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Business owners face foreclosures, too

24 July 2010 No Comment

By Helen Kaiao Chang

See original story on SDNN

Thursday, April 23, 2009

Homeowners aren’t the only ones affected by the mortgage mess. Business owners are too. It’s worse when they’re both.

“People would lose their homes before they lose their business,” said Vino Pajanor, president at Housing Opportunities Collaborative, a San Diego-based nonprofit group. “The business is an ego for them.”

Pajanor spoke on Thursday in Del Mar at a forum aimed at helping business owners avoid foreclosure.The event was hosted by County of San Diego vice chair Pam Slater-Price, and featured experts from the banking, mortgage, legal and government industries.

As the nation’s economy and housing values continue to erode, more small business owners are getting caught in the black hole of foreclosures across the country, Pajanor said. His group, which represents 47 San Diego nonprofits and is backed by the federal government, typically counsels some 210 San Diego homeowners a month. About 15 to 20 percent are small business owners.

“We are seeing small business owners whose home equities are cashed, Pajanor said. “They are using the HELOC (home equity line of credit) to do the cashflow for their businesses. ” But “in the past year, the equity in their homes has been stripped away, therefore the cash flow is gone.

The types of business owners the center has counseled span a wide range: dry cleaners, donut shop owners, restaurant owners, real estate agents, attorneys, doctors and engineers. They may have gone through a pay cut or their spouse lost a job, and they want to prepare for future scenarios, Pajanor said. “These are individuals who were raking in money in the past and their money has dried up.”

He gave an example of a restaurant owner whose sales dropped because people are eating out less. The restaurant owner takes out a HELOC to fund the business to pay employees and rent. But the house’s market value goes down, so the amount available is less. Meanwhile all the money has gone into the business, which continues to lose money.

“There’s no equity, the house is upside down, business is not good, they’re able to pay their mortgages, they’re not able to run the business,” said Pajoner. “It’s the perfect time to foreclose on the house and lose the business.”

In these times, business owners need to manage wisely, said Dennis Guseman, dean of business administration at Cal State University San Marcos. Business owners need to get back to basics, focus their efforts and create as much liquidity as possible, he said. “Analyze, what business are you in? Who is your customer? How do you provide value?”

Business owners should talk to their bankers as soon as they sense trouble, said Bank of Escondido president Mike Peters. He also advised business owners to revise their business plans often, to build in liquidity. “Bankers make loans based on cashflow,” he said.

Financial scams are on the rise, but free help is available from government agencies, said Myrna Pascual, a specialist at the U.S. Department of Housing and Urban Development. These are trained specialists who can negotiate with mortgage lenders on behalf of homeowners for free.

For many business owners, “losing the business is worse than losing the home,” said Pajanor of the Housing Opportunities Collaborative. At the free clinics they offer, a majority of the small business owners counseled are minorities — Latinos, black, Asians, he said. Typically, it is the wife who brings the husband.

Pajanor said many minorities have difficulty giving up their businesses, because it would mean “losing face” — or facing shame — their ethnic communities, said Pajanor.

Nationally, some 3 million loans are toxic mortgages belonging to small business owners, said Pajanor. These are mostly short term, adjustable mortgages – called Alt-A and option arms in the business – that have only begun to reset in late 2008 and early 2009. This means a new wave of foreclosures that are expected to peak in 2010, he said.
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Free housing counseling agencies approved by HUD

Call toll free: 1-800-569-4287

Housing Opportunities Collaborative

Altria Community Housing

Community Housing Works

Mabuhay Alliance

Neighborhood House Association

San Diego Urban League

Springboard – San Diego

Tips for avoiding foreclosure

– Don’t ignore the problem
– Contact your lender as soon as you realize you have a problem.
– Open and respond to all mail from your lender.
– Know your mortgage rights.
– Understand mortgage prevention options.
– Contact a HUD-approved housing counselor.

www.housingcollaborative.org

Follow Helen on Twitter @HelenChang.

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