Informal Mortgage Arrangements Leave Undocumented Buyers Vulnerable
Even as the White House moves to announce an executive order overhauling American immigration policy, many people who bought houses while living here illegally will continue to face fallout from unorthodox real estate deals. Historically, undocumented immigrants have had few options for formal financing, leading to informal arrangements with some risky consequences.
After an early morning shift at the warehouse where she packs apples, Maria rests her elbows on the kitchen counter of her tidy home in the Yakima Valley.
It’s come a long way: when she moved in eight years ago, the windows were faulty and there were no doors at all, making it too cold to live in for part of the year. “You couldn’t turn the lights on!” she says. “I paid for everything you see: this is my work from all these years.
Unzipping a backpack, she spreads papers over every surface of the countertop. There are receipts for payments to Countrywide and Bank of America stretching back to 2007.
But one important piece is missing from all this paperwork, though: a mortgage agreement. That’s because the mortgage Maria has been paying all this time is not her own. “We own the house, but not the loan,” Maria says.
Even as the White House moves to announce an executive order overhauling American immigration policy, many people who bought houses while living here illegally will continue to face fallout from unorthodox real estate deals. Historically, undocumented immigrants have had few options for formal financing, leading to informal arrangements like these, with some risky consequences.
While it’s not illegal to issue home loans to undocumented immigrants, the federal government, which underwrites most mortgages, won’t back them up. As a result, most banks require a social security number as proof of legal residence. Those that do offer alternative loans, using an ITIN, or Individual Taxpayer ID number, often don’t advertise it.
But after thirteen years spent picking and packing fruit while living in crowded rentals, Maria was determined to buy a house. “I didn’t want to throw my money away anymore,” she says. “I wanted somewhere to call my own, where they couldn’t turn me out.”
She ended up working out a deal with a woman from her husband’s hometown in Mexico, who had already qualified for a mortgage. Here’s how it worked: “We were supposed to put up a down payment, and continue making payments until we could change the mortgage into our name.”
Diane Cipollone, the training director for the National Fair Housing Alliance, says this kind of informal contract is not uncommon in immigrant communities around the US. But it carries a lot of risk for both parties. First, let’s say someone in Maria’s position falls behind on payments. Who’s responsible?
Cipollone says “It’s the person who took out the loan, whose credit is impaired, as well as, who’s legally responsible for that debt. Then, there’s the question of re-financing. “The lender is not going to have a conversation with the occupant of the house, because they’re not the borrower on the loan,” she says
But the biggest risk is the “due-on-sale” clause in nearly every residential mortgage agreement. “If the bank becomes aware that the property was transferred, they can immediately call the loan due in full,” Cipollone explains. And that could mean foreclosure.
After making payments of more than $80,000 over the years, Maria’s situation is starting to unravel. She learned belatedly that the mortgage she’s been paying has a variable interest rate. The payment amounts have gone up without her knowing. According to paperwork from the bank, she’s fallen $17,000 behind schedule, while the balance on the loan is the same as it was eight years ago.
“If we want to save the house, we have to pay that $17,000,” she says, “which means that everything we’ve been paying over the years is straight interest.”
The original borrower has disappeared, and Maria is having trouble figuring out what her options are. Yakima real estate agent Nestor Hernandez says he sees a lot of this—Spanish speakers without real estate experience signing English contracts they don’t fully understand. “I have people where they lost $5000 interest money, they lost $20,000 interest money, “ he says, “because they didn’t know what they’re signing.”
There are a few different scenarios: sometimes it’s relatives taking on mortgages for other family members, and sometimes it’s rent-to-own contracts, or owner-financing where the risk falls entirely on the buyer. Regardless, Hernandez says the problem has a lot to do with the difficulty of accessing credit as an undocumented immigrant.
“I get to reject about 8-10 people every day who comes to my office and wants to buy a house,” Hernandez says. “I tell them, ‘Hey, are you legal or are you illegal?’ I have to ask these questions before I see if I can help them.”
Nevertheless, people find a way. According to one study, more than a third of undocumented immigrants in the US own their own homes. Many owners are safe, living in houses bought with ITIN loans or so-called ‘mattress money,’ saved up in cash over the years. Many others, though, are like Maria, living an American Dream clouded by intense uncertainty.
Copyright 2014 Northwest Public Radio