Foreclosure paperwork is tying up some Cedar Rapids buyouts

CEDAR RAPIDS - About a year ago, Bank of America sent a process server with a notice of foreclosure to 2207 D St. SW. The service came back with an added note: “VACANT LOT NO HOUSE.”

That hasn't stopped the big bank's subsidiary BAC Home Loans from pursuing foreclosure against Sonya Mullen, owner of the house washed away in the June 2008 flood.

“It makes absolutely no sense,” said Corey Luedeman, “because the house is gone.”

Luedeman, senior staff attorney at Iowa Legal Aid's Cedar Rapids office, is representing Mullen and several other borrowers in similar situations.

Another staff attorney, Lisa Gavin, has about a dozen such cases, and estimates Legal Aid is handling “only a small percentage” of flood-wrecked homes, many already demolished, whose owners can't take a city buyout because the banks won't sign off on a deal that doesn't include the entire amount they're owed.

“It just shows a complete lack of understanding,” Gavin said. “The more the banks delay this, the more it costs the homeowner, because the interest costs accrue.”

The city has encountered stalled foreclosures on about three dozen flooded homes of the nearly 1,500 enrolled in its voluntary buyout program, said Amy Schirm, the city's real estate coordinator for flood acquisitions. They're among the 175 cases in which the city is awaiting title clearance before proceeding with a buyout.

The city has closed on 810 of about 1,200 properties it expects to purchase.

“If the bank's home office is out of state, they weren't aware of the devastation we had,” Schirm said. “That is an issue.”

Still, “several of these banks had their local offices flooded, so you would think they would get it,” Gavin said.

Efforts to locate Mullen and other flooded-out borrowers were unsuccessful, and Gavin and Luedeman said their clients don't want to comment publicly with their cases still pending. The Legal Aid attorneys were willing to talk about the flooded, foreclosed cases in general terms.

Officials at Bank of America did not respond to calls seeking comment.

The city's buyout policy calls for homeowners to be paid 107 percent of their property's pre-flood assessed value, minus any assistance they've received through the Federal Emergency Management Agency, the state's Jumpstart program or similar public sources.

“It's better for the property owner and the lender if we can reach an agreement that will essentially allow the buyout process to go through while the pre-flood owner is still the owner,” said Joe O'Hern, the city's flood recovery and reinvestment director.

Payments to owners who acquired property after the flood - including through foreclosure - are limited to the purchase price or the assessed value, whichever is lower.

“For a destroyed home the assessed value is going to be pretty low,” O'Hern said. “On the surface that would be a very easy conversation to have (with lenders) but it's not always that easy.

“We're trying to work them through as we come across them, but obviously there's going to be some tough cases at the end,” O'Hern added

“A lot of people have this perception that they're getting preference, because of this 107 percent,” Gavin said. “But they lost their home, they want to find another place to live, and then they have this duplication of benefits (deduction) which puts them upside-down on their house,” which no longer exists or is uninhabitable.

“Our clients have called the banks repeatedly,” Gavin said. “And I have clients getting five or six calls a day from the bank.”

“This is all new to everyone,” Schirm said. “This is so far the biggest buyout in the country's history under the CDBG (Community Development Block Grant) program.”

Meanwhile, flooded foreclosure cases are scheduled for court through 2013.

“Some of the actions they're taking on foreclosure cases don't make sense when there's no house,” Luedeman said. “There's not going to be a sheriff's sale.”