"It was anticlimactic," Maaike Coldwell says, "but it makes you sick to your stomach. You don't want to do it because it puts a black mark against you. There's a stigma attached to it, and you are going to have to overcome it."
Maaike, a hospital secretary, and her truck-driving husband had been on the bumpy road to bankruptcy since moving from San Diego to North Kansas City thirteen years ago. Jeff couldn't find work. They were raising three college-bound daughters. Creditors stalked them silly. The Coldwells, admittedly, barely understood the definition of frugality.
"We made bad choices and there was a snowball effect," Maaike says.
If they were ever going to live the great American dream -- buying a home they could call their own -- bankruptcy afforded them a way to do it. Filing for Chapter 13 debt protection helped them right their financial wrongs. "We could have filed Chapter 7, but we went with 13 because we wanted to pay our creditors," Maaike says. "It was rough, but we did it."
The Coldwells cleared bankruptcy in 1999 and continued dealing with additional financial burdens until the spring of last year. Finally, Jeff and Maaike believed their credit was re-established. They believed it was their time to go house-hunting. What they didn't believe was the rude welcome they got from mortgage companies.
Time after time, lenders looked at the Coldwells' bankruptcy and treated them like Jehovah's Witnesses on a neighborhood recruiting tour. "Nobody would take time with us," Maaike says. "We couldn't get anyone to work with us."
That changed when the Coldwells found David W. Zabawa.
One day while she was working at Children's Mercy Hospital, Maaike Coldwell received an automated phone call from a company claiming to specialize in helping people with credit problems. The prerecorded sales pitch promised to improve customers' credit and help them get mortgage loans. And there was a bonus: Customers didn't have to come up with cash for either the down payment or the closing costs on a home. The recording provided a phone number for HomeBuyers Assistance Foundation Inc., a not-for-profit organization advertising itself as a one-stop credit counseling service, real estate brokerage and finance company.
"It was kismet or karma," Maaike says. "I wrote down the phone number."
When the Coldwells called, they were greeted by another automated recording: If you are tired of being a second-class citizen ... all you have to do is answer a few simple questions.
The Coldwells answered the questions, submitting personal information (a name, address and Social Security number) so HomeBuyers Assistance Foundation could run a credit report to determine whether they qualified for the company's program. Within a matter of days, the couple received a letter saying they were qualified to enroll for nominal charges -- a $100 initiation fee and a $695 program membership fee that would be due within a month; if they didn't pay during that time, the membership price would double.
Fearing this might be their only chance to own a home after their past credit problems, the Coldwells jumped on the offer and paid the $795.
David W. Zabawa, the company's owner, promised to put the Coldwells in the home of their dreams.
Within a year after Maaike listened to HomeBuyers' sales pitch, the Coldwells were able to move out of their apartment. "It was fate," Maaike says, "and here we are."
Last month, the Coldwells closed on a three-bedroom home worth $100,000 in Excelsior Springs, Missouri. As HomeBuyers promised, the couple didn't need to save for a down payment or closing costs. The couple's thirty-year mortgage -- with an 8.5 percent interest rate -- works out to $775.37 a month in payments, well within the Coldwells' budget, Maaike says. They picked up their keys on March 5.
"It's got a fireplace and a fenced yard," Maaike says of her favorite amenities. "If you are not able to get into a home right away and show you can afford it, [HomeBuyers] are amazing. Considering where we were two years ago, this is great."
David W. Zabawa is an ex-convict, but Maaike likens him to a miracle worker. "None of the regular, conventional lenders would look at us. He is the nicest guy."
"People get into credit situations for a lot of reasons -- the economy, divorce, the bankruptcy thing," David W. Zabawa says. "It's also a social disease that says it's okay not to pay your bills. There's a need for what I do, but it's a hard thing to do. Sometimes I don't know why I'm in this business."
Business, however, is booming.
During the past two decades, the country's trend toward credit card debt has been staggering: In 1980, total consumer debt was only $50 billion. Since 1992, the Federal Reserve reports, the country's total consumer debt rose from $731 billion to about $1.5 trillion today. Included is a giant increase in credit card debt: from $292 billion in 1992 to $654 billion at the end of 2000.
