Nancy Swong hasn't paid her mortgage since February 2009. Her Brooklyn apartment is rife with fire-code violations. But she has no immediate plans to move.
This is how she sums up her life: "I live in a death trap with no end to the litigation."
Swong is swimming in papers from a Buffalo, N.Y., law firm that has become known as a "foreclosure factory" for its prodigious document assembly line. The firm represents Wells Fargo Bank NA and has a way of dragging things out, hearing after hearing, said Swong.
Swong has a law degree from the University of Tennessee, Knoxville, but said she needs her own attorney to help her end the madness. She said she can't afford one.
Not long ago, Swong couldn't imagine defaulting on a mortgage.
She grew up in a small town, the daughter of a mathematics professor who also grew fruit and raised chickens on a farm.
She came to New York for a career in the very financial industry that has helped create her current predicament. She worked as a compliance officer at Citigroup Inc. (C). But she lost this job in the fall of 2008 when the banking giant suddenly required a massive bailout to avoid defaults of its own.
For the past year and a half, two things remain constant: Swong's not paying her mortgage and Wells Fargo (WFC) is not foreclosing.
"This is a difficult situation for all parties involved," said Wells Fargo spokesman Jason Menke. "Wells Fargo is continuing to work with Ms. Swong to work toward a resolution."
Generally, however, banks are overwhelmed with growing inventories of repossessed homes and backlogs of defaulting borrowers.
In the first six months of this year, lenders took over 528,000 homes, and are proceeding at a pace that is likely to eclipse the 900,000 homes they repossessed last year, according to foreclosure data provider Realty Trac Inc.
Every time a bank takes over a home, the value of all the other homes it holds slides further. And then there is that pesky problem of having to reflect losses on the books. This is why banks are loathe to repossess homes, increasingly allowing defaulted borrowers to live in them for months and even years.
Swong's default puts Wells Fargo in a tough position: If the bank forecloses, it acquires Swong's nightmare.
Swong is the victim of a shady developer who left buyers with an unfinished building full of code violations. It's so bad, the city won't grant a certificate of occupancy. This means Swong can't rent out her apartment. And she really can't sell it, either, although she's tried.
"I listed it on Zillow because no agent wants to have the liability of selling a unit without a certificate of occupancy," she explained.
Meantime, common charges and special assessments keep rising for Swong and the apartment owners in the 72-unit building on Spencer Street in Brooklyn's Bedford-Stuyvesant neighborhood.
Apartment owners collectively need to finance millions in upgrades to get a certificate of occupancy. And then there's the likelihood that more of them will default on common charges as time goes on, making it more expensive for those who don't.
Developer Mendel Brach so recklessly loopholed his way through zoning laws that the New York attorney general barred him from selling apartments in the state.
In a July 2009 court settlement, Brach agreed to pay residents $10.9 million.
Swong said he pays $3.88 per month, per unit. Despite the $25 million Brach reportedly grossed selling apartments, these payments are garnished from Brach's wages from working at a bakery, Swong said.
Swong fears her wages could be garnished, too. Her common charges and special assessments are reaching into the tens of thousands to fix the building. If she were to default on these payments, as she has on her mortgage, her building's board could come after her wages.
Swong said she has been working with Wells Fargo and various foreclosure aid programs since losing her job at Citigroup in the fall of 2008. Swong has since found a job at a smaller bank, but she makes much less, has a mountain of credit-card debt from when she was unemployed, and still can't afford her mortgage.
"The banks are gaming the system by not foreclosing," she complained. "The attorneys don't care. They prolong the process. And Wells Fargo doesn't have to write off my loan."
Swong bought her dream pad in 2004, when New York's real-estate market was sizzling. She put down 10% and funded the balance with an adjustable-rate mortgage and a piggy-back loan. In March 2008, she said she refinanced these two loans into one mortgage with Wells Fargo.
Wells Fargo would appear to be just as much a victim as Swong. But Swong claims the bank knew that a temporary certificate of occupancy for her building had expired, and made the loan anyway.
In fact, the New York Times chronicled Brach and his troubled buyers in an August 2005 story headlined, "Caught in the Twilight Zone."
"He's like, "Whoo-hoo. I get lots of money in commissions because I get to rewrite all these loans,'" she said of her Wells Fargo mortgage broker.
Swong claims her apartment is still worth $420,000 and has an outstanding loan balance of $330,000--although, I must add, not even the banks know how to value an asset that can't be sold.
She wants to give up her deed in lieu of foreclosure, walking away from everything she invested, but avoiding endless mediations. She said Wells Fargo just keeps asking her for more paper.
"They don't want to foreclose because they would have to take title," Swong said. "They really don't know what to do with me...It'll probably go on for 15 years."
Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. He can be reached at 212-416-2617 or by email atal.lewis@dowjones.com, or on his blog at tellittoal.com.)
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