With protesters’ occupation of the North Portland neighborhood around the so-called “Red House on Mississippi” rounding its fourth day, it remains unclear if there is a peaceful path to resolving a conflict that started two years ago, when a mixed-race family’s long-time home was foreclosed on by their lender, leading law enforcement to try to remove them on Tuesday.
The Kinney family and their supporters have cast the fight as a continuation of the long saga of gentrification, discrimination and predatory subprime lending that has gutted Portland’s historically Black neighborhoods and replaced them with yuppified apartments and condos.
That’s definitely a piece of the picture. One need only look at the red house itself, at 4406 N. Mississippi Ave. It sits in the shadow of The Roux, a high-end apartment complex boasting “sophisticated living spaces and understated designer finishes.” Other neighbors include new residential developments and swanky eateries. And with a large vacant lot next door, it’s a prime development opportunity in one of Portland’s trendiest neighborhoods.
It’s also true that the Kinneys took out expensive subprime loans starting in 2002, taking a big chunk of equity out of a home that had been in the family since 1955 to pay their son’s legal fees and presumably other expenses. Because of racist policies, Portland’s communities of color have historically lacked access to conventional home loans and were redlined out of other neighborhoods. That’s the reason, the Kinneys say, that their relatives purchased this home outright in 1955.
But the reason the Kinneys lost ownership of the property their family had called home for more than six decades, court records show, is far simpler:
They stopped making their mortgage payments.
Legal filings show that the Kinneys’ lender foreclosed on their house because after faithfully paying their mortgage for 13 years, they stopped in January 2017. Based on comments they have made in public and court filings, that was because they were confused over which company to pay as the loan was sold and the servicer changed. But they missed the next 17 payments.
Courts have found no conspiracy or fraud involved, as the family has alleged. The Kinneys declined to participate in the state’s foreclosure avoidance program, which offered mediation with the lender, potentially to reach a loan modification or some other accommodation to keep them in the home. And the Kinneys either couldn’t or wouldn’t make the $19,000 in back payments that accrued during that period, which would have cured the default and reinstated their loan.
Instead, the family launched a quixotic campaign to invalidate the loan altogether, telling the lender that because of their “indigenous” and “aboriginal” heritage and membership of a sovereign nation, the bank had no right to collect. One expert told The Oregonian/OregonLive this week that the rhetoric is consistent with the so-called sovereign citizen movement, a fringe belief system embraced by adherents who profess they are above the law. Debt elimination is one of the movement’s central themes.
The Kinneys’ son, William Kinney III, who goes by William Nietzche, filed a lawsuit in U.S. District Court after the 2018 foreclosure, making a broad slate of charges against most of the parties involved in the lending and foreclosure. But Judge Michael Simon tossed it out, determining that many of the claims were “speculative,” “not tethered to any factual support,” implausible, unclear and misrepresented. The Ninth Circuit Court of Appeals denied an appeal.
Kinney continues to press the case, now with a petition before the U.S. Supreme Court, but it’s unclear that will get any traction either. Meanwhile, the Red House on Mississippi has become the new rallying cry for a segment of Portland’s racial justice protesters, who are holding the neighborhood hostage until their demands to return the Kinneys to their home are met.
A Multnomah County Circuit Court judge ruled in September in a case brought by the bank that law enforcement officers needed to forcibly remove the family from the home they have not owned since a court-endorsed foreclosure auction in 2018.
“This is not a typical foreclosure case,” Kinney said in a news conference Wednesday. “This is a David and Goliath fight. We’re just a small family seeking to defend our house against big banks and developers. My parents were preyed upon by the same predatory practices that led to the 2008 financial crash…This has crossed the threshold to a crime against humanity.”
The long path to losing their home
The Kinneys’ road to foreclosure began in May 2002, when Julie Metcalf Kinney and her husband William Kinney Jr. borrowed $96,300 from Freedom Home Mortgage Corp., secured by their home, to pay legal costs for their son William Kinney III (now Nietzche).
Kinney, then a teenager, had been charged with manslaughter, reckless driving and felony hit and run after he ran a stop sign while speeding and slammed into another vehicle, killing an 83-year-old man and seriously injuring his wife.
He ultimately pleaded guilty to related charges. He told The Oregonian/OregonLive this week that his legal costs were $26,000. But the family borrowed far more against their home.
It was also an expensive loan, with an interest rate of 8.25% -- well above the 6.8% average for 30-year fixed rate loans prevailing at the time. It’s unclear whether the Kinneys had the income or credit scores to do better, or whether the fact that they were borrowing such a low percentage of their home’s value – about 30% - might have gained them a lower rate with another lender.