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.
"You have to be committed to the program," says Kelly. "If you [are, Zabawa] assures you do get the loan. We had some credit issues, and reality sets in that you have been screwing off. We had to make a commitment, and that's the most important thing in our lives. What he said he was going to do, he did it. He gave us a full year time frame, and we did it in six months. I can't complain. You have to face your demons."
David W. Zabawa knows about facing demons.
"This has been a twenty-year lesson for me," says Zabawa, a man with a smooth delivery who excuses himself for being "arrogant" from time to time. "For whatever reason, I have developed skills through survival to help people."
Three days after Christmas in 1995, David W. Zabawa -- inmate No. 07490-045 -- emerged from Leavenworth's Federal Prison Camp after serving thirteen months on charges of mail fraud (one count) and wire fraud (61 counts). He had been indicted for being the ringleader of several telemarketing companies that claimed to provide low-interest credit cards to customers for a nominal fee. Zabawa was living in Kansas City when he turned himself in to federal marshals.
The investigation into Zabawa's activities in 1990 and 1991 led authorities to a telemarketing company called the Rocky Mountain Network, based in Lakewood, Colorado. Zabawa also operated similar telemarketing firms in Arkansas (called Ping Management) and in Nebraska (Omaha's Stone Key Enterprises Inc.). Zabawa and a dozen of his partners had used phone calls, postcards and ads in weekly shoppers to make false offers of preapproved credit that would allow consumers nationwide to receive bank loans, department store credit cards, MasterCards and Visas.
Zabawa and his partners told customers they specialized in working with people who had credit problems, but none of the employees in the company had any training in the field. They promised to disperse unlimited store credit cards and unsecured signature loans of $2,000 to $35,000, but the business had no relationship with such companies as MasterCard and Visa. The employees also persuaded callers to allow them to make bank-to-bank draft transfers from their accounts in an effort to obtain a $119.95 fee from each one of them.
In return, some victims received worthless packets of information; others received nothing. Investigators determined that the scheme caused about 6,708 people to buy Zabawa's false promises.
"He was something else," says Ernest Frederick of Montgomery, Ohio. "He got into my bank account, and I don't know how he did it. I was mad at the bank because they let these people get into my account. I closed my account because of it, and I don't have a bank account anymore."
During the six-month stretch of his company's operation, David W. Zabawa made deposits totaling more than $450,000 into four bank accounts. Most of those assets -- in addition to office equipment, computers and fax machines -- were seized by government officials.
"This guy was a big wheel, and I never want to see or hear of him again," says Frederick, an 81-year-old retiree.
Frederick and other victims of the scheme were prepared to testify against Zabawa in court, but after the cases were transferred from Colorado and Nebraska to Missouri, where he was living, Zabawa pleaded guilty to the charges.
He hasn't let the felony conviction stop him from pursuing his chosen profession. During the three years between his release from prison and his new venture with HomeBuyers, Zabawa worked at a sales and marketing job in Chicago and unsuccessfully attempted to operate a for-profit down-payment assistance program. That's when he came up with the idea for a nonprofit.
"I'm still bitter about that," Zabawa says of his criminal record, "but that's history. That's all gone. There's no point in talking about it. I'm proud of what I've done, and I think where I am now is where I belong. It's where I have been headed for ten years."
But in spite of the success stories with HomeBuyers, Zabawa has been struggling to defend his business practices ever since he started the organization.
Zabawa found trouble the moment he named his business HomeBuyers Assistance Foundation Inc. That's because another nonprofit firm, one in suburban Atlanta -- and one recommended by the U.S. Department of Housing and Urban Development -- already was operating as a down-payment assistance program for people with poor credit. It too was called HomeBuyers Assistance Foundation.
Zabawa says it's merely a coincidence the companies share the same name and nearly identical mission statements.
