Home Is Where the Card Is

During the mid-'90s, the preponderance of "credit repair" services -- which most often made fraudulent offers to erase negative entries on credit reports while enticing consumers with credit card deals -- spurred the Federal Trade Commission to crack down on such predatory companies by instituting the Credit Repair Organizations Act. The act tightened restrictions on companies that were notorious for disappearing after receiving hundreds or thousands of dollars from desperate debtors. Meanwhile, amendments to the Fair Credit Reporting Act sought to promote accuracy and ensure the privacy of information used in credit reports while expanding the rights of consumers.

But nonprofit as well as for-profit "credit and debt counseling" services still do brisk business. In Kansas City, more than two dozen such enterprises -- including Zabawa's HomeBuyers Assistance Foundation -- are making a living off of other people's troubles.

Since the fall of 1999, when he filed articles of incorporation for a nonprofit organization with the Missouri secretary of state (Zabawa listed his wife, Nikki, as a member of the board of directors), Zabawa has signed up some 1,000 customers through his offices in Kansas City and St. Louis. After those clients pay the enrollment fee, Zabawa says, he and his staff of twelve provide customers individualized plans of "attack" that are supposed to help them reach settlements with creditors and rectify disputed accounts on their credit reports.

The buyers then scout out for-sale-by-owner homes. Zabawa buys the houses himself -- a mercenary salesman, he negotiates deals with homeowners who are eager to make a quick sale. Often, Zabawa pays anywhere from $2,000 to $10,000 less than the appraised value of the homes -- and sells them to his clients at the appraised value. The difference keeps his organization afloat. (Most of the homes he obtains fall in the $60,000-$100,000 range.)

If a client's credit isn't good enough for an immediate purchase, HomeBuyers coordinates a rent-to-own agreement with a willing seller, allowing the customer to use part of the rent money in lieu of a down payment. Zabawa says some of his employees maintain contact with customers during the credit-counseling phase while others focus on helping clients track homes they are interested in buying.

"People who work for me have experience in credit and business," Zabawa says. "They all have specialties they perform."

In the meantime, Zabawa operates his nonprofit in tandem with his work as an employee for the Florida-based Country Home Mortgage company, which has a branch located in the same office as HomeBuyers. With Country Home, Zabawa's position as a mortgage broker enables him to secure housing loans.

Because HomeBuyers deals primarily with the government's FHA housing program, Zabawa's customers buy properties that must comply with local building codes, Zabawa says.

But the most popular FHA loan program also works to Zabawa's advantage. The 203(b) FHA loan allows 100 percent of a home buyer's down payment and closing costs to be paid as a gift from a relative, a government agency or a nonprofit agency -- in this case, HomeBuyers. And based on FHA guidelines, a borrower will be considered for one of the program's loans even if he is still paying on a Chapter 13 bankruptcy. Other FHA loan criteria allow applicants to have some unresolved credit problems.

The more FHA loans Zabawa is able to process, the higher his commissions are as a broker for Country Home Mortgage.

Says one Kansas City mortgage broker of Zabawa's system: "He's pretty damn smart for doing it that way. HomeBuyers is just smoke for getting FHA loans."

Farley Gilliam, a branch manager for Overland Park's Commonwealth United, which has underwritten and approved dozens of loans coordinated by HomeBuyers, says Zabawa's operation works just fine. "It's not the simplest process," Gilliam says, "but he works with a lot of credit-challenged people, and if they weren't dealing with him they would not be able to get a house."

Gilliam says Commonwealth processes five to seven loans a month for HomeBuyers Assistance Foundation.

"The stuff he does provides a pretty good service -- especially the mortgages he gets because they are federal-insured mortgages. In a big way, he's working on behalf of the buyer."

"This saved us a hell of a lot of time," Kelly Kilgore says. Kelly and her husband, Randy, called HomeBuyers Assistance Foundation in October 1999. The Kansas City couple had considered trying to get financing on their own, but they wanted the convenience of having Zabawa's organization do the work for them.

"We could have gotten it done without him, but we've got three children and a side business," Kelly says. "To pay someone $695 to take care of all that and qualify for a loan is great. They contacted our creditors and got settlement amounts if that's what they decided. We did find our own house, and we liked the neighborhood. It was five blocks from where we were renting."

The Kilgores bought a house for its $114,000 asking price and believe they got a bargain after going through the HomeBuyers program.