The loan also included a rate adjustment feature, not uncommon, but one that became very problematic for many borrowers in the runup to the financial crisis as their initial rates began to ratchet upward.
On the Kinneys’ loan, the interest rate would adjust after two years, then every six months, by adding 7.375% on top of a standard interest rate index used by banks. The first adjustment in 2004, would have boosted the rate to between 8.5% and 8.9%.
Instead, the Kinneys refinanced in March of 2004 with Beneficial Oregon, another subprime lender. Once again, the terms were less than ideal. The rate was 7.74%, two percentage points above the average 30-year fixed rate loan at the time. The lender tacked a $6,300 origination fee – 5.25 percentage points – onto the $120,000 principal of the loan, extremely high given the above market rate and amount. (It’s unclear if the Kinneys were taking an additional cash out at the time, or whether their original loan was a so-called negative amortization loan where the monthly payment was insufficient to cover accruing interest and the debt had continued to grow.)
Loan statements also show the lender was selling them disability insurance to cover the payments if they were incapacitated, an add-on lending advocates criticize because it’s often expensive, unnecessary and boosts monthly costs. In this case, the disability insurance would have added more than $600 to their annual costs. The Kinneys later disputed this insurance coverage, calling it fraudulent.
This loan also included an adjustment feature, but this time it promised a 0.25% reduction in their rate after every year in which payments were all made within 30 days of their due date.
Again, it was not an ideal loan for the Kinneys, though subprime lending practices in that timeframe were often far more abusive.
Either way, the Kinneys made the payments on that loan for 13 years, saw their interest rate gradually decline to 5.49%, and the principal reduced to less than $100,000, loan documents filed in court show.
Then, on December 31, 2016, an innocuous wrinkle -- commonplace in many loans -- set off the chain of events leading to the loss of their home. Beneficial sent the Kinneys a notice that their loan had been transferred to MTGLQ Investors, L.P., a subsidiary of Goldman Sachs. The notice said Beneficial would remain the servicer of the loan and payments should continue to be sent to it. The statement contained a coupon for their next monthly payment, $745.82, due Jan. 17.
In January 2017, however, the Kinneys received another letter from Beneficial saying their loan servicer had changed to Rushmore Loan Management Service and that Beneficial would not accept payments on the loan after Feb. 1. The notice provided an interim coupon so the Kinney’s could make the Jan. 17 payment to Rushmore. Again, this type of switch is common practice in the lending industry.
The Kinneys have said they were confused about who to pay with mortgage statements telling them to send the January payment to two different companies. So they stopped paying at all.
The Kinneys did not reply to questions from The Oregonian/OregonLive about why they let the default go on so long.
Six months later in June 2017, when the loan was already five months in arrears, son William Kinney sent Rushmore a certified letter requesting validation that it had a rightful claim to collect the debt, according to documents filed in his federal court case. His letter said the Kinneys were not refusing to pay, and they were establishing an escrow account to hold the payments while the matter was resolved. It’s not clear if that account was ever set up.
The letter also included a 44-question “debt collector disclosure form,” perhaps gleaned from the Internet, and said it must be completed under the Fair Debt Collection Practices Act. The letter noted an earlier dispute the Kinneys had with Beneficial over “fraudulent insurance coverage.” Recent mortgage statements indicate that insurance charge had been taken off the loan. The letter also said that failure to return the form, signed under penalty of perjury, would amount to an agreement by Rushmore that it had no valid claim.
Rushmore responded the following month, providing copies of the mortgage agreement, deed of trust, payment history and most recent billing statement. It declined to answer the other questions the Kinneys’ son posed in his form, but noted that they were now seven payments in arrears on the loan.
In the meantime, Rushmore also sent a letter to the Kinneys notifying them that MGTLQ had sold their loan to U.S. Bank Trust National Association. That sale was recorded in Multnomah County on Nov. 16, 2017.
The Kinneys still weren’t making their monthly payments and were falling further behind. In February 2018, they received a notice that their loan had been transferred again to another subsidiary of U.S. Bank.
Under Oregon statute, certain lenders are required to participate in the state’s foreclosure avoidance program, in which a neutral mediator conducts a face-to-face meeting between a homeowner and their lender with the goal of avoiding foreclosure. The result might be a loan modification, a short sale of the house or some other resolution. Free home counseling is also available.
As a loan moves toward foreclosure, the lender is required to submit a request to the program, which triggers outreach to the borrower by a neutral service provider by mail and phone to provide an information packet and set up mediation. In order to participate, the borrower needs to pay a nominal fee by a set deadline.