"It was to my complete astonishment they had the same name," Zabawa says. "They don't do credit counseling like we do, but they wanted to sue me. They could not sue me because the name wasn't trademarked and the company is in Georgia."
Rebecca Wallace, executive director of HBAF, says her organization filed complaints against Zabawa as soon as it became aware of him.
"Two years ago, we wrote to the FHA office and the FBI," Wallace says. "We have a patent on our name, and we're not affiliated with him. We're a nationwide company and service a lot of people in the Southeast." Now that Wallace knows Zabawa is still using her organization's name, she plans to contact her attorney.
And, Wallace notes, there is a big difference between what her company offers and what Zabawa's does. HBAF uses tax-exempt grants to finance its clients' down payments; Zabawa says his organization does not obtain grants but instead uses the profit margin from his enrollment fees and home sales to cover down payments and closing costs. (He says he is considering eliminating his enrollment fees because he has generated enough capital to sustain the program.)
Other complaints regarding Zabawa's operation have been filed with the Better Business Bureau and the Missouri attorney general's office. The Better Business Bureau chapter of Eastern Missouri & Southern Illinois, based in St. Louis, has seventeen complaints on file against HomeBuyers (ten closed as resolved, five closed as disputed). Within the past month, the chapter has received several more complaints.
Last August, the director of the St. Louis chapter of the Better Business Bureau issued a cautionary statement about HomeBuyers after the agency began investigating the complaints. The letter said customers rarely were provided the services advertised and that HomeBuyers refused to make refunds, falsely claimed to be a member of the St. Louis-area Better Business Bureau and tried to sell customers homes they hadn't even seen.
"Michelle Corey has gone out of her way to get me," Zabawa says of the St. Louis Better Business Bureau director. "We work with vulnerable people, but her mission in life is to protect those people, like all regulators. She has never called me. She doesn't talk to people like the Coldwells of HomeBuyers. I just know there are people inside her organization who very silently agree with my opinion."
But Kenneth Murdock, the St. Louis chapter's consumer relations director, says his organization does not have a personal issue with Zabawa. "We've had numerous interactions with Mr. Zabawa to give him complaint forms, and he has sought resolutions to some but not all of them. Saying it's personal is a common accusation when we issue a caution report."
Zabawa's organization has no outstanding complaints registered with the Kansas City Better Business Bureau. But the attorney general's office says it has investigated a dozen complaints about HomeBuyers in the past year. The agency does not comment on specific cases under investigation.
"Lately it's been disappointing being in this business -- the scrutiny," Zabawa says. "I'm not ripping people off. And I would dare people to be in five different jobs in this place for eight hours a day."
That chaotic environment appears to be at the heart of his customers' complaints.
"They give you somebody different every time you call," says Betty Fields of St. Louis, a HomeBuyers client who eventually received a $350 refund after she and her husband, Reginald, filed complaints with the Better Business Bureau and the attorney general.
But the Fieldses haven't cashed their check because they believe they deserve a full refund after enrolling in the program on June 7, 2000.
"We paid $795 altogether, and they said the $695 was a half-price deal if we got it to them in thirty days," Betty says. "But I called them for weeks and finally the [office manager in St. Louis] called us back. We had been getting calls saying we had only a certain time to pay or we would have to pay $1,600."
The Fieldses cashed in a life insurance policy for $800 to join HomeBuyers after they filed for Chapter 13 bankruptcy two years ago. Reginald, now fifty, has been unemployed since 1996, when he suffered two strokes. Betty, 48, says HomeBuyers approved them for a lease-purchase deal. HomeBuyers provided the Fieldses with a list of possible housing choices in the south St. Louis area, but each one of them, Betty says, was either already sold, boarded up or "raggedy."
They decided not to continue with the HomeBuyers program.
And the Fieldses' dissatisfaction with HomeBuyers grew when the company sent her forms to authorize the transfer of funds from her bank accounts and to sign up for three credit cards from a list of a half dozen banks as a way to "[establish] credit quickly and effectively." The letter offered them good advice for rebuilding their credit: "Do not accumulate a balance on your credit cards; this could decrease the qualifying amount of your home." However, Betty says she didn't feel comfortable being asked to make additional monetary commitments to HomeBuyers after she and her husband already had exhausted their finances paying the enrollment fee.
