One woman's saga as she stares down foreclosure

Many a financially strapped homeowner has a story to tell about missed mortgage payments, delinquency notices, and threats of foreclosure.

Few of the stories have as many twists and turns as the now-eight-year-long tale of Donita Bagner of West Philadelphia, court records, legal documents, and interviews show.

Between Bagner's 2002 purchase of a four-bedroom, one-bathroom rowhouse and what could prove to be the final order evicting her from it winds a road featuring:

Several attempts by her lender to foreclose on the property.

Two approved bankruptcy filings.

IRS approval of her application for tax-exempt status as a charitable organization providing "low-cost temporary housing."

Moreover, Bagner's situation is evidence that homeowners can be beyond help, even under the auspices of Philadelphia's much-lauded Mortgage Foreclosure Diversion Program.

Unless the state Superior Court steps in and overturns the January 2009 sheriff's sale of her house in the 600 block of North 64th Street, Bagner, her four foster children, and her mother, who is in the early stages of dementia, will be out.

"I go down to City Hall every Thursday night and feed the homeless, and I see how they have to live," said Bagner, 48, who also works out of her house, where she operates a day-care center.

According to her attorney, Michael Ward, Bagner said her income was $5,700 a month, or about $68,000 a year.

Deszeree Elis Thomas, an attorney and special assistant to the commissioner of the city Department of Human Services, said the minimum paid to foster parents was $21.25 per day per child. She said there were no income requirements.

"The Child Protective Services Law, however, requires that the foster-care applicant provide 'evidence of financial stability, including income verification, employment history, current liens, and bankruptcy findings within the last 10 years,' " Thomas said.

One year ago, Bagner's house sold for $8,400 at sheriff's sale to her mortgage lender, MidFirst Bank of Oklahoma City, through its servicer, Mortgage Electronic Registration Systems.

In May, Ward tried unsuccessfully to have the sheriff's sale overturned - something, he acknowledged, that was "virtually impossible to do."

At his client's urging, however, Ward appealed the decision to Superior Court. A hearing date has not been set; the lender's response to the appeal is due tomorrow.

Lawrence Phelan, of Phelan, Hallinan & Schmieg, the Philadelphia law firm representing Mortgage Electronic Registration Systems, referred all questions to MidFirst Bank vice president Thad Burr.

Burr, citing "the ongoing litigation and customer privacy issues," declined last week to answer questions about why MidFirst proceeded with foreclosure while a city-sponsored mortgage-conciliation process was under way.

He also declined to discuss Bagner's payment record before and since foreclosure proceedings began, and whether the bank was ready to proceed with eviction despite the appeal.

Ward described Bagner as hardworking and a good businesswoman - "a really nice person."

In a conciliation session for Philadelphia's Mortgage Foreclosure Diversion Program, though, a representative for MidFirst said otherwise, according to Bagner:

"She said that I was trying to get something for nothing."

In an interview last week, Bagner said the last mortgage payment she made was in May 2007, but that she had made many others during the years she was in foreclosure.

Ward, who has been Bagner's attorney for years, called the current uncertainty "a very, very difficult situation for her and her family."

He noted, however, that years of financial troubles have eroded Bagner's credit to the point where, should she be evicted, most landlords would be unwilling even to rent to her.

Common Pleas Court Judge Annette Rizzo supervises the city's 18-month-old foreclosure diversion program, which sits struggling homeowners and their lenders down for face-to-face conciliation sessions. But she said she recognized that such efforts had their limits.

"Not every loan can be modified," Rizzo said. "A graceful exit is sometimes the only resolution."

In 2001, Bagner was living in rent-subsidized housing when she heard about a home-ownership initiative being touted by the Philadelphia Housing Authority.

"I wanted to operate a day care out of my home, but PHA rules were against it, so I needed a home of my own," said Bagner, who has held a variety of jobs, friends said. These included time as a health-care provider and, more than a decade ago, a Philadelphia Newspapers Inc. mail-room stint assembling The Inquirer and the Philadelphia Daily News.

One of the counseling agencies for the home-ownership initiative was Acorn Housing Corp. Bagner said she attended classes designed to make the transition to home-ownership easier for low- and moderate-income people.

Acorn's Ian Phillips said, "There are four classes, and home buyers are encouraged to attend all of them. If they do, they receive a certificate, which the city uses to determine eligibility for settlement grants and other kinds of assistance."

Once buyers complete the course, they are on their own, he said. "We encourage them to come back to us during the process if they need help, and recommend that they obtain legal help to review contracts."

In late 2001, Bagner found the West Philadelphia house, listed at $97,000.

The deed recorded in February 2002 shows a mortgage of $96,239, and Bagner said she borrowed $3,000 from a cousin to use as a down payment.

There was no home inspection before the sale, something Acorn classes emphasize. Bagner said she recalled paying $600 for an inspection, but one was never done.

Her mortgage from National City Bank was insured by FHA. The agency encourages prospective buyers to obtain home inspections but does not mandate them for loans to be approved, said Maria Bynum, a spokeswoman for the U.S. Department of Housing and Urban Development.

Within a few months of moving in, Bagner said, the house began falling apart: "The plumbing was bad, and the wiring was faulty."

The cost of the repairs made it difficult to stretch her income far enough to make her mortgage payments, she said.

