New America Media, Video, Text: Ngoc Nguyen / Video: Mike Siv, Posted: Apr 15, 2011

This story was produced as a companion to the feature report, Hard-Pressed Homeowners Facing Another Threat.

Marjorie Murray, with the Oakland-based Center for California Homeowner Law, says homeowners often describe their ordeal in settling their debt with collection agencies as a “nightmare,” in which collection fees are heaped on top of their existing debt as their case drags on, while the threat of foreclosure is held over their heads.

“Their home is being held hostage and the debt collector knows it,” Murray said.

On average, she says, the handful of collection agencies that specialize in association foreclosures make as much as “$3,500 on every account” they take on.

Last year, San Lorenzo, California resident Arnetta Lawler paid $3,000 to a debt collector to settle a case that had dragged on for 18 months. About half of the amount she paid went to cover collection costs.

“It was definitely hard to come up with the money,” said 44-year-old Lawler. “I had to rob Peter to pay Paul, just to stop the excessive fees that were added on. The more I fought, the more they added costs… Everything was a cost.”

The single mother of three children said she lost her job in sales and got behind on seven months worth of assessments to her homeowners association. Her neighborhood group sent her case to a collection agency, which sent notices to the wrong address, she said. By the time they fixed the error, her homeowners association had put a lien on her four-bedroom apartment.

Two years ago, Heidi Varilla’s financial troubles were mounting. She fell behind on mortgage payments for her four-bedroom home in Hayward, California. She couldn’t make the payments to her homeowners association either. Ms. Varilla worked out a deal with her bank to modify the terms of her home loan, but working with her homeowners association proved more difficult.

The association sent her delinquent account to a collection agency, and the initial amount she owed in overdue assessments - about $1,900 -- ballooned to nearly $4,700 in debt and fees. To save her house, Ms. Varilla says she had to go deeper into debt to pay the collection agency.

“We had to dig into the last of whatever money we had,” she said. “They [debt collectors] are penalizing the people who are already in hardship at this time and taking advantage of people who are having problems already.”