"I've learned a lot," she says. "You can't trust someone when you put your faith in them and they ignore you. I called and left messages, and calling to Kansas City during the day ain't cheap.... If [Zabawa] treats other people like us, I don't see how he could have a business."
That the Fieldses didn't complete his program is no surprise, Zabawa says. "Here's what I'm guilty of: working with people with bad credit. All those organizations that do credit counseling have people bomb out of their programs. It's like a fat person joining a gym. You can't make them want to lose weight; only they can. I'm probably stupid enough to dive in with these people, but you'd think the people I try to help would support that."
But some of Zabawa's clients say they're the ones who don't get any support.
Stephanie Jimerson of Kansas City regrets she ever got involved with HomeBuyers. During more than a year in Zabawa's program, Jimerson spoke to the owner twice. Their second conversation came after what seemed a merry-go-round of unreturned phone calls and unanswered questions about a property Jimerson wanted to buy after HomeBuyers got her approved for a loan.
"He told me I needed to be patient and calm down," Jimerson recalls of Zabawa. "But I was being given listings that had been on the market for a while, and I would get on the computer and find out they were not the type of houses I was interested in. I had told [HomeBuyers] I wanted three bedrooms, a basement and a garage."
Jimerson figured that being approved for a $70,000 to $90,000 loan with HomeBuyers should have gotten her the house she wanted. Zabawa says Jimerson, a 29-year-old single female, was being too picky. Jimerson, he says, wanted a $69,000 HUD home that eventually sold well above market value.
"She was less than a year out of bankruptcy, and now she's got an attitude.... That says a lot about Stephanie Jimerson and why she filed bankruptcy."
But it also says a lot about David W. Zabawa. The truth is that, like Jimerson, many of his customers could get FHA loans from other nonprofit and government agencies without having to fork over $795 in fees for credit counseling.
Jarod White, an Omaha-based spokesman for Creditor Advisors, a national nonprofit organization specializing in debt consolidation (charging a monthly fee based on the amount of debt), says there is nothing magical about what Zabawa's HomeBuyers Assistance Foundation offers.
"You can rebuild your own credit by making arrangements and settlements with your creditors and giving it enough time for your credit rating to be updated," says White. "What he's doing is not illegal, that's true. But sometimes people are taken advantage of. You should examine all of your options before you go to [HomeBuyers].... People can apply for grants and aid themselves. Shit like that is free."
Government agencies and local real estate agents confirm White's assessment. What Zabawa does might not be illegal, but it proves that desperate people are willing to take desperate measures if they don't know what alternatives are available in the housing market. White calls Zabawa "a buffer" -- a middleman who knows how to lead the uninformed through the forest of home buying for a price that can be steep for some.
Jimerson, who filed a complaint with the Better Business Bureau, quit calling HomeBuyers and found the lost business card of a St. Louis real estate agent she had met three years earlier. She called the woman and explained her situation. The next day, she was preapproved for a $95,000 loan at 6.5 percent interest with a first-time homeowners' grant. Jimerson is scheduled to close later this month on her new home.
"I lost $700 with HomeBuyers," Jimerson says, "but I'm going to come out on top."
Zabawa and his family are living in a rented Lenexa duplex while he battles his own credit problems.
As of March, Zabawa was indebted to the Internal Revenue Service for $31,628.15 in tax liens (not including interest). Zabawa cleared those liens last month after taking five years to pay the government.
"I resolved them on March 15," Zabawa says. "After going through five revenue offices -- them misplacing papers and losing files -- I have prevailed. They're paid off, and I'm quite satisfied I've resolved that.
"I think I have gone over some mountains," Zabawa adds, "but I have been doing all I can -- maintaining a steady income and a job."
Zabawa says that, through following the advice he gives his customers, he has re-established his own credit. "I'm renting, but I will be a homeowner soon."