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05/27/2007
Facing ForeclosureThe number of people losing their homes is growing
“This was our Thanksgiving house and the Christmas Eve house,” Shannon Lichty said of the home on West 11th Street in Traverse City that’s been in her family since her great-grandfather bought it. Seven years ago, Shannon Lichty had it all: a loving family, a small business and a brand "new” home — a 142-year-old Victorian bungalow built by Traverse City founder Perry Hannah in the peaceful Kids Creek neighborhood. Then her marriage went sour and Lichty divorced. She took a second mortgage to buy out her husband and keep the house, which had once belonged to her great-grandparents, in the family. But when the adjustable rates on the mortgages starting going up, she fell behind on her monthly payments, taking on extra jobs to try and keep up. Even then, "my debt-to-income ratio wasn't even close,” said Lichty, 37. "I was having to borrow money left and right to pay the bills. It was like robbing Peter to pay Paul.” Eventually Michigan's struggling economy began to affect her hair coloring business, lowering her income. She fell more behind and her lender closed in. Though she tried to work out a payment plan, she couldn't come up with enough money to forestall the inevitable. Two months after Christmas, the house was foreclosed on. "It was devastating. I cried all day,” said Lichty, whose grandfather was born in the house and whose aunt died there. "I had five or six people call me and say, 'I'm so sorry' and I'd say, 'Why?' and they'd say, 'I saw the foreclosure notice in the paper.' It was very real at that point. I was, 'Oh ... I'm going to lose my home.'” Lichty's plight is a familiar one around the country, especially in Michigan, where foreclosure rates have skyrocketed in the last two years. In Grand Traverse County alone, the number of foreclosures recorded in 2006 was 55 percent higher than in 2005, according to the Register of Deeds. Forced to Sell Though Lichty managed to pull her house out of foreclosure in February, she is behind on her payments again. Now she is being forced to uproot her three daughters and sell the house — which has been in the family for 100 years — or lose it at auction. "The really sad thing is, the last time the house was appraised two years ago, it was worth $170,000,” she said, adding that she spent 15 years and about $35,000 remodeling the vintage home. "The way the market is today, it's worth $120,000.” Still, she said, "my prayer is just, 'Someone buy the house.' I'm afraid (if the bank takes it), I'm going to feel like a failure. I don't want to be that single mom who loses her house.” For Terri and Mick Howe, it's too late for prayers. Just six months after moving into their new tri-level in a growing neighborhood south of Chum's Corner, the couple lost their home to the bank — lock, stock and barrel. "We went every day to watch them build,” recalled Terri Howe, 47, who picked out blue for the shutters because it was the color of her late mother's house. "Our grandchildren had written their names in the wood. It was the biggest, coolest thing to us because it was our house.” Wed in 2001 after long-term marriages to other partners ended, the couple began life together with a pile of bills. They claimed bankruptcy to clear their credit, then set about rebuilding it in hopes of getting a home loan someday. That happened sooner than they expected when, just a year after meeting with a financial company and being told they couldn't qualify, the company reversed its decision. "They checked our credit score and called us,” said Howe, adding that she was surprised by the unsolicited call. "I never dreamed that we would qualify to get a loan so close after bankruptcy.” Instead, she said the couple was told they could get into a 1,000- to 1,500-square-foot "new build” on a no-money-down loan, with payments of just $800 a month. After checking out the property, they agreed to the deal, which at first seemed too good to be true. Howe said the house was completed before a loan was finally found. When the couple filled out the application in May 2005, however, they learned that the payments would be $1,100 a month — $300 more than they had planned — since they didn't have $10,000 for a down payment. Still, they agreed to the terms, lured by the prospect of a house closer to work and the fact that it looked affordable on paper— if just barely. "That payment was as high as we could go,” Howe said, adding that together the couple was earning about $50,000 and was already overextended with two car loans, three credit cards and monthly rent for her daughter. "If anything faltered, we were in trouble.” It wasn't long before their worst fears were realized and "life started slapping us in the face,” she said. Mick Howe, a custom