me? I wouldn't put it past the bank industry to do
that. It's going to kill me to pay a bank for a house I
no longer owned. I was, like, there's no way I'm going
to pay the bank another dime."
Lawyers
say they are hearing about more instances of mortgage
lenders selling the delinquent second loans used to buy
homes during the industry's heyday to third parties that
are then pursuing debtors.
"He's
not outside the norm," said
Stephen Cleary
, a
Chicago
attorney and board member of the Northwest Side Housing
Center. "He can now sleep at night. The mental
anguish has been relieved."
For the
year ended
March 31
, personal bankruptcy filings nationwide rose 28
percent, to almost 1.5 million cases, according to the
administrative office of the U.S. Courts.
Still
unemployed, Phillips says he wishes he had back the more
than
$12,000
he paid toward his mortgage while he sought a loan
modification that never materialized. For now, he's
using part of his jobless benefits to pay his condo
association fees while he looks for a job and considers
moving out of state. Late last month he was served with
a loan default notice by Chase, and Phillips estimates
he'll be able to stay in his condo seven more months
while the foreclosure action works its way through the
courts.
"I'm
not a deadbeat," Phillips said. "I've had to
be very shrewd, like most business people. ... I'm
looking out for my best interests, and this is my best
interests."
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