When Al Ynegis bought a house in Apple Valley three years ago, he knew what he was getting into... sort of.
Ynegis says he knowingly signed up for an adjustable-rate mortgage, which would make his mortgage payments increase over time..
"But I didn't know it was going to adjust this much," he says now.
Ynegis started out paying about $1,645 a month. But in three years, his mortgage payments have climbed to $2,500 a month. That's a figure he can barely afford, especially in the summertime. Ynegis is a music teacher, and this time of year, his student count and income drop.
"I'm hoping I won't go into foreclosure, but I'm really close to it," he says.
And he imagines his situation growing yet worse.
"Bankruptcy would be my next option," according to Ynegis.
Bankruptcy and foreclosure are the two darkest stains that can blemish a person's credit score. And foreclosures are hitting record levels. The number of U.S. homeowners at risk of losing their homes hit an all-time high in the first quarter of this year.
There are no official numbers tracking whether there's a commensurate spike in bankruptcy filings. Yet, talk to local bankruptcy lawyers, and you grasp the beginnings of a trend.
"I've seen four clients today, and everyone is losing their home. So it's 100 percent today," says bankruptcy attorney Barbara May. She practices in Roseville and is known as a "fixer;" she only sees clients who have been turned down by two other bankruptcy attorneys. In other words, people at the end of their rope.
A lot of her clients' problems stem from having an adjustable rate mortgage they can't afford. "I haven't had a case this year where someone wasn't in trouble in their mortgage," May says.
Bankruptcy can only do so much for people facing a foreclosure situation. May says people are always coming into her office asking, "How can I save my house," or "What bankruptcy can I file?"
But those clients often mistakenly believe a bankruptcy attorney will help them magically afford their homes.
"They can't file a bankruptcy to generate money," May says. But she says it can offer some relief. If you file Chapter 13 bankruptcy before you reach the point of a sheriff's sale, where the lender buys back the mortgage, you can work out a plan to repay back payments on the house.
So, if you're $10,000 in arrears, you can arrange to pay off that sum over five years' time.
But "Nobody does, nobody does, because what happens is people in this position never follow through with their commitments," according to Mike Aymar, a local mortgage broker who's seeing a growing number of customers facing bankruptcy and foreclosure at once. He says while filing bankruptcy may help people catch up with past due payments, it's rarely enough to get them back on their feet and stay in their homes. He says few can then keep up with their ongoing mortgage payments.
"What happens is you put the deal together, and it gives them a little bit of relief, but they just can never catch up because they get so far behind," Aymar says.
And according to bankruptcy attorney Barbara May, a lot of people file bankruptcy way too late in the foreclosure process for it to do any good. She says they usually come to her when they're about to be forced out the door. At that point, she can help them wipe out other financial obligations that might be bogging them down, like credit card debt. But she can't help them stay in their homes.