By June 2003, Common Pleas Court records show, her lender was already trying to foreclose on the house. The civil-docket report shows that with late charges and interest added to the original balance, Bagner owed more than $100,000.

That amount had climbed to $103,800 by Dec. 20, 2003. The property was headed to sheriff's sale when Bagner filed for Chapter 13 bankruptcy protection, and the order was stayed.

In May 2006, Bagner was back in court - the mortgage servicer tried again to foreclose on the house when the time period passed for her to emerge from bankruptcy.

The amount she owed had risen to $124,610. Bagner filed for and got Chapter 13 bankruptcy protection again, but, court documents show, she was unable to keep up with the terms of the approved payment plan.

In June 2007, Bagner, as DCSIL Inc., applied for tax-exempt status from the IRS.

Asked last week why she sought the designation, Bagner said, "I was trying to set up a group home." The foster children she takes in are teenagers, she said, and she thought it would be a better way of caring for them.

Information supplied by the IRS states that organizations receiving a substantial part of their support from the government - in this case, money for the care of foster children - are unconditionally exempt from federal taxes.

In October 2008, one month after foreclosure proceedings against her were resumed when the second bankruptcy was dismissed, Bagner contacted Northwest Counseling Agency on North Broad Street to see whether she could find relief through the city's Mortgage Foreclosure Diversion Program.

Michelle Lewis, Northwest Counseling's executive director, said that Bagner had conciliation sessions with her lender through the city program, and that the counselor on the case believed an agreement was being considered.

The last contact the agency had with the lender was in late December 2008.

In an interview last month, Rizzo, who supervises the program, declined to discuss the specifics of Bagner's case. But in an order she signed on Dec. 17, 2008, the judge scheduled a sheriff's sale for Jan. 6, 2009, "to enable the parties to finalize an agreement."

"We aren't an end-all fix," Rizzo said. "We cannot force lenders to do anything. I can force them to talk with borrowers, but I cannot force them to deal."

What the diversion program offers is a time and place for borrowers and lenders to talk face-to-face, the judge said: "Look at it as two trains heading down different tracks. We provide the spur where they can meet."

Even if an agreement were guaranteed, it wouldn't be unusual for houses to be placed on the sheriff's-sale list for a particular month and still be part of the diversion program, said Edward Chew Jr., a lawyer with the Philadelphia Sheriff's Department.

"Two or three days before the sale, I get a list of properties that we can sell," he said.

Among the reasons no compromise was reached with the lender likely was Bagner's track record on complying with payment agreements.

Bagner acknowledged that. Because some of her clients have lost their jobs, she said, the down economy has been hard on her day-care business.

Another reason, Northwest Counseling's Lewis suggests, may be that Bagner's FHA loan has been extended past the statutory limit, and that the loan has negatively amortized to such an extent that Bagner would have to pay a large sum just to bring it back to where it started.

When her house was sold at sheriff's sale, the amount owed was $123,503.21, not including sheriff's commission.

"Conciliation does have a time benefit, giving parties [a chance] to reach some sort of compromise," said Lewis.

But the court records indicate that Bagner came to Northwest Counseling very late in the game.

"People do have to make responsible decisions," Lewis said.

Feb. 2002: Donita Bagner settles on her house in the 600 block of N. 64th St., West Philadelphia. Price is $97,000. FHA-insured mortgage from National City Bank.

June 2003: Foreclosure action against Bagner starts, brought by servicer Mortgage Electronic Registration Systems.

July 2003: Judgment filed in favor of MERS after Bagner fails to answer in required time. Damages assessed at $101,563.52.

April 2004: Foreclosure stayed when Bagner files for Chapter 13 bankruptcy protection.

Feb. 2005: Bankruptcy court approves mortgage payment schedule.

May 2006: Court amends the judgment against Bagner, assessing her $124,610.02 plus interest of 6 percent per annum from June 2006.

June 2006: Bagner files new Chapter 13 petition; approved Feb. 2007

August 2006: 2004 bankruptcy case closed; trustee notes that Bagner has paid less than $3,877.75 of the $17,357 in secured arrears to Midland Mortgage Corp.

June 2007: Midland Mortgage petitions Bankruptcy Court to dismiss case for failure to make payments (hearings continue into 2008).

Bagner granted tax-exempt status by IRS in anticipation of operating group home.

Sept. 2008: Order dismissing bankruptcy case for failure to make plan payments. (Case closed Nov. 2008; $10,150.76 of $28,875 in secured arrears to Midland paid.)

Oct. 2008: Bagner meets with Northwest Counseling Service to participate in city's Mortgage Foreclosure Diversion Program. Conciliation sessions scheduled.

Jan. 6, 2009: Bagner's home sold at sheriff's sale to MidFirst Bank (Midland Mortgage's successor) for $8,400.

Feb. 2009: Damages reassessed at $123,503.21.

April 2009: Ward files motion to set aside sheriff sale; denied in May.

June 2009: Appeal filed in Superior Court.

Dec. 2009: Ejectment order signed.

Jan. 13, 2010: Brief due from MidFirst on appeal of set-aside denial.

SOURCES: Philadelphia Court of Common Pleas; Pennsylvania Superior Court; U.S. Bankruptcy Court, Eastern District of Pennsylvania

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