Many survivors are still in mortgage debt a year after the deadly Oso landslide turned the Steelhead Haven neighborhood into a burial ground.

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Many survivors are still in mortgage debt a year after the deadly Oso landslide turned the Steelhead Haven neighborhood into a burial ground.

 A year later


 

A look back

Click the photo above to see The Seattle Times’ complete coverage of the Oso landslide, including investigative stories, profiles of the victims, interactive maps and a photo gallery.

Stuck with worthless property, they and their advocates are engaged in a delicate dance with trustees, mortgage servicers and investors.

Of 35 families with lost or damaged homes that are working with nonprofit housing-counseling agency Parkview Services in Shoreline, only five have reached a settlement on their debts.

Fifteen households have tentative agreements with banks and other debtholders, while the rest are still gathering documents and in negotiation, said Parkview compliance director Randy Lowell.

There have been miscues and misunderstandings on all sides. One homeowner needlessly used a life-insurance settlement to pay off a mortgage on a destroyed house, he said.

At the other end, two weeks ago, “one of the largest national servicers here in the United States told me they didn’t even know the disaster had occurred,” said Lowell. “There’s a disconnect between the disaster occurring and the investors and servicers taking action on that.”

After the March 22, 2014, disaster — the deadliest landslide in U.S. history — banks large and small made donations to relief agencies. JPMorgan Chase donated $100,000; Bank of America’s foundation, $50,000; Wells Fargo, $30,000.

Banks also agreed to grant a delay on when borrowers would have to make mortgage payments, also known as a forbearance.

At disaster-recovery centers, survivors learned how to qualify for up to $32,400 in assistance to find a new home.

But nonprofit housing-counseling agencies, which assist clients with mortgage debt and credit issues, weren’t part of that initial response, Lowell said.

By the time some survivors reached out to Parkview, some had received notices from their mortgage servicer that their hazard insurance had lapsed, and that they would have to pay for insurance chosen by the lender.

“We’ve been meeting directly with national servicers and some national investors to get them to understand this happened,” Lowell said. “You can’t force insurance on a house that doesn’t exist.”

Some survivors paid off debts they needn’t have.

“We had a person that lost their home that received monies from a life-insurance settlement and used it to pay off the mortgage,” Lowell said. Meanwhile, “their neighbor came to us and we got her loan forgiven.”

The spouse of one landslide victim waited more than seven months to call Parkview because she was still grieving, Lowell said.

Some lenders have resolved debt issues with Oso survivors.

Mortgage giant Fannie Mae canceled more than $300,000 in debt and promised not to report the default to the national credit agencies, Lowell said, in exchange for a borrower giving up the property in lieu of foreclosure.

In another case, a national bank forgave $22,000 in credit-card debt of a borrower whose home was devastated by the landslide and flooding.

But some lenders are dragging out the process.

“If they sense there’s money out there that might be available to them, they’re going to try to ask for that money,” Lowell said. “But the borrower doesn’t have to liquidate their retirement account to pay for a home that’s been destroyed. They don’t have to use life-insurance money.

“People need to go on with their lives,” he said. “There’s no way for them to go on with their life if they’re saddled with a giant debt hanging over their head.”

BECU spokesman Todd Pietzsch said he couldn’t comment on a $130,000 mortgage that was paid off by a member whose home was destroyed.

JPMorgan Chase said in a statement that it continues to work with the owners of affected properties. “In the meantime, all borrowers have been and continue to be in forbearance.”

1st Security Bank in Seattle told state officials it intended to forgive two home-improvement loans with balances of $42,000 and $12,000.

Coastal Community Bank in Everett wrote off any mortgage debt it held on a few homes in the disaster zone as well as loans to businesses hit hard by the landslide’s economic impact, including a $220,000 commercial loan, said CEO Eric Sprink.

“I wish all these banks would just forgive the debt,” he said.

In January, Nationstar Mortgage filed a notice in Snohomish County that it was seeking a court-supervised foreclosure on a home in the Steelhead Haven neighborhood owned by the estate of landslide victim Scott Rule.

A Nationstar spokesman said in an email that was done “only so that the property can be sold with a clear title,” and is not an attempt “to collect money from the heirs or hold them personally responsible for the debt.”

Lowell said mortgage-holders often use court-supervised foreclosures to get a judgment against the deceased’s estate.

If the estate receives money later, he said, the mortgage servicer would be in line to get paid.

Snohomish County has asked the Federal Emergency Management Agency (FEMA) to support a project to buy out private owners in the 640-acre area at risk of future slides or flooding from the Stillaguamish River. The area would be converted to open space.

But uncertainty over the outcome may be contributing to delays in settling the mortgage issues.

“I have heard some of these national banks are waiting before they forgive the debt to see if there’s a [land] buyout, because it may benefit the customer,” Sprink said.

Those borrowers whose debt is forgiven relinquish their property, and thus any money they might receive in a land buyout.

In some cases, survivors could receive more than the outstanding mortgage debt. But in others, the mortgage debt dwarfs the amount they could receive in a buyout.

If FEMA approves the buyout proposal, owners would be offered their property’s assessed value before the landslide.

Of the 135 parcels the county proposes to buy, at least 42 had structures that were destroyed or damaged, according to Snohomish County’s application.

The median assessed property value before the landslide was $124,150, according to a Seattle Times analysis. Now it’s zero.

Forgiven debt is considered taxable income to the borrower, who can owe tax on it.

But Snohomish accountant James Gall said in this case there’s nothing to tax. Even though the borrower may receive income in the form of debt forgiven, it’s offset by the lost value of their home.

“My gut feeling is there would be little or no tax,” he said.

Lowell said disaster-recovery centers should have offered survivors mortgage- debt counseling: “We could have helped a lot more people quicker.”

Heather Kelly, who leads Snohomish County’s recovery from the landslide, said every affected family was assigned a “navigator” to connect them with services.

“You can hand them all the referrals, but whether they’re ready to take that next step or action is up to them,” she said.