While foreclosure may be a nightmare for most homeowners, it's a windfall for one California-based company.
You Walk Away LLC opened in January with an unconventional business model: helping homeowners get into—rather than out of—foreclosure. That's right, for just under $1,000, You Walk Away officials hold cash-strapped borrowers' hands as they lose their most valuable asset, tarnish their credit, and erode their self-worth.
"You could change your own oil, or you could grow your own garden in the back yard," says Jon Maddux, a You Walk Away principal. "But people don't necessarily do that anymore. They hire professionals."
Not surprisingly, the company—which boasts having more than 50 years of combined law and real-estate experience—has drawn skepticism from consumer groups. John Taylor, the president and CEO of the National Community Reinvestment Coalition, says he's concerned that the company might not help customers explore all of their alternatives before pursuing foreclosure.
"If they made money on finding other ways for homeowners to stay in their homes and not go into foreclosure, I'd feel more comfortable about them," Taylor says. "But I'm suspect because they make money on people going through the foreclosure process."
For its part, You Walk Away insists that it is not promoting foreclosures, saying it takes only customers who have already exhausted all other options. "I feel very strong morally that you keep your obligations," says Chad Ruyle, a You Walk Away principal. Maddux blames the growing number of foreclosures on factors like the banking industry's inability to refinance struggling borrowers and says You Walk Away is simply providing a service to troubled homeowners. "You can't blame a divorce lawyer for a divorce," he says.
Still, the company clearly downplays the consequences of foreclosure, suggesting that homeowners going into foreclosure could be able to buy another house in as little as two years. "Before you know it, you will have this behind you and a fresh start!" the company says on its website.
Taylor advises homeowners to fight foreclosure—which remains on a credit report for seven years—as long as they can. "Foreclosure can really ruin your credit rating and ruin the opportunity for a long time for you to ever be a homeowner again," Taylor says. You Walk Away arrived on the scene as a growing number of Americans face the prospect of losing their homes—because of falling home values and subprime loans that can't be paid back. The Mortgage Bankers Association says roughly 900,000 Americans were in the foreclosure process as of Sept. 30, 2007—the most recent data available—an increase of some 72 percent from the same period a year ago.
As a result, You Walk Away says business is booming. Although it won't disclose exactly how many customers it has, the company's website, youwalkaway.com, received more than 25,000 hits in a single day, Maddux says. And while it is currently doing business only in California and Nevada, homeowners from all 50 states—and as far away as Russia, Germany, France, and the United Kingdom—have visited the site. "We talk to people all day long," Maddux says. "The phone doesn't stop ringing."
In the few weeks that it has been in business, the company says it has already quadrupled the size of its staff to keep up with demand. Now, You Walk Away plans to expand soon into other states, such as Arizona and Florida—which, like California, are expected to bear the brunt of the downturn in the housing market.
The company does not buy homes but rather offers professional advice—including consultation from an independent attorney—to help ensure a smooth foreclosure experience. You Walk Away promises to help clients stay in their home for eight months or more without having to pay their lender. In addition, You Walk Away pledges to help homeowners avoid harassing phone calls from lenders and even ensure that their bank followed all applicable laws during the mortgage process. "If they did not, you may have a case against them," the company says on its website.
Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, says such promises "probably are going right up to the edge of what's legally acceptable." Although Cunningham says borrowers should use foreclosure only as a last resort, those going through the process should obtain an attorney to represent them—a service that You Walk Away takes off homeowners' hands. "They want to distance you from anyone but them," Cunningham says. "You [shouldn't] do any legal arrangement without having your attorney; you [shouldn't] just take the word of their attorney."
Cunningham encourages anyone facing the possibility of losing a home to contact the National Foundation for Credit Counseling before shelling out nearly $1,000 and going into foreclosure.
"A certified credit counselor through the National Foundation for Credit Counseling, which has existed since 1951, brings a little more credibility to the table than this outfit that saw an opportunity and is now preying upon the emotion of the frightened homeowner," Cunningham says.