How to lose your home in a few easy steps

The only way she could sell was if the two lenders agreed to a "short sale" — taking less money than what they were owed. The principal lender, Countrywide, agreed, but Wells Fargo, which held a second loan worth $82,000 rejected the terms because the lender would have gotten only $10,000.

Then the agent found another buyer, who also offered $350,000. This time, Countrywide said yes if Toothman would come up with another $10,000 to pay Wells Fargo more. But Wells Fargo declined the offer.

“They figured I would make more money eventually, and they could take it out of me,” said Toothman, “because if they agreed to a short sale, then they had no (legal) recourse to come after me for the $82,000.”

Executives from Wells Fargo and Countrywide did not return several messages seeking comment.

Toothman’s nightmare got worse. In July 2006, the monthly payment on the two loans jumped nearly 50 percent to $3,600. For two months, Toothman maxed out her credit cards to meet the payments. The sisters planned to keep making the monthly payments until a sale went through.

But after two months, “I couldn’t pay my bills,” said Toothman. “I’m like, ‘Do I stop paying my other loans, my other credit cards, everything else?’ I just started paying my other bills instead of my mortgage, because it was impossible, it was just too much.”

In March of this year, Toothman lost the house in foreclosure, and, like many others, she now is considering bankruptcy.

Pacific Law Center, one of the biggest bankruptcy law firms in San Diego, handled almost 1,000 such cases in the first eight months of the year, up from 626 in all of 2006.

Danielle Donovan, a broker at Clarion Mortgage who has been in the industry for 27 years, said attitudes changed around 2000 when mortgage lenders began offering "subprime" loans to borrowers with less-than-stellar credit as home prices were soaring. “People stopped being interested in buying homes and more in having an investment,” she said.

Now thousands of Americans are facing the same nightmare as Toothman.

“If they don’t have the wherewithal to keep the home, it’s a matter of how are you going to support the family,” said credit counselor Aguilar.

Many are simply choosing to walk out on their mortgages. More people filing bankruptcy these days have perfect credit, zero consumer debt and no missed house payments, said Don Bokovoy, supervising attorney of Pacific Law Center. They are filing bankruptcy because they cannot afford impending higher payments on adjustable mortgages.

For many homeowners, said mortgage broker Donovan, “The question is ‘How far do I wreck myself? Do I make myself penniless and then lose the house? Or do I just walk away now and have something to start over?’”

For Toothman, the nightmare continues. She cannot qualify for a car loan. Her credit card interest rates jumped from 5 percent to 22 percent, due to missed payments while juggling mortgage bills. She wonders who will date a woman with $82,000 in debt.

“I feel burned,” she said. “I’ve always been one who paid the bills on time. I always did things the right way. If they had counseled me (correctly), I could’ve made my payments.”

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