Queen Creek couple Michelle and Morris Benoun moved to Arizona last year with hopes of escaping California’s exorbitant housing costs and finally buying a home for their two children.
But their dreams quickly crumbled when money troubles plunged the first-time buyers into foreclosure.
The couple arrived in town to find that their monthly loan payments were $1,846 — roughly $300 more than what the loan officer had promised. Home values were sinking across the Valley. And a job loss sent the Benouns tumbling into a deeper financial pit.
“We could just not catch up,” Michelle Benoun said. “It just got worse and worse. We lost our car.”
Thousands of Valley families are in danger of losing their homes to foreclosure, and industry analysts say the problem will worsen in coming months.
The Benouns’ Queen Creek ZIP code, 85242, was one of the East Valley’s hardest-hit regions in April with 59 foreclosure filings, according to a recent study by community-advocacy group ACORN.
Statewide, 5,918 properties entered some stage of foreclosure last month, a nearly 200 percent increase from May 2006, said RealtyTrac, which tracks the national foreclosure market.
“Nobody’s immune to it,” said Patti Crawford, who manages Intero Real Estate Services’ foreclosure division in Mesa.
Valley homes costing from $45,000 to more than $1.6 million have been foreclosed upon and put back on the market by lenders, Crawford said.
Some borrowers are facing hundreds of dollars more in monthly mortgage payments, as teaser deals end and their adjustable-rate loans reset to higher interest rates. Slumping home values and tightening lending standards have eliminated refinancing as a way to avoid foreclosure.
To make matters worse, some homeowners also risk incurring thousands of dollars in fees — called prepayment penalties — if they attempt to refinance within a set period of time, said Jeff Brock, a loan officer with The Mortgage Advantage in Tempe. “A lot of them didn’t even realize what type of loan they were on,” he said.
The structure of some mortgages has caused big problems. One loan type, which offers several payment options, allows borrowers to pay less than the interest due. That means buyers are adding to the principal balance each month instead of chipping away at it, known as negative amortization, Brock said.
When Wendi Pasa refinanced her Gilbert home a year ago to buy her son a home in Mesa, her loan officer steered her toward an adjustable-rate loan with payment options.
The lowest monthly payment wasn’t enough to cover the interest, but Pasa said the loan officer insisted her principal balance would only rise by $1,000 a year.
She soon found that by paying the minimum amount, her balance was instead climbing by $1,000 a month. To pay down on the principal, the monthly payments would have to be more than $2,500 — something she never planned and can’t afford.
“This is called the biggest nightmare ever,” she said.
With her debt climbing and home values sliding, Pasa owes more than her home is worth and faces a $15,000 prepayment penalty if she refinances.
For now, she’s continuing to make the minimum payments and is rapidly racking up thousands of dollars of new debt.
“To see my house makes me sick,” she said. “I can’t even tell you how sad I am that we’re in this situation.”
During the housing frenzy, lenders gave buyers loans they should have never qualified for, said John Burpee, owner of Mesa-based Foreclosure Help Group. “These people cannot afford the payments,” said Burpee, whose firm helps borrowers negotiate with lenders to avoid foreclosure.
Between eight and 12 financially-strapped property owners call every day, many of them delinquent because of job losses, medical emergencies and other hardships, he said.
Queen Creek homeowner Kathrine Partridge fell behind on payments this year after taking on her family’s mortgage, car payment and credit card bills, following a divorce.
Now, the property, where she lives with her 2-year-old daughter and takes care of four horses, is scheduled for auction next month. “You always think of what you could have done to change everything,” she said.
Partridge hopes to sell the 1,400-square-foot house, for which she paid $147,000 in 2003, even if it’s at a loss.
But she worries.
Homeowners like her, who are looking to make quick sales, face stiff competition with nearly 58,000 homes for sale across the Valley.
Juan and Annie Rojas have had their five-bedroom home near Broadway Road and Center Street in Mesa on the market since October.
The couple refinanced the house for $238,000 last summer with plans to remodel. But when the first payment coupon arrived, they realized the documents they signed put them in an adjustable-rate loan with a monthly payment nearly $300 higher than what they expected.
“We’re first-time home buyers. We’re pretty much blind to all this paperwork,” said Juan Rojas, who runs a landscaping business.
They’ve been borrowing from friends and family just to hold on — and losing sleep, fearing foreclosure is just around the corner.
Their region has been one of the most affected areas of Mesa. The city had 215 foreclosure filings in April — more than double the 89 filed in the same month the year prior.
The couple’s lender has refused to modify the loan and has now cut off contact, Annie Rojas said.
“It’s like they’re setting us up to fail,” she said. “This is a house we worked 20 years to buy. We don’t want to just give it back.”
Foreclosures by ZIP code
Number of homes by ZIP code that entered the foreclosure process in April, according to RealtyTrac: