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In an Economic Downturn, Some Owners of Habitat for Humanity Houses Face Foreclosure

Trying to hold on.

By Jon Campbell

March 22, 2011

If you needed one more reason to feel down about our economic position these days, look no further than Habitat for Humanity — and the foreclosure notices they've issued to more than half a dozen local families. The same families the group worked so hard to help in the first place.

Hartford Area Habitat for Humanity — one of several chapters in the state — is currently involved in two foreclosure proceedings. And court records show at least seven other filings in the past three years at the Hartford and New Haven branches of the organization.

Habitat is one of the best-known nonprofit groups in the country — and it's run by a bunch of really nice people. Religious people. Hardworking people. These are the kind of people who don't just make a donation, or kick in some money for rent — they actually build houses for people on limited incomes, splinters and all.

And with a reputation like that, says Jeffrey McChristian, the attorney handling foreclosure proceedings for Hartford Area Habitat for Humanity, people are often surprised to learn that Habitat for Humanity sometimes tries to get their homes back.

“Sometimes when I go to court, a judge will raise an eyebrow,” says McChristian.

Part of the confusion may stem from the perception that Habitat gives their homes away. The fact that there's a mortgage involved in the transaction can be missed in the soft-focus media coverage that often accompanies the start of the projects.

In reality, says Michael Brett, executive director of the Hartford-area chapter says Habitat functions less like an all-out charity, and more like a bank.

If Habitat were a bank, it wouldn't last very long, because it's not very good at making money. The loans they issue are equal only to the cost of building the home, and while most financial lenders charge a hefty interest on their loans — anywhere from 4 percent and up — Habitat makes no-interest, no-profit loans with extremely low monthly payments.

The Hartford Advocate reviewed court documents related to seven local foreclosures dating to 2009, and none had monthly payments in excess of $350. One representative property in New Britain was purchased for $93,000, and with no interest assessed on the 30-year mortgage, the monthly payments were $307.13. Some properties had payments as low as $210.

Brett says his group holds about 160 mortgages, and has a foreclosure rate of around 2 percent. Duane Bates, spokesman for the national group, Habitat for Humanity International, cited the same 2-percent figure nationwide, although a rough calculation of current and recent Connecticut foreclosures using court documents indicates it may even be less than that, with only three active cases currently on file. The group says it initiated over 6,000 loans in 2010.

The reasons for foreclosure can be varied, Brett says, but they're basically the same troubles any other homeowner may encounter in this economy; the loss of a job or an unforeseen emergency can make it difficult to keep up with payments.

But there are other reasons Habitat may need to take a home back from its owner. In at least one case, McChristian says, a family decided to rent out the home they were living in, and move out of state, which is a violation of the organization's guidelines. Another notice filed in Hartford was initiated after the home's owner passed away, and the property went to the next of kin, who then failed to make payments.

Earl and Hattie Mundle are one of the families involved in legal negotiations with the Hartford branch of Habitat. Earl Mundle wasn't willing to speak much for publication, but he said he had fallen behind in payments after a broken ankle put him out of work last year.

The Mundles were the subject of news reports when their house was first built in the mid-1990s. Their experience was rocky from the start, after someone set fire to cardboard boxes on the porch of the still-unfinished building, on Guilford Street in Hartford's North End. In the midst of being refurbished, the condominium had to be re-refurbished before they could even move in. Mundle said the fire experience was a setback, and attributed it to kids messing around in what was then a sparsely populated neighborhood.

After more than 15 years in their home, Mundle said he thought Habitat had treated him and his wife Hattie very fairly through the foreclosure negotiations. He said the payment issues had been resolved after mediation with the group. Mundle said they're not in danger of losing the house.

“They're doing what they need to do, and we're doing what we need to do,” says Mundle. “I think they've definitely been fair.”

To be eligible for a Habitat home, families have to have an income between 30 and 50 percent of the median in the area; in Connecticut, the area is defined by the county where the family resides.

The most important criterion for Habitat is need — there has to be a reason why the applicant requires new housing. A growing family might be straining the space, or they may be paying too much rent relative to their income.

Aside from a demonstration of need, the organization also has an elaborate screening process to ensure that the families they work with won't be saddled with more debt than they can manage. The process tracks closely with what other lenders might require. Families go through a credit check, provide pay stubs, and show that their budget can accommodate not only the mortgage, but the taxes and other expenses associated with owning a home. The guidelines in Hartford require at least $24,000 in annual income.

Candidates who make it through the initial screening process then undergo a detailed need assessment that includes a visit to their current home by the group's volunteers. Those who have the most demonstrated need — whose living situations are least adequate, for various reasons — are the ones who have the best chance of being selected. Brett gives the example of a family caring for a child with cerebral palsy who may need to be carried upstairs several times a day, as an example of what might make a particular family's case especially compelling.

If they're ultimately approved, families also need to provide 150 hours of personal “sweat equity,” which might mean putting hammer to nail to build or remodel their own house, or that of another Habitat family.

Brett says the idea behind the detailed assessment is to set their families up to succeed, and in the vast majority of cases, they do. Brett said it's important to understand that while Habitat is a humanitarian group, in many ways — and as far as legal arrangements between families and the organization — the group behaves more like a bank than anything else. They do their best to be compassionate, but ultimately they need to look at their bottom line, too.

“We really go to the nth degree before we get to that point [of foreclosure],” says Brett. “But we have a fiduciary responsibility to our donors. If our donors give us money to put people in houses, that's what we need to do.”

McChristian said the Mundles' case isn't unusual — most of the time, a foreclosure notice from Habitat doesn't mean the legal process will run its course. The first step when a family has missed payments, he says, is to send them to organizations like the Urban League for credit counseling. They'll also start working with one of Habitat's family relations directors, who help find a way to get the payments back on track. In most cases, he says, the families never end up in court, and he never gets involved.

“By the time I get the file, there have often been four or five attempts to clear things up,” says McChristian.

Documents seem to bear out Habitat's claim of leniency — in some cases, payments were delinquent for nearly a year before Habitat filed with the court. In every case there's a long gap between the first missed payment, a default on the loan, and the legal filings.

McChristian says that even when it comes time to go to court, he tries to proceed in the humanitarian spirit that Habitat brings to the rest of the work they do.

“A lot of people get to do the feel-good work for Habitat,” McChristian says. “I've been tapped to do the stuff that's not the feel-good, but I try to honor their mission when I do it.”