Amy Birge is losing her home.
It’s the place she brought her babies, swaddled in blankets. It’s where her three boys, now ages 4, 5 and 6, play games and paint pictures and jump on the bed and spill food on the carpet. It’s where their grandpa built a big wooden fort. It is, Birge said, “one rare consistency in their little lives.”
Because of medical problems that required two brain surgeries and a husband who left her, she fell behind on her mortgage and faced foreclosure.
At the last minute, however, her son’s former preschool teacher told Birge about a church friend who could save her Post Falls home.
Overwhelmed at the prospect of uprooting her children and seemingly out of options, she accepted an offer from Highland Financial LLC believing that, with the company’s help, she could keep her house.
Now, Birge feels the entire arrangement was a scheme designed to evict her within a year and sell it. She is among the thousands of Americans searching for ways to avoid foreclosure who fall prey to companies promising to help them keep their houses.
The National Consumer Law Center and other experts warn that most of these arrangements fail and that they expect this type of fraud to mirror rising foreclosure rates across the country.
Birge said she didn’t fully understand the specifics of the “lease-option agreement” she signed last August, which effectively surrendered her home, as well as the equity she had accrued, to Highland Financial. According to the contract, she signed over her home to Highland Financial in exchange for the company’s help. She would continue making payments at the first of the month to Highland, which would pay the mortgage lender and help her catch up on her home loan.
While the original mortgage remains in Birge’s name, her $999 monthly checks to Highland Financial were basically lease payments that covered Highland’s payments to the mortgage lender. Highland also met her delinquent mortgage payments.
In exchange, Birge said, she thought Highland would receive half the home’s equity.
Birge and her former husband paid $111,000 in 2002 for the house in the Singing Hills development. A graduate of the University of Idaho, she worked for the college’s law school before moving to Post Falls so her husband could pursue his career as a police officer.
To get her house back, Birge would have to pay Highland $155,000 by August. If she can’t, Highland could evict her and sell the home, which is currently appraised at $185,000.
The amount due in August is about $48,000 more than what she owes on the original mortgage. The 400 percent interest rate on a one-year fix would give anyone pause, but Birge said she was desperate to keep her home and vulnerable to false hopes.
“I honestly thought I would be able to catch up, keep my home and everyone would come out ahead. That’s what I was led to believe,” she said.
Now Birge can’t find a lender willing to loan her enough money to buy out Highland’s contract.
It makes her believe that Highland’s real intention was to get the house and sell it.
Her teacher friend who helped arrange the transaction, Heidi Russell, works as an office manager for Highland Financial owner Steve McMullen, and served as notary public on the deal.
McMullen, in an interview at his office, said he is conflicted about continuing to offer lease-option agreements after Birge’s experience – even though such arrangements make up 75 percent of his business.
“I really thought it was a chance for me to do something good,” he said. “This type of financing is full of shady, fraudulent people and dealings. But not us.”
McMullen admitted, however, that the lease-option contracts almost never work for homeowners. He said the failure ratio of his contracts is about 9-to-1, meaning his company is taking over homes in a real estate market that has seen home values soar for several years.
He declined to discuss his profit margin. Nor did he provide the names of people who have met the terms of his lease-option agreements and kept their homes.
“My pastor tells us that God gives everyone a gift,” said McMullen, who said he is a devout Christian. “Finance is my gift.”
Mike Larsen, bureau chief of the consumer affairs division of the Idaho Department of Finance, said his agency is investigating a complaint Birge made against Highland Financial as a possible violation of the Idaho Collection Agency Act.
“Any company that takes money from someone to pay the debts owed to that someone’s creditors must have a permit,” Larsen said. “This company, I can tell you, does not have such a permit.”
McMullen, who also works as a firefighter for the city of Spokane, said his private company is a real estate investment business and thus doesn’t need a lender’s license.
Larsen said his agency is interested any time a consumer appears to have been victimized.
“What we really have here is a woman who signed over her house for a few thousand dollars,” he said. “The devastating part is that she stands to lose what could be enormous equity in the home.”
Highland Financial also does business in Washington, where state Director of Consumer Services Deb Bortner is skeptical of such contracts.
“I just don’t know of a single one of these deals that’s been real,” Bortner said. When faced with foreclosure, she said, “what these people should be told is ‘find a legitimate Realtor and sell your house.’ “
Many of Birge’s medical problems began with the onset of daily epileptic seizures as a young adult. It wasn’t the first physical challenge she faced. She was born without a left arm and wears a prosthesis. It has had little bearing on her abilities and she doesn’t use it to make excuses, she said.
Her seizures, however, forced her to leave her job and depend on Social Security disability payments. In January 2005, surgeons at Seattle’s Harborview Medical Center operated twice, removing parts of her brain in hopes of stopping the seizures.
About six weeks after her surgeries, however, her husband left. After months of surviving without child support and high medical bills, she said she was choosing between buying groceries and paying her mortgage.
She refused to declare bankruptcy to escape her bills.
“Those doctors gave my life back,” she said. “To not pay them seemed immoral.”
Her recovery has been miraculous, she said. Her physical and verbal skills have returned, and she hasn’t had a seizure since the surgeries more than two years ago.
McMullen calls his company “the last option before foreclosure.”
The most common way Highland Financial finds business is to comb foreclosure filings at county courthouses. McMullen then attempts to meet with the homeowners and the process begins.
“It’s really pre-foreclosure,” he said, adding that he steps in sometimes within days of foreclosure auctions. “In one case it was two hours and 20 minutes.
“I used to go stand on the courthouse steps with everyone else,” he said. “Those days are gone. There are just so many real estate investors with so much money.”
McMullen’s contract with Birge included unusual disclosures, including one that reads: “It is not the Buyer’s intention to defraud, but provide a more positive outcome than a foreclosure.”
Since his experience with Birge and others has drawn the interest of lawyers and state investigators, he requires people to sign a two-page memo advising them of other options ranging from asking mortgage lenders for loan forbearance, to turning to family and friends for help, to selling the home. He said he often helps customers with expenses, too, such as groceries and gas money.
Birge believes the whole effort is a disingenuous act to gain a person’s confidence and then take her home.
“Highland wants nothing more than for me to fail,” she said, “because that means they get my house and more money.”
She has since scrambled to find an alternative. She found a lender willing to offer $135,000 – enough, she says, to catch up on back payments and still pay Highland a profitable sum. McMullen maintains it’s not enough to recover his company’s investment in Birge’s home and earn an acceptable profit. McMullen said he will no longer deal with Birge. He sent her a letter late last week telling her that he recently sold the contract to another investor, whom he declined to name.
McMullen said he is saddened by the way the Birge deal unfolded and calls the entire episode a mistake. And he said he wasn’t too keen on the idea of evicting a woman who goes to a church across town.
He said he can empathize with Birge and others who face foreclosure, claiming his family lost their Boise home to foreclosure when he was 8 years old. He said it destroyed his family’s sense of place and led to the divorce of his parents.
Washington Assistant Attorney General David Huey said people should be wary of foreclosure-avoidance schemes.
“We think those leases with options to buy are highly questionable,” Huey said.
“There’s always the possibility of the sale of the property. Use the equity to get into a rental or a cheaper piece of real estate.”