woodworker, injured his hand on a table saw, requiring surgery and several weeks off work. When he went back, the company had been sold and he had to take a pay cut. Shortly after that, Terri lost her job as a nursing assistant. "We had medical problems, family emergencies and we got behind,” she said. "When you get behind on one (payment) and it's $1,100, you're really in a mess.” Howe said the couple tried refinancing, but were turned down because they owed more than the house was worth and because it was a "used” house in a neighborhood where new ones were still being built. At three months behind, now working with the third company that owned the loan to try and save the house from foreclosure, they moved south to take better jobs. "We were going to try to scrape together enough to keep the house and I was going to rent it to make the payments,” Howe said. Before that could happen, however, the house was foreclosed on. Although scheduled to be sold "on the courthouse steps,” it now sits empty while a New York-based bank figures out what to do with it. Howe said she blames herself for not being as smart as she should have been. But she also accuses the original financial company of exploiting her dreams. "Basically we were people who shouldn't have gotten a loan,” she said, adding that an employee who no longer works for the company hinted that the loan was approved only because the couple was expected to fail. "I think it's unfair because the call was unsolicited, I think it's unfair that they paint a pretty picture of the house. They know I've never had a house. I feel like I was lied to from the beginning, like I had wolves and sharks around me the whole time.” Ted Forcier blames mortgage companies in part for pushing the "ARM” or adjustable rate mortgage. Since refinancing his home and rental property a year and a half ago on interest-only loans, the Maple City resident said his payments have increased by "a couple hundred dollars a month” each. "That's where a lot of people are getting stung,” he said. "As the interest rates go up, the ARM rate can go up. A quarter point or an eighth of a point doesn't seem like much, but it can be non-stop every month.” On the up side, savvy investors can take the principal and interest they were going to pay on a fixed-rate mortgage and invest it for a higher return, he said. On the down side, most people tend to spend that money rather than invest it. "If months are tight and you were to make interest-only payments, you could get three or four years down the road and just be treading water,” he said. Lichty's second mortgage escalated three points in just a year, bringing her monthly payments to nearly $1,500. But she said other factors — the high cost of heating fuel and gas, the local tourist-based economy, and Traverse City property taxes — all helped contribute to her foreclosure. "My property taxes shot up another $200 this year. It's up to $3,000 just to live in Traverse City,” she said. "It's almost like the city is forcing the middle class out. Overall, the cost of living in Traverse City has gone up so much in the past three years, it's incredible.” In Leelanau County, single moms going through a divorce and people who experience a temporary illness or job loss are the most likely to get behind in their payments and turn to the new REACH foreclosure prevention program for help, said Ron Crummel, the county's housing coordinator. The program is funded with a grant from the Grand Traverse Band of Ottawa and Chippewa Indians and is coordinated through Northwest Michigan Human Services Agency's (NMHSA) financial counseling program and the statewide Homelinks program funded by the Michigan State Housing Development Authority (MSHDA). "We're trying to get to people before they get their (notice) from the bank because when that happens they pick up a lot of additional fees,” he said, referring to the late fees, legal fees and filing fees that can prevent homeowners from getting out of foreclosure. Counseling is an important part of the process, not just to get homeowners back on the right financial track but to address their sense of shame, said Amy Lewis, a foreclosure counselor for NMHSA. "People really need to understand what to do — and not feel ashamed about it,” she said. "Eight out of 10 probably couldn't prevent it.” Although she was "mortified” at first, Lichty said the more she talks with others, the more she's aware that foreclosure is affecting everyone, everywhere — even others on her street. And while selling her house will be sad and disappointing, she's ready to move on. "Whether I sell the house or whether they take it, I'm out of debt,” she said. "But I'm also a very optimistic person. I think everything happens for a reason. I don't think God gives me more than I can handle.”
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