Oakland Reveals the Impact of Homeowners Steered into Short Sales

By ACCE Home Defenders League & East Bay MoveOn,

While banks want us to believe that the foreclosure crisis is over, an examination of underwater borrowers and short sales signals another wave in the foreclosure tsunami that is devastating communities across the country.  There have been few programs created to reduce principal on loans where borrowers owe more than the house is worth. Even when those programs are up and running, principal reduction loan modifications are few and far between for struggling homeowners.

In Oakland, California, there are currently over 20,000 underwater borrowers—many of whom are at risk of losing their homes.  Bobbie Spires has been living in her home in the Maxwell Park neighborhood of Oakland, a long-time enclave of African American homeowners, for nearly twenty years. Since Spires and her husband–now deceased–purchased their home, they have housed more than ten foster children, their four children, and many extended family members. Despite applying for a loan modification five times and increasing her income, Bank of America refuses to offer Spires a loan modification.

“I call and I call, and get no response. The stress is complicating my health and it makes me just want to short sale and walk away,” Spires explains. “Sooner or later, I have to know what’s happening to my home—can I keep it or not? I have to figure out where I’m supposed to live if I lose my home.”

On Spires’ block, two of her neighbors have also been forced to consider short-sales because of the lack of other options. These Maxwell Park neighbors are typical of many distressed homeowners in Oakland who are forced into short sales to end the stress and frustration of the foreclosure process. This problem also extends statewide, as a recent survey by the California Reinvestment Coalition reveals that over a third of responding housing counselors report that banks pressure homeowners to do short sales where a loan modification seemed possible.

Last year’s $26 billion settlement agreement with the nation’s largest loan servicers promised the distribution of relief to homeowners, most significantly through a commitment to reduce $12 billion in principal for California’s underwater homeowners.  However, reports from the settlement’s national and state monitors suggest that banks are disproportionately utilizing the giant loophole of short sales as a way to meet the settlement requirements. To date, over 52% of the settlement payout has been in the form of short sales while only 16% has gone to principal reduction on the primary loan.  

Short sales may be the best solution for some underwater homeowners who are facing severe economic distress.  But we are very concerned that banks are using short sales as a short cut to foreclosure, or prioritizing short sales when they could be offering sustainable loan modifications that keep people in their homes.

As a result, in Oakland, short sales without a notice of default initiating the foreclosure process are becoming a growing trend.  The percent of short sales closed and pending has jumped 18% this year.  Undoubtedly, this trend is happening in other cities across the country. Without a notice of default filed publicly, local jurisdictions and advocacy groups have no direct way to reach out to distressed homeowners, inform them of their rights and connect them to appropriate legal and housing counseling services. Recently it appears that banks are releasing data to realtors who have incentives to steer people into short sales, but not to the groups who could help people keep their homes.

There has been enough displacement and upheaval in the city of Oakland in the last few years. From 2007 to 2012, there were over 11,000 completed foreclosures in Oakland, with 1 in 14 households facing the threat of foreclosure.  This massive displacement of families and long-time residents destabilizes neighborhoods, contributes to public safety issues, hurts local property tax revenues, and stalls economic recovery.  A recent report by Urban Strategies Council estimated that Oakland’s foreclosure crisis has cost the city and its residents $875 million.

The foreclosure crisis and prevalence of short sales is changing the faces of homeowners in Oakland.  Investors have purchased 65 to 88% of Oakland’s residential foreclosed properties and 93% of these properties are in low-income neighborhoods.  At a time when home prices are affordable for families with modest incomes, investors paying cash are crowding out potential first-time buyers, and raising rental prices as they take control of the rental market. Homeownership has become less accessible and housing has become more expensive, driving a wedge in the class disparities and economic inequities that already exist.

We are calling on banks to behave as good neighbors in communities like Oakland.  Banks should work with local foreclosure prevention efforts to ensure that delinquent homeowners have access to counseling services. Further, they should work with housing counselors toward creative loan modifications and refinancing solutions that can preserve long-term stability, instead of steering people into short sales. This goal benefits both distressed homeowners and the original mortgage investors, who gain nothing from short sales in a depressed market.

It is past time for the financial institutions to take responsibility for what they have wrought and employ strategies that prevent further displacement and keep families in their homes.

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The Alliance of Californians for Community Empowerment (ACCE) is a multi-cultural, statewide grass roots organizing network fighting to raise the voices of California’s working class communities through organizing, action and advocacy.  East Bay MoveOn is an advocacy organization that has formed a working group to assist in issue analysis and develop advocacy efforts around the foreclosure crisis.

For more information, contact Katt Hoban, ACCE, khoban@calorganize.org , 510-269-4692 ext. 509

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