Tuesday, April 22, 2014
This Guest Commentary ran in Sunday's Everett Daily Herald (Washington State), the community newspaper of record regarding challenges facing homeowners and survivors of the Oso mudslide. Many lawyers, clinical profs, and students in the Seattle and Western Washington area versed in mortgage, finance, probate and consumer protection issues are lending a hand.
How to lighten slide victims' financial burdenIn leveling over 40 homes, the mudslide also washed away residents' personal effects. As a result, the most basic challenge of proving legal identity to engage in a host of essential transactions is just the beginning. Survivors and the heirs of the deceased must establish or re-establish proof of right, title, or ownership in real and personal property. Only then can they begin to address legal matters involving their mortgages, automobile loans, and other obligations — facts of life that, sadly, were not extinguished by the mudslide. In general, issues of probate and residential mortgages will be most profound for the survivors. Establishing a legal interest in a destroyed residence will be indispensable to negotiating with any mortgage servicer or lender. Moreover, if a home was not in the name of a survivor, and if the home was willed to several heirs, clearing title may be a precondition to receiving assistance from various services such as FEMA or Fannie Mae. The very practical barriers to property ownership and title verification, probate, estate, and other domestic and family law issues will continue to make life difficult for the survivors — especially if no proactive measures on the part of government and financial institutions are taken. Standard insurance policies do not cover landslides. Unless big mortgage lenders follow the admirable lead of Coastal Community Bank and agree to forgive the homeowners' mortgage loans, many survivors will find themselves in the absurd position of being obligated to make payments on a home that no longer exists. Since the area has been declared a disaster area by President Obama, lenders, at the very least, should suspend the obligation to make mortgage payments for at least six months. Such a moratorium should include one on assessment of late fees. Importantly, because survivors will need new housing, and because credit reports are used by landlords and lenders alike in deciding who can access housing, lenders should not report adverse events such as past due payment to credit bureaus. Loan forgiveness and relaxed credit reporting policies should be applied not just by mortgage lenders, but by business lenders, automobile or agriculture equipment purchase lenders as well as credit card companies. The federal and state government could also go far in helping mitigate the resulting distress by refusing to tax any mortgage forgiveness as income. Because Congress refused to extend the Mortgage Debt Relief Act of 2007, extinguishing the homeowners' mortgages will be considered "income" and thus taxable. That outcome is cruelly unconscionable, especially where the homeowner has lost life, if not property to a natural cause. Moreover, while federal disaster aid compensates homeowners for their losses up to $32,400, not all survivors were homeowners. Consequently, relief should be extended to all those adversely impacted by the mudslide — whether an owner, renter, or someone just passing through. For those who survived the heartbreaking Oso disaster, and those who must assume the obligations of their loved ones lost in the devastation, the road to financial stability may be a long one. However, the government, banks and other financial institutions can go far to making that road as smooth as possible. Bryan Adamson is a Seattle University associate professor of law who teaches consumer protection matters and a Board Member of Northwest Consumer Law Center.