As deadlines loom, fire survivors call for more mortgage help

Fire survivors are calling for longer timelines on mortgage forbearance and better policy to stop credit hits as the expiration of mortgage protections looms nearly a year after the most destructive fires in L.A. County history.

After the Eaton and Palisades fires, hundreds of mortgage companies promised to let borrowers delay their monthly payments for 90 days. In September those protections were extended and enhanced when Gov. Gavin Newsom signed Assembly Bill 238 into law. That allowed survivors to request forbearance for up to 12 months, without requiring full repayment at the end of the forbearance period.

Ever since, fire survivors have said some mortgage lenders are not adhering to those rules.

“We have heard feedback that there is widespread activity that goes to show that a lot of banks and a lot of mortgage services are not actually complying with 238,” said Assemblymember John Harabedian, who wrote the law.

The California Department of Financial Protection and Innovation told LAist it has received more than 200 complaints from L.A. fire survivors “related to issues such as credit reporting, forbearance terms and insurance payouts.”

Harabedian said his office has been receiving calls as well.

“ A lot of people who rightfully deserve forbearance are not being given it, or to the extent that they're being offered forbearance, they're being tasked with things that are illegal under the law, like negative credit reporting, lump sum payments, et cetera,” Harabedian said.

He said holding companies accountable remains a challenge, since that requires survivors to report the issues they’re experiencing.

“It should not be incumbent on the borrower to have to educate a financial institution that's licensed and operating in the state of California that this is the law,” Harabedian said.

Loopholes

Aimee Williams, a housing rights attorney for the legal aid nonprofit Bet Tzedek that is working with fire survivors, said she has seen many clients benefit from the passage of AB 238. But big loopholes remain. She said the law doesn’t mandate the protections and there is still little transparency from many mortgage lenders about how their mortgages work and what people’s rights are.

“It's a step in the right direction, but outside of an overhaul of the law and providing something standard that all mortgage services need to follow, it's going to continue to be a bit of a mystery for people,” Williams said. “And unfortunately, we're going to continue to see people being surprised by demands for payment or threats of foreclosure.”

That’s what happened to Tamara Carroll, whose Altadena home survived the Eaton Fire. With smoke and other damage, though, it took more than eight months for her to safely return.

Tamara Carroll assesses damage to her patio from the Eaton Fire earlier this year.

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Noé Montes

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LAist

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She entered forbearance for the first three months after the fire while she lived in a Burbank hotel and took some time off work to cope with the stress. She said she extended that forbearance another three months when she was still displaced and sorting out her finances. Then she got a call — she was in active foreclosure.

“I literally screamed,” Carroll said.

The state policy urging lenders to extend those protections up to a year had not yet gone into effect, but Carroll said she got no warning or explanation that she could go into foreclosure if she continued with her forbearance, which is required by state and federal law.

A spokesperson for Carroll's lender, the Rocket Mortgage-affiliated Mr. Cooper,  said they didn't have any record of her asking for an extension. She says she did request one over the phone. The spokesperson said the company has fully complied with AB 283.

Without the extension, Carroll was told she’d have to pay about $18,000 — to make up for the last six months of forbearance plus additional fees — to get back in good standing, she said. Carroll used insurance money that she was going to use to replace her roof, which was damaged in the fire, to pay off the bank.

“I just feel like they took advantage of me,” Carroll said. “I was so emotionally battered from the fires … so I just didn’t have the energy to fight an institution that really didn’t care.”

A call for better policy 

As temporary housing insurance dries up, the challenges are only mounting for fire survivors. Many are paying rent on top of mortgages for homes that no longer exist or are still uninhabitable.

One Palisades couple is leading the charge for stronger mortgage protections — Rachel Jonas and Rob Fagnani lost their home in the Marquez Knolls neighborhood, where they had planned to raise their two young children. Now they’ve relocated to Fagnani’s parents’ house in Tennessee as they work to rebuild, which they expect to take at least another year.

“We want to be back in L.A., and we want to be in L.A. for the future,” Fagnani said.

Rob Fagnani, left, and Rachel Jonas, in front of where their Palisades home stood, are calling for policy changes.

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Courtesy of Rob Fagnani and Rachel Jonas

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While they don’t have to pay rent, they still have a substantial mortgage and are underinsured, so they decided to enter forbearance as they figure out how to finance their rebuild. Fagnani’s finance background gave him the tools to dig deeply into mortgage and insurance policy.

After talking with dozens of colleagues and friends in the mortgage and finance world, he and Jonas decided to organize their neighbors around mortgage policy reform for disaster survivors.

“Most people are underinsured. Everyone's trying to free up cash. Most people already have too much debt anyway, and they don't want to add on additional debt,” Fagnani said.

So they built a website and a platform to help neighbors easily send letters to their representatives to call for more comprehensive federal mortgage protections for disaster survivors across the country.

Their asks include:

• Extending the forbearance period for two to three years.
• Add deferred payments to the end of the loan term at current interest rates, with protections to avoid damage to credit scores and foreclosure pressure. 

“Many people are maybe a couple hundred thousand dollars short, and those couple hundred thousand dollars are the difference between them being able to square the economics,” Fagnani said. “So this is a way to do that without forcing families to take on more debt.”

Their efforts are gaining traction — Los Angeles City Councilmember Traci Park highlighted their advocacy in her newsletter last month. Mayor Karen Bass recently called on banks to voluntarily extend their forbearance relief for an additional three years. And some lenders are voluntarily doing the same — Bank of America announced it will offer up to three years of forbearance to fire survivors, though most people will have to modify their loans, which can hurt their credit.

Williams, the lawyer, said a standard at a federal level is “a great idea,” though she doubts the current Congress will be open to it. Mortgage-relief legislation proposed by Sen. Adam Schiff (D-Calif.) and Rep. Judy Chu (D-Monterey Park) earlier this year did not pass.

“Forbearance is not supposed to be … you'll be able to pay everything in full after the period ends,” Williams said. “It really gives you breathing room to figure out what to do next to make your long-term financial plans while trying to stay on top of your short-term financial security.”