Marine Corps Lt. Col. Eric Burke is seen in his home on Feb. 5 in Manassas, Va. (Colin Kelly / Staff)
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A Marine Corps family is in dire financial straits, struggling to pay back a $100,000 loan following a huge error made by the Army Corps of Engineers in administering its Homeowners Assistance Program.
Lt. Col. Harold Burke thought the Defense Department program would help ease the financial burden of owning a house in Carlsbad, Calif., that had lost more than $200,000 in value after he was forced to sell when he was reassigned to the Washington, D.C., area.
Instead, Burke is left holding the bag for a $100,000 loan that's racking up hundreds of dollars in monthly interest. He has burned through the family's savings and is now selling off investments. Soon, he says, he'll be eating into his children's college fund.
"Once that's gone, I don't know what we'll do," said Burke, the father of 16-year-old triplets and a 6-year-old.
The expanded Homeowners Assistance Program was authorized and funded by Congress to help certain military homeowners, including those moving on permanent change-of-station orders, who struggled to sell their homes during the mortgage crisis.
Service members with PCS orders dated from Feb. 1, 2006, through Sept. 30, 2010, qualified if they met other eligibility requirements, such as having bought their houses before July 1, 2006. The application deadline for those in the PCS category was Sept. 30, 2012.
Payments to date have been made to more than 9,000 people for applications in the PCS category.
Burke bought his California house in 2005, received his PCS orders in 2008 and applied for the program in March 2012.
Based on advice from HAP officials, Burke sold his house in Carlsbad for $610,000, less than what he owed on two mortgages. His sister took out a $185,000 home equity loan for him to take to closing, which he intended to pay back when he got his HAP payment.
A HAP specialist told him in writing that he would receive $204,962, and he proceeded with the sale of his home based on that information. But when his HAP check arrived, it was for $84,471.
HAP had made a mistake in its initial calculations and Burke didn't find out until he had taken out the loan from his sister and sold his house.
HAP officials fully acknowledge their error. "Lt. Col. Burke was initially advised in error that his estimated benefit payment would be $204,962," confirmed Army Corps of Engineers spokesman Gene Pawlik.
That figure was based on a prior fair-market value of the purchase price of $805,000 plus upgrades that increased the total value to $851,292.
"As we continued our review of his application, we discovered his benefit payment should be calculated based upon a [prior fair-market value] of $729,750, rather than $851,292. The benefit payment received by Lt. Col. Burke is the maximum benefit allowed by law."
The case dismayed military advocates. Mike Hayden, deputy director of government relations for the Military Officers Association of America, noted that HAP has been running for several years.
"You'd think they wouldn't make this kind of mistake, as the program is now coming to a close for service members who have PCSed," Hayden said "People are making lifetime decisions based on this information."
Following HAP's advice
The Burkes paid $805,000 for their house in California in June 2005, putting down about $161,000 from savings and sales of previous homes, and taking out a $644,000 mortgage. They then put more than $60,000 worth of improvements into the house.
"It was our dream house," Burke said.
They left Carlsbad in August 2008, a month after Burke returned from Iraq, moving on orders to the Washington, D.C., area, where they bought a house. With a renter in their Carlsbad house, they were breaking even, he said.
Even so, their California home had declined in value by about $200,000. Rental prices have been decreasing in that area, and taxes were rising. The Burkes weren't sure they would return to the house, so they decided to apply for HAP last year.
"This was a way for us to stop the downward slide and get out with our heads still above water, and allow us to recoup at least some of our money," he said.
A HAP realty specialist told him that if they decided to sell the house themselves and then get reimbursed by HAP, they would get a higher percentage 90 percent of the prior fair-market value of the house, which includes improvements.
"If you can come up with the money to close on your own and wait to be reimbursed by HAP, you are more than welcome to do that," she wrote in an email.
According to the figures she provided, the Burkes would get a HAP benefit of $204,962. Of that, $181,000 would cover what he would have to pay at closing to pay off the mortgage and other closing costs. After the closing payoff, he would pocket $23,963 about 10 percent of the $236,908 they had already invested in the property.
Burke's sister offered to take out the $185,000 home equity loan on her house, which would be paid off when he received the HAP money.
"I verified the amounts prior to selling on multiple occasions via email and phone calls," he said.
Burke's case is in the final stage of a four-stage appeals process, under review by the office of the deputy undersecretary of defense for installations and environment.
At press time, the Army Corps of Engineers could not provide information on its error rate in processing HAP applications.
"We make every effort to expeditiously, thoroughly and accurately review applications, and regret that we initially did not factor the requirement [of the maximum benefit limit] into the calculations when estimating his benefit payment," Pawlik said.
Meanwhile, Burke is making interest-only payments of about $500 a month on the remaining $100,000 home equity loan in his sister's name. This lingering loan has caused his sister and her husband to lose a contract on a house they were planning to buy.
The emotional strain is taking its toll on his family, Burke said.
"I don't see how this could have been any worse. We shed tears selling this house, but we were going to be able to walk away from a $200,000 hit. If I thought there'd be one-half percent of a chance this would happen, we never would have sold."