“If the homeowner doesn’t want to participate, they don’t have to, and the process ends,” said Kelly Harpster, the attorney in charge of Consumer Protection at the Oregon Department of Justice. “A certificate of compliance is then issued to the lender that they’ve met the statutory requirements and can move on… It’s like any mediation in the world, but at that point you have to be willing to engage in conversation.”
The Kinneys weren’t willing. In April 2018, Rushmore sent them a notice from the Department of Justice confirming that the Kinney’s hadn’t paid the program fee by the deadline, and that the lender had complied with state requirements. A week later, the Kinneys’ son returned the form, marked “void,” with a letter signed by his mother, “Julie Anne, house of Metcalf Kinney, Sovereign living soul, holder of the office of “the people.”'
The letter said she was “a declared living American sovereign standing with Treaty Law of God.” It said the company had no jurisdiction “without an international treaty within My republic state” and that the company was not chartered to do business in Oregon “by My republic state.”
The sovereignty claim, essentially that they were above the law, is one that the Kinneys’ son had also made in 2010 when he was being sentenced to another term in prison for possession of cocaine and driving with a revoked license, which had been revoked for life after his 2002 accident and manslaughter plea. As he harangued the court, the judge found Kinney in contempt 12 times and tacked an additional four months to his sentence.
Harpster said she worked in private practice before the justice department, including work with loan servicers. She said borrowers occasionally make such sovereignty claims, often in form letters they found on the Internet.
“It’s a dead end,” she said. “Eventually you have to deal with the underlying issue, which is the default.”
By June of 2018, the foreclosure process was ramping up. Rushmore informed the Kinneys that if they didn’t pay, the lender would pursue all options, including foreclosure. A trustee was appointed to start the process and sell the home. A process server posted a public notice of intent to sell the house, and served the notice on the Kinneys, posting it to the main entrance to the house several times and sending it by mail, court documents show.
It said, in part: “YOU ARE IN DANGER of LOSING YOUR PROPERTY IF YOU DO NOT TAKE ACTION IMMEDIATELY.” It provided the amount required to reinstate the loan, $19,150, or to repay it in full, $112,339. It also said the trustee would sell the house at a public auction to the highest cash bidder on Oct. 23, 2018.
Kinney continued his back and forth with the loan servicer and trustee, sending them back a voided copy of the notice of sale and demanding certified copies of loan documentation, proof of legal authority to do business in the state, and answers to specific questions such as ‘What exactly is being borrowed from your agency?”, “Does the word Foreclosure mean Before the closure?”, “Can Foreclosure be executed after a closure?”, and “What is your nationality?”
On Sept. 10, 2018, Kinney sent a “notice of default judgement” to Rushmore, stating that since the company and the trustee had not fulfilled his earlier requests, “all claims, petitions, suits, filings…regarding our ancestral estate be dismissed and expunged.” That was followed by other communications in dubious legalese demanding that the lender, the servicer and trustee stop all action on the foreclosure.
The sale took place Oct. 23, 2018. The house fetched $260,000 at auction, well above its assessed value of $42,530 but below its market value of $387,650 listed in Portland property tax records.
The Kinneys have not owned the house for more than two years, though neighbors say some family members intermittently stayed at the residence along with various protesters camping there until the Multnomah County Sheriff’s Office and Portland Police tried to remove them Tuesday.
The Kinneys have declined to answer individual questions, including how much they money they received after the auction. The net proceeds of the $260,000 sale would have gone to them after the loan, any penalties and foreclosure costs were satisfied.
The Kinney’s say they were denied the right to bid on their property at the auction. They claim the individual conducting it told them “you don’t have enough money” and refused to verify funds in their account over their cell phone.
Moreover, because the house was sold in a non-judicial foreclosure -- outside of a lawsuit -- the family had “no right of redemption,” which essentially would provide them the right to buy back the home after the foreclosure. It’s unclear if they had the resources to do so at the time, but their GoFundMe campaign has now raised nearly $300,000.
Kinney’s subsequent federal suit made 35 claims against 21 different parties. They included breach of contract; violations of the Fair Debt Collection Practices Act and Oregon Unlawful Debt Practices Act; breach of Trustee’s duty; various types of fraud, and a violation of United Nations Declaration on the Rights of Indigenous Peoples, among others.
District Judge Michael Simon dismissed the case in Oct. 2019 with prejudice, meaning it can’t be brought back to court. Subsequent motions for contempt against the judge, and to recuse him, were denied. A subsequent appeal to the Ninth Circuit Court of Appeals also was denied.
But Kinney is not done. In November, the family asked the U.S. Supreme Court to review its case.
-- Ted Sickinger; tsickinger@oregonian.com; 503-221-8505; @tedsickinger
Correction: An earlier version of this story misstated the assessed and market value of the the red house on Mississippi.