Some of the hundreds of rural Mainers who bought their homes through a government loan program soon could be hit by what state housing advocates have called a “tsunami” of foreclosures, the origins of which remain unclear.

For decades, the U.S. Department of Agriculture’s Rural Development office has offered low-income, first-time homebuyers all over the country a chance at homeownership through Section 502 loans.

The program is relatively common throughout the state, from Aroostook County to southern Maine, with more than 530 loans (totaling nearly $300 million) issued since 2012.

A spokesperson for the USDA said the agency is currently tracking 400 foreclosures and more than 800 delinquencies for failure to keep up monthly payments, but did not answer follow-up questions about whether those foreclosures have already been filed in court and if other states are experiencing a similar wave.

So far, only a small fraction has recently appeared in U.S. District Court in Maine.

Federal court records show that 45 complaints were filed as of Tuesday. Most owe at least double what they borrowed, including the principal balance, interest and other fees.

One couple who bought a house in Gray in 2007 for $113,680 defaulted in 2016. They now owe more than $228,000, which grows by about $16 every day. Another woman who bought her home in Searsport in 1994 for $67,000 defaulted 17 years later. She now owes more than $200,000, an amount increasing by about $12 a day.

Housing advocates in Maine say the agency is notorious for its slow response to defaults, so they don’t understand why so many foreclosure notices have suddenly been filed in quick succession. The USDA says it’s because of a decision by the Biden administration not to lift a COVID-19 moratorium until the day before he left office.

Regardless of the reason, now that the USDA is acting, advocates worry what will happen to the hundreds of Mainers who could lose their homes in the midst of a statewide housing crisis. 

“I don’t find there to be any usefulness in figuring out whether these cases should have been filed sooner or later, earlier or not,” said Jonathan Selkowitz, a lawyer with Pine Tree Legal Assistance, which provides free counsel to Mainers in need. “To me, the problem is that USDA’s available options for homeowners to work out their delinquencies is very limited. And that’s a huge hurdle for us as foreclosure prevention advocates.”

DOUBLE-EDGED SWORD

The 45 homes facing foreclosure in Maine are scattered throughout the state. Many of the homeowners are older — at least two have been widowed, according to obituaries — and it’s not clear whether some of the owners are still alive.

Not everyone being foreclosed on still lives in the homes, according to court records, but many still appear to. A reporter’s calls, emails and messages to many of the homeowners went unreturned or to phones that appeared to be disconnected.

The USDA won’t accept new payments when a property has already been moved into default. Sometimes, borrowers will stay put and wait for something to happen. Other times, they’ll leave, “assuming it’s a foregone conclusion they don’t have much time there,” said Selkowitz.

“Only to come to learn that eight, 10 years have gone by and the USDA has not filed a foreclosure filing,” he said. So that debt still grows, all while the property is vacant and potentially losing value that could otherwise cover what the USDA is owed in an auction.

Selkowitz described the Section 502 program as a “double-edged sword”: On one hand, it makes housing easier to obtain for people who would struggle borrowing from other lenders — but when someone falls behind and the USDA finally responds, the department is far from forgiving.

“They offer access to homeownership to a group of people who can’t get it otherwise, which is really important in a state like Maine that’s experiencing a really devastating housing crisis, particularly in the rural parts,” he said.

But the options when someone falls behind on their loan are actually much worse than if they had a typical bank mortgage, he added.

Selkowitz and other foreclosure experts who spoke with the Press Herald said the USDA has little flexibility built in to these loans, partly because of rules set by Congress. Unlike private lenders, the USDA also has the power to seize tax refunds and Social Security benefits if they don’t get back all their owed, he said.

And if a person does lose their home, they will likely have a hard time finding a new place to live as Maine’s housing crisis gets worse.

The median home sale price in Maine last year was almost $400,000. Several reports have found that the state’s housing need is outpacing new construction, all while the state’s rental options are few and highly competitive.

Marie Hogue, a foreclosure prevention counselor for the nonprofit Avesta Housing, said she has been advising dozens of homeowners facing default under this program to pay close attention to all legal notices and consult an attorney or counselor right away if foreclosure proceedings are filed.

“It’s so unfortunate,” said Hogue. “These loans, they were set up to help with the most favorable terms to achieve the dream of homeownership for young families and individuals with low incomes. It really helped them achieve those pathways, (but) the USDA doesn’t offer programs to help resolve those hardships. … It’s putting homeowners in a very difficult position.” 

But many don’t ask, said Jason Thomas, who oversees counselors at Coastal Enterprises Inc., a community development financial institution. 

“What ends up happening is, in many of these long-term delinquencies, is that the homeowners stop asking,” Thomas said. “They might never ask if there was some kind of assistance.”

WHAT’S GOING ON

The USDA is seeking to recover more than $7.2 million in loans and interest in Maine so far — though that number continues to inch upward.

Selkowitz said he would be worried if the USDA can’t recover what it’s owed from selling the properties alone — it could mean borrowers still would have have to pay more to the USDA, and many of them don’t have the money to do that.

Hogue knows more filings are coming, calling this first wave the “start of a tsunami.”

“This is going to continue, and we’re going to see more and more homeowners who have a very long-standing default with their rural development loans,” she said.

What remains a mystery, though, is exactly why all of these filings are being made now.

When the Press Herald reached out to the USDA for an explanation, the department blamed the Biden administration for stretching out temporary foreclosure moratoriums that Trump enacted during his first term in office during the COVID-19 pandemic.

“Due to the Biden administration’s inaction, there stands a large backlog of delinquent loans,” the USDA said. “Given the sheer volume of loans, the new administration is still reviewing the loans to understand the magnitude of the problems it has inherited.”

But lawyers and counselors following the issue in Maine don’t think this is related to any particular change in administration or political ideology. They say they started hearing from people who received default notices as early as last fall, while Biden was still in office.

Hogue pointed to the age of some of these cases; most involved people who defaulted long before the pandemic, as far back as 2008. Only four cases were in default after 2020.

“I would have to look at case by case, but I don’t think COVID is the factor,” Hogue said. “I think it maybe delayed their filings, if this was on their agenda, so to speak? But  it only added a few more years, if anything.” 

The USDA said the Section 502 loan program is struggling with delinquencies nationwide, but the department’s spokesperson didn’t have the data to share Friday about how many foreclosures or delinquencies the agency is tracking in total.

If this wave of filings is specific to Maine, Thomas questioned how much attention it will get during a hectic time in the federal government, especially for a few hundred cases in a small, rural state.

“For those homeowners, this is a huge deal. But everything else that’s happening, I don’t know how high on the list of priorities this is for advocates of many programs, or for the administration itself,” he said.

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IF YOU NEED HELP WITH A FORECLOSURE

Pine Tree Legal Assistance offers free legal help to Mainers with low incomes and can be reached at 207-942-8322 or ptla.org.

Legal Services for Maine Elders offers free legal help to older Mainers and can be reached at 800-750-5353 or mainelse.org.

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