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VOL. 121 | NO. 109 | Wednesday, May 24, 2006

FORECLOSURES UP 17 PERCENT

Trend appears to correlate with '05 bankruptcy law

By Rosalind Guy

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NO TRESPASSING: This home at 5817 Knight Arnold Road is one of almost 5,000 Memphis-area homes foreclosed in the past year. -- Photograph By Rosalind Guy

Valerie Smothers has worked hard all her life. Never married, she's worked full-time while serving as a foster parent to children who were neglected, abused or unwanted by their biological families. And now she has to care for her mother, who has Parkinson's disease.

Smothers isn't complaining about how hard she has to work; she's just angry that all her hard work hasn't seemed to pay off. Smothers recently lost her Cordova home in foreclosure because she fell behind on her mortgage payments after her boss was late with her paycheck, she claims.

The blame game

In the beginning, her lender understood, but as a couple of weeks stretched into a couple of months, the mortgage company's patience stretched thin.

"The only thing I needed was a little time," Smothers said.

When she finally had things settled at work and went to the mortgage company, officials refused to accept the $1,900 she had. It wasn't enough for her back payment.

"They told me the adjustable rate had gone up," she said, meaning she would need more cash. In an adjustable rate loan, interest rates increase or decrease as market conditions change.

That's when Smothers realized she had to beat the clock to hold on to her home. She went to a debt counseling company that was supposed to help keep her from losing the house. But the couple of hours she spent sitting in the counseling company's office did not prevent her from losing her home because she was unable to speak to anyone there after her initial meeting.

"They were always on another line or on a conference call," she said.

Growing problem

Smothers now lives in an apartment and has plans to leave Memphis. She's in the process of moving to Atlanta.

"I don't want to stay here anymore," she said. "This city has spit on me for the last time."

But Smothers is not alone. She's among a growing number of Shelby County residents who either are facing foreclosure or already have had their homes sold because of foreclosure.

A total of 4,616 foreclosure sales occurred between May 2005 and April 2006, according to The Daily News Online, www.memphisdailynews.com. The number of properties foreclosed totaled 4,665 because, in some cases, multiple properties owned by one person were sold at the same time. That's roughly a 17 percent increase in sales from the same period a year earlier, when 3,916 sales totaling 3,967 properties occurred.

Foreclosure notices also increased year-over-year: The 7,780 notices issued between May 2004 and April 2005 jumped roughly 18 percent to 9,082 notices filed between May 2005 and April 2006.

An even more sizeable jump can be seen in the months since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect Oct. 17. In the six full months since the law took effect - Nov. 1 to April 30 - 4,903 notices were filed, a 25.1 percent increase over the same period a year earlier. Sales totaled 2,518, a 27.9 percent increase from the 1,968 sales in the six months ended April 30.

Lawmakers designed the law to curb bankruptcy filings and urge debtors to file for bankruptcy as a last resort. Under the new law, debtors must obtain credit counseling, provide more documents and pay higher fees to file for bankruptcy. In addition, since the passage of the act, a last-minute bankruptcy filing won't always halt foreclosure proceedings against a debtor.

Making adjustments

Bankruptcy attorneys themselves have noticed a higher number of foreclosures in the months following the new law's inception.

Memphis bankruptcy attorney Bruce A. Ralston said he noticed a lull in foreclosures a couple of months before the bankruptcy act kicked in.

"I asked some attorneys I know who represent some mortgage companies if the companies waited until the act went into effect to start foreclosing," he said. "But they said no, they hadn't received any memos to that effect."

The law is achieving its purpose of making it more difficult to file. But as for having a direct effect on the number of foreclosures, Ralston said he believes what's taking place is a slight delay for people trying to file bankruptcy. It's more like a period of adjustment as debtors and attorneys become more familiar with the new system of filing.

"In the past, people could come in at the last minute and get an automatic stay (that would stop the foreclosure proceedings), but they have to do extra stuff now," he said.

Once people get used to the new way of filing, the foreclosure rate will drop down to where it was before the new law was passed, Ralston predicts.

'Epidemic' in Frayser

Steve Lockwood is not surprised by the surge in foreclosures that have occurred in the city. Lockwood, who is executive director of the Frayser Community Development Corp. (FCDC), has been keeping track of foreclosures in Frayser since he accepted the post three years ago.

One of the first things he did was start digging through the foreclosure notices listed in newspapers.

Upon realizing how serious a problem foreclosure is in Frayser - which he defines as neighborhoods in the 38127 ZIP code - he began to contact people who received foreclosure notices. Those who respond to Lockwood are offered counseling by a HUD-approved counselor. Some of the individuals who have responded have been able to avoid foreclosure either through renegotiating terms of their original home loans with their mortgage companies or by persuading lenders to allow a little extra time to sell instead of losing homes to foreclosure.

"It's an epidemic," Lockwood said. "Shelby County has the highest HUD foreclosure rate in the country and Frayser has the highest foreclosure rate in Shelby County."

Steps in the right direction

The 38127 ZIP code has seen the highest number of foreclosures over the past two years. Between May 2005 and April 2006, 834 notices were sent to 38127 residents and 467 sales of properties took place there. In the previous year, 719 notices were sent and 412 sales occurred. Other ZIP codes with a high number of foreclosure sales were 38109, with 381 sales between May '05 and April '06, and 38128, with 309 sales in the same period.

Having a high number of homes lost to foreclosure is a societal problem, Lockwood said.

The Memphis-Shelby County Anti-Predatory Loan Coalition, of which Lockwood is part, recently gained a slight victory in its fight against predatory lending practices when the General Assembly voted in favor of the Tennessee Home Loan Protection Act. Lockwood said the vote is a step in the right direction.

Among the requirements of the act is a provision that requires notice to borrowers that free consumer counseling is available before closing on a home.

If Gov. Phil Bredesen signs the bill into law, it will go into effect Jan. 1.

"We have been involved with statewide work that culminated last week in the passing of the predatory lending legislation," Lockwood said. "It's imperfect legislation. But it's certainly a decent start."

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 128 128 17,998
MORTGAGES 155 155 20,990
FORECLOSURE NOTICES 0 0 0
BUILDING PERMITS 149 149 36,765
BANKRUPTCIES 60 60 11,985
BUSINESS LICENSES 19 19 5,696
UTILITY CONNECTIONS 49 49 12,297
MARRIAGE LICENSES 40 40 4,518

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