With about 1 million homes in foreclosure at the close of the second quarter, according to a Treasury Department report released last week, the American dream is going into reverse at bewildering speed for homeowners across the country.

For some former homeowners, renting provides financial relief or a new beginning. And while those interviewed for this article became renters for different reasons, they all plan to be owners again.

By JANIS MARA

With about 1 million homes in foreclosure at the close of the second quarter, according to a Treasury Department report released last week, the American dream is going into reverse at bewildering speed for homeowners across the country.

For some former homeowners, renting provides financial relief or a new beginning. And while those interviewed for this article became renters for different reasons, they all plan to be owners again.

Frances Flynn Thorsen is one of the last people you would expect to lose a home to foreclosure. As a Pennsylvania Realtor, she helped hundreds of clients keep their homes over the last 22 years, working as an specialist for bank-owned properties (REOs) and HUD homes (homes that are sold by the U.S. Housing and Urban Development Department after a foreclosure action on a property with an FHA-insured mortgage).

Foreclosure creates renter

But in 2005, her home was foreclosed in the wake of a refinance loan that she now considers to be predatory.

"I was devastated," said Thorsen. "Just like my clients, I know what it is to feel financial terror."

Many homeowners have experienced Thorsen’s fate, and many still face it. Another wave of foreclosures is likely on the way. Notices of default, the first step in the foreclosure process, jumped 16 percent in August 2009 compared to August 2008, according to Daren Blomquist of data aggregator RealtyTrac.

After Thorsen lost her four-bedroom, white and brick Colonial home of 20 years, where she and her husband raised their two sons, she was rushed to the hospital with chest pains.

"They gave me an angiogram to see if it was a heart attack. But it was all stress-related," Thorsen said.

"I should have fought harder but I had a job and two kids," Thorsen said of the foreclosure. She did try to negotiate with the lender, but met with little success. After the amount of her loan nearly doubled — from $88,000 to $160,000 in 11 months — she could no longer make the payments and foreclosure followed.

Immediately, Thorsen got to work repairing her credit. "It’s been very, very difficult," she said. "It’s not an easy thing to do." She worked with a consumer protection attorney, a practice she recommends.

"I ordered a copy of my credit report and had erroneous entries removed," said Thorsen, who relocated to Arizona in 2007, hanging up her Realtor hat to focus on helping people keep their homes via foreclosure workshops and other approaches.

"It turned out there was a lot of stuff attached to my credit debt that I didn’t even owe."

She put the details of the debts she couldn’t account for into writing and sent the letters to all three credit bureaus: Equifax, Experian and TransUnion.

Thorsen paid off the legitimate debts she could afford to dispatch immediately and established a debt repayment plan for those that would take longer. It took two years for her to pay off those debts.

Thanks to her efforts, Thorsen now can qualify to buy a house and intends to do so in six months, she said. …CONTINUED

"I can’t wait to get a house again. I miss having my own property," the agent said. She misses having her own garden and being able to conduct repairs on her own terms.

"If something needs to be done and you have to rely on landlords or their contractors or friends to do the repair, it becomes invasive. It has to be done at the time their contractors can be there," said Thorsen.

"I didn’t have use of my master bedroom for three and a half weeks when members of my landlord’s family were painting the floor."

Thorsen said she learned some tough lessons that will stand her in good stead in the future.

"I learned there are better ways to do things than ignore problems," she said. Like many, as her debt soared and she felt more and more overwhelmed, Thorsen said she didn’t open her mail or answer her phone calls. Now, she knows better.

"Proactively contact your lender. Try to work something out. Go to the Fannie Mae Web site or the Freddie Mac Web site to find out if they own your loan. If so, contact them immediately. They will work with you," Thorsen said.

She also recommends that distressed homeowners contact a consumer protection attorney "to try to help you negotiate these stormy seas, noting that the National Association of Consumer Advocates, with a Web site at www.naca.net, is one possible resource.

Renter by choice

Unlike Thorsen, Rachel Radway became a renter by choice.

"I loved my townhouse," said Radway, who nevertheless in 2007 sold her Craftsman condo in Seattle and moved to the San Francisco Bay Area. "It was beautiful, exactly what I wanted. The outside was painted sage green. The landscaping was wonderful. I had two huge decks with a view of Puget Sound."

But the public relations professional, who is currently communications director for Sausalito, Calif.-based Small Business Majority, wasn’t happy with her social life in Seattle.

"I was single and the dating scene was not good," said Radway, who is now living in Pacifica, a small town south of San Francisco. "Unlike the Bay Area, it’s a place where people get married and settle down at early ages. I ended up hanging out with married couples."

Now engaged to be married, Radway said the tradeoff was worth it. She does miss being a homeowner, though, she said.

"I miss being able to do whatever I want to do. I could paint here, but it would be putting a lot of effort into something that isn’t mine, and who knows how long I’ll be here," Radway said.

Even though she sold her condo after just a year and a half of ownership, Radway doesn’t regret the purchase. "It was a good education," she said.

Lessons learned include doing a lot of research — "Find out as much as you can about your neighborhood," she recommends — and identifying parameters.

"How much maintenance do you want to do? Are you looking for a townhouse or a house?" Radway said. …CONTINUED

"I definitely want to buy again," she said. But these are long-range plans.

"Maybe now would be a good time to buy, but I’m not in a position to do it. The prices are so much higher here than they were there (Seattle). Even if you’re making a decent salary, it’s expensive," Radway said.

She estimates it will take 10 years "to get my ducks in a row. Time to save the money, time to be established in my job and financially." It’s a long time to wait, but Radway is confident her day will come.

Selling their slice of homeownership

Financial difficulties forced Lori Selke and her partner Steven Schwartz out of the house they loved.

When Schwartz was laid off, the two fell behind on their mortgage payments on the San Francisco home they co-owned with another couple. Tensions ran high between the two couples and Selke and Schwartz were forced to sell their share in the house to their co-owners and move out.

"The decision wasn’t legally forced," Selke explained. "We were threatened with forfeiture, and we reached a settlement with their lawyer that included selling our share of the house."

Tenancies in common such as Selke’s are not uncommon in the San Francisco Bay Area, where buying a house is still out of financial reach for many.

"My partner was unemployed. We were afraid we would have to live in the street," Selke said. Schwartz, a systems administrator at music technology company Gracenote, and Selke, now a stay-at-home mom with 10-month-old twins, did find an affordable apartment.

Selke misses most of the elements of homeownership. "When we moved in, the yard had been neglected for a decade. It was a lot of fun to rip out the weeds and put in new stuff — bushes and trees and a garden, all on my own," said Selke. "I liked having nobody to answer to if we changed something."

However, she doesn’t miss "the responsibility of having to fix things — having to either pay to fix them or do it yourself," Selke said. "I didn’t have anybody else to call when things went wrong."

Because the two sold out to their co-owners, they emerged financially unscathed. "It actually looks good on our credit report," Selke said. Her biggest lesson was not to co-own a house with people without living together first, Selke said.

Currently, credit is too tight for the couple to buy. But Selke has no doubt she will be able to do so within a couple of years.

"Sooner or later, credit’s going to loosen enough and the prices will go down. We’re just waiting it out. Eventually we’ll be homeowners again."

Janis Mara is a freelance writer in California.

Editor’s note: For a related feature on former homeowners, see: "Home-loss horror stories."

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