Foreclosures on hold leave some Wichita houses in limbo

Water drips into the finished basement of the spacious house on North Muirfield in west Wichita. Ceiling tiles sag with moisture; mold speckles the walls.

After getting almost all the way through the nearly year-long foreclosure process, the house got stuck in limbo because the lender, the Bank of America, declared a moratorium on foreclosures.

Bank of America is one of the Wichita area's largest mortgage lenders, with about 10 percent of the market, according CoreLogic figures.

Three other major banks, Ally Financial's GMAC Mortgage unit, PNC Mortgage and JPMorgan Chase, with much smaller pieces of the market have also halted foreclosures.

Allegations have been leveled at the banks that they pushed through hundreds of thousands of mortgages without verifying information or lacking key documents required by law to foreclose.

Last week Kansas joined other states to investigate whether mortgage company employees made false statements or prepared documents improperly.

Another of the Wichita market's largest lenders, Wells Fargo, on Friday said it wouldn't halt foreclosures, despite a court filing showing at least one employee signed hundreds of documents without verifying all the information required.

Although the effect in Wichita is a far cry from the housing disaster areas such as Nevada and Florida, the Bank of America moratorium is having a local impact.

At last week's Sedgwick County's sheriff's sale, 62 homes were scheduled for sale, but only 17 sold, far fewer than usual.

"It's has been crazy," said attorney Frank Ojile, who works on both sides of the foreclosure process and was at the sale.

"My phone is ringing off the hook this week from people who have been foreclosed on wanting to know if I can do anything," he said.

A troubled sale

Lawrence Volbrecht of Estates Unlimited visited the house on North Muirfield last week.

He was hired by the bank to put it on the market. It's a nice enough house to spend more than $15,000 to clean up. He sells most houses "as is."

It's an expensive-looking house with a small swimming pool, porch and many amenities that sold in 2006 for $250,000. The owners left it clean, he said, although it has developed a serious leak that has since ruined carpet, wallboard and carpet in several rooms.

Some homeowners leave quietly, Volbrecht said, while others wait until he and a sheriff's deputy show up to evict them.

Homeowners can live in a house for 10 or 11 months after they stop paying on the mortgage, he said. It takes that long for the mortgage holder to complete the foreclosure.

Sometimes, he said, the house will be damaged and filled with enough trash to fill an industrial trash container.

"It'll look like they were breeding badgers in there," he said.

The moratorium, he said, will mean about 10 percent of houses will just sit for a while longer. Those that are occupied will provide their money-pressed residents with a roof for a few more weeks or months.

Those that are unoccupied, such as this one, will lose value every day.

"We'll sit on it for 30 days — or another year," he said. "Hard to say, right now."

Two views

Ojile and lawyer Eric Bruce describe the issue they've seen this way:

Banks need to have two documents when they come to court to foreclose — the note, which is the actual promise to pay, and the mortgage, which is the pledge of the house as security in case the homeowner doesn't pay the note.

Kansas law requires them both, they say, and if banks don't have both, they can be challenged.

The problem is almost always with out-of-state banks that sold the notes to become part of securities. Occasionally the documents get separated and the mortgage misplaced.

Bruce said he has challenged banks in court to prove they are the owners of the mortgage with a right to the house.

Just last week, he said, he had banks settle three cases after such challenges.

He sees such cases as more of a public service, he said, because the banks have been so sloppy and arrogant.

It forces them to clean up their mess. The biggest problem, he said, is that the banks could resell the house without holding clear title — leaving the buyer without clear ownership.

"The banks say just because we're a big bank, we'll be here and you can trust us, we'll clean it up," Bruce said.

Ojile said he has defended five cases since April in which banks haven't had proper documents.

"It's a huge, incredible mess," Ojile said.

The big banks have been unresponsive to people in real need, he said. When a homeowner has been laid off and calls one of these big banks seeking help before they run out of money, they run into a total lack of interest in helping, Ojile said. All they want to know is if you made the payment or filed for bankruptcy.

Stan Longhofer, director of the Center for Real Estate at Wichita State University, offered a rebuttal, of sorts.

In reality, the banks appear to be guilty mainly of poor record-keeping, he said, rather than — in this instance — abusing homebuyers. Nobody is arguing that the homeowners haven't stopped making payments.

He's not excusing the banks from following the law, but he said it should be done in a way that doesn't interfere with the foreclosures. Foreclosures are the only way to achieve stability in the housing market by re-establishing a firm value for the house and putting it in the hands of a new homeowner.

Going to court to get a delay or a settlement because of a record-keeping mistake is abusive to the lenders — and doesn't help the economy.

"It allows the individual to take advantage of the lender; that's wrong," Longhofer said. "We may feel sorry for (the borrower) that they can't afford their mortgage anymore, but it's not the lender's fault."