Home loan default results in lawsuit
A sad story of a loan default and the resulting lawsuit.
A disabled Navy veteran bought a house with the help of city and federal housing programs. A nice blue Charleston single on a dead end street built by a non profit group and heavily subsidized by the city to increase affordability. He was receiving a federal rent subsidy which the Charleston Housing Authority would let him use to help purchase a home and got a mortgage from First Federal and moved in. he said he only learned later that the Housing Authority was cutting the amount of his voucher and raising his share of the payment. He defaulted on the loan, lost the house to foreclosure and is suing the Housing Authority.
Here is the back and forth of the argument as reported by the Post and Courier.
"Our demand would be for a refund of his out-of-pocket expenses for moving from one place to another, and make him eligible for the subsidy he was getting before they got him into this fiasco," said Michael Daniel, Gibbs' lawyer.
At the Housing Authority, officials said Gibbs has no one to blame but himself. "He's saying we misrepresented the amount of subsidy we would pay," said James Heyward, chief operating officer for the Housing Authority. "From where we sit, he attempted to defraud the taxpayers, and now he wants someone else to bail him out."
Housing Authority officials noticed that when Gibbs filled out his mortgage application, he listed federal disability payments, but also a veteran's pension that he had not previously reported. That meant Gibbs had been receiving a larger voucher than he was entitled to, and the Housing Authority demanded he return more than $5,500, which Gibbs repaid.
Gibbs said he thought the repayment took care of the discrepancy, which he said was unintentional. He said he had no idea the Housing Authority was going to cut in half the stipend he was counting on to help with mortgage payments.
Joe Briley of the Housing Authority said he notified Gibbs and the Charleston Bank Consortium of the reduced subsidy at least five weeks before Gibbs completed the purchase of the house. "There's got to be some other piece to this that I'm not aware of," said Heyward. "I can't see why a bank would approve that loan."
Nancy Fabian, executive director of the Charleston Bank Consortium, said loans are supposed to be structured so that payments, including taxes and insurance, are not greater than 42 percent of the borrower's monthly income. Gibbs' share of the mortgage payment on 47 Poinsett St., after his subsidy was cut, amounted to 54 percent of his income. Fabian said she did not recall the details of Gibbs' loan, but said the Housing Authority would have had to review the settlement sheet before the sale was completed. "I wouldn't want to put a person in the position of a foreclosure before they even get in the house," she said.
The consortium works with banks to arrange special financing for first-time home buyers. "If someone fails, it impacts all of us," said Geona Shaw Johnson, director of Charleston's Department of Housing and Community Development. "Based on my recollection, no one knew what was taking place, and we didn't know he was having trouble."
What I notice is that misrepresentations were made on the application resulting in an increased financial liability to the buyer (claimed to be unintentional). His repayment of $5500 did not make the problem go away. Then he claimed he was not advised properly (disputed). No one can figure out how the bank made the loan.
This is a sad story, not only because the man lost the house but because housing affordability is one of the key issues we face not only in the Charleston South Carolina real estate market but in many parts of the country. And of course, the inevitable lawsuit because no one takes responsibility.
As to the house, it looks pretty nice. Available only to qualified buyers with limited incomes.
