Paul Gantt, a disabled Vietnam veteran from Kapaa, Kauai, has received more than 10 foreclosure notices since September 2010.
"I just throw them on the pile," Gantt said.
Gantt and his wife, Kena, have amassed a considerable stack of mortgage documents since becoming delinquent on their home loans nearly four years ago. The family hasn’t made a mortgage payment since a line of credit that they were using to pay their primary mortgage ran out. The family said they were doing fine until 2007 when they refinanced their modest home loan for a third time to construct an income-producing day care and triplex on their 6.2-acre lot. Washington Mutual approved a $1 million loan for Kena, although she earned only about $13,000 a year baby-sitting and the family’s total income was around $40,000.
The Gantts, who took out their loans during a time when Hawaii property values were soaring artificially high, are now hundreds of thousands of dollars underwater on their home. While many would argue differently, the couple say that they should not have to pay their JPMorgan Chase loan because it was fraudulently obtained using inflated income. Gantt has said the loan officer committed fraud by helping the couple use an old business license to inflate their stated income by more than $8,000 a month. Legacy Mortgage, the company that brokered the loan, has denied these accusations and said that the Gantts bear sole responsibility for the loan that they signed.
The couple, who are now essentially squatting on their own property, represent the extreme end of Hawaii’s housing crisis. They don’t have enough income to pay their notes or to participate in loan modification. They aren’t good candidates for a lender-approved short sale because their property is unfinished. They don’t want to hand over the deed because they have nowhere else to go. As their fight to save their home drags on, they have become part of the growing shadow inventory of Hawaii homes that are in foreclosure but have not made it through the system. Although Hawaii’s home sales and values have begun to improve, real estate watchers fear that a foreclosure backlog could push recovery of Hawaii’s residential real estate market several years down the road.
At the end of October, RealtyTrac estimated that 5,227 Hawaii properties were in some stage of foreclosure or bank owned, said Daren Blomquist, RealtyTrac’s director of marketing communications. The company estimates that total foreclosure inventory in Hawaii has built up to a 21-month supply and that there is a 25-month supply of bank-owned inventory, Blomquist said. That compares with a 17-month supply of total foreclosure inventory nationwide and a 13-month supply of REO (bank-owned) inventory nationwide, he said.
"That’s statistically significant. It means that in Hawaii there is a much longer shadow of this inventory than in other states," Blomquist said. "Since that inventory has to be absorbed before the market can recover, it could take longer for the market to improve."
Blomquist said that a healthy market should have three months or less of shadow inventory. It builds in ailing markets for a variety of reasons. Sometimes lenders want to optimize resale pricing or preserve balance sheets. Judicial cases have been known to back up. And sometimes, like in the case of the Gantts, lenders have inexplicably let delinquent loans linger.
"There is a lot of shadow inventory here, especially in markets like Ewa, Kapolei and Kunia," said John Riggins, owner of Kapolei-based John Riggins Real Estate.
Changes in Hawaii’s foreclosure laws have stymied the process, Riggins said. Sometimes, lenders cannot locate the title or other documents, he said.
In some cases, Riggins said, "lenders have such large inventories of foreclosures on the mainland that they haven’t bothered too much in Hawaii."
No matter the reason, shadow inventory buildups hurt the market, he said.
"If this inventory gets released at once, it could hamper recovery," Riggins said.
While the Gantts have benefited from the nearly four years that they have spent in their home sans payment, they said that the delay has not been by choice and has brought repercussions such as stress and ill health.
Gantt had hoped that Act 48, which was signed by Gov. Neil Abercrombie in May, would bring transparency to the nonjudicial foreclosure process or at least bring his case before a judge. Under the new law, Hawaii’s qualified owner-occupants have the right to meet with a dispute professional and a lender representative before a nonjudicial foreclosure sale.
The state Department of Commerce and Consumer Affairs has had the new program running since Oct. 3, but there has been no demand for it, said Seth Corpuz-Lahne, program specialist for the Mortgage Foreclosure Dispute Resolution Program.
"Basically the lenders have switched all their nonjudicial to judicial foreclosures," Corpuz-Lahne said.
At the end of November, there were about 390 judicial foreclosure filings as compared with about 100 the year before, he said.
Before Act 48, most foreclosures in Hawaii were nonjudicial because it was cheaper and quicker. In some cases, delinquent homeowners were evicted within 60 days. On the other hand, judicial foreclosures typically took from six months to one year.
"With an increase in cases, the time might go up," Corpuz-Lahne said.
However, some lenders recently have become more willing to work with Hawaii homeowners to resolve delinquent loans outside of foreclosure, Riggins said.
"I’ve seen some cases where Chase has been offering borrowers more than $20,000 to do a short sale," Riggins said.
Since 2009, Chase has prevented 1,400 foreclosures in Hawaii and has approved 248 isle short sales and 800 modifications, said Chase spokesman Gary Kishner.
"At Chase our primary goal is to keep a borrower in their home. Foreclosure is a last resort. We are doing everything possible to help keep people in their homes because it is good for everyone — the individual, the investor, the community, the housing market and the economy," Kishner said.
The company has added 10,000 staff members nationwide to its default servicing department and has supported assistance efforts by the U.S. Department of Housing and Urban Development, he said. In Hawaii, Chase held three outreaches this year, Kishner said.
"One of Chase’s bigger challenges in helping borrowers avoid foreclosure is getting them to call or meet when they have trouble making a mortgage payment," he said.
After exhausting other efforts, it generally takes Chase 456 days to resolve a foreclosure from notice to sale, Kishner said.
As the Gantts’ delinquency drags out, their property and credit rating continue to deteriorate. Their main home and day care remain unfinished, and 10-foot-high weeds now block the entrance to the bungalow and two-story home that form the triplex. The couple had envisioned renting these units to offset their mortgage. However, construction halted when payments on the family’s loans soared to more than $5,000 a month.
The Gantts say that they are trying to get past a stalemate with Chase. However, Kishner said Kena Gantt was approved for a modification in 2009 and signed the agreement at that time.
"If that was true, why do they keep sending us more requests to do a loan modification," Paul Gantt said.
This month, Chase sent Kena Gantt a letter about a program that could allow her to sell the home for less than she owes while walking away with $35,000 in moving expenses and the promise of no future payments.
Paul Gantt said that no one is going to buy an unfinished house and that he’s grown frustrated by lost paperwork and false hopes.
"They just don’t get it. I can’t pay this mortgage. I never could, we don’t have enough income," he said. "This loan was designed to fail from day one. It was fraud pure and simple. I want my day in court."
