Where’s the bottom?
Home foreclosures along the Emerald Coast are on pace to set yet another annual record, numbers through April show. The figures indicate the real estateinduced recession in the region might still be seeking the bottom. According to Metro Market Trends Inc., foreclosure filings for the first four months of 2009 are: Up 34.6 percent (193 more) in Okaloosa; Up 7.2 percent (34 more) in Santa Rosa; Up 36.2 percent (206 more) in Walton. Tony Hughes, CEO at Beach Community Bank, knows just how much these numbers hurt the local economy.
“In general, as there are properties in foreclosure by a variety of lenders, that can mean more property than buyers, so prices go down,” Hughes said.
“If your neighbors on both sides went into foreclosure and the mortgage company basically dumped it, then the value of your house has gone down,” he added. “And then you might apply for a home equity loan so you can do some renovation, but you can’t get one. So you don’t buy those appliances at the store and the whole cycle starts to contract.”
But not all foreclosures involve someone’s primary home. If people borrowed money on any sort of property and run into payment problems, the lender can file to take it back.
Beach Community Bank logged $22.7 million in past-due loans last year, according to reports from the Federal Deposit Insurance Corp.
At least part of that came from commercial real estate defaults, but it dealt with land that had potential for residential development. There was no infrastructure built or the developer just didn’t get to that point.
“If you have a loan on property that would become town houses, buyers would buy the foreclosed properties first,” Hughes said. “For a developer, they have to figure in the price of land, infrastructure (water and sewer) and vertical (buildings) in to what they want to make as profit.
“When there’s existing property that people can buy at a reduced price, all of a sudden the new projects are not viable, and a project can sit there undeveloped until the market improves,” Hughes added
But if developers aren’t developing, there’s no income they can use to pay off their loans.
Rick Harper, who heads up the Haas Institute for Business Research and Economic Development at the University of West Florida, hears that question all the time.
“The thing about this is, we can be at the bottom in terms of income and employment, but because of the growth in housing prices that got us into this mess, it’s going to take longer for housing market to recover,” Harper said.
“These numbers are the predictable outcome of the excessive lending and price run-up of the 2003 to 2006 period combined with current recession,” he added. “They’re going to get better when we work through the inventory of foreclosures and the job market gets better.”
The emerging lingo
But the doldrums persist. And bankers, Realtors, lenders and homeowners are all too familiar with terms hardly anyone used three or four years ago, such as “lis pendens,” which designates filing for foreclosure. Not the actual foreclosure itself, but the start of the process.
Then there’s the “short sale” in which a property in the foreclosure process gets sold at a discount. And there might or might not be some forgiveness by the lender on just how much debt remains. A nifty solution in theory, but in practice it’s a situation loaded with potential complications.
“We’re seeing two things right now,” Harper said. “One is, you’ve got a lot of people who took out an adjustable rate mortgage in 2004, 2005 and 2006, and more likely than not, they’re now in a negative equity position.
“The other factor is obviously we’re in period of economic weakness right now, in which of one of two family members loses a job and then the family has negative equity. In that situation, there’s usually no alternative.”
Actual foreclosures are not as numerous as the initial filings, but their numbers are on the rise as well.
Comparing the first four months of 2008 and 2009, as charted by Metro Market Trends:
Okaloosa foreclosures went from 92 to 120 (up 30.4 percent);
Santa Rosa went from 94 to 146 (up 55.3 percent);
Walton went from 90 to 170 (up 88.9 percent).
Part of that is because certain major companies had imposed brief moratoriums around the start of the year, but those moratoriums expired.
Gloria Frazier, owner of ERA American Realty of Northwest Florida, said she considers both sides of the issue on a daily basis.
“Once the bank has it, they’re very motivated to sell it, and the buyer will get a nice bargain,” Frazier said. “The down side is it drives the prices down … it doesn’t help the sellers.
“I think we could be through the worst of this,” she added. “A lot of buyers are out looking right now and prices have dropped so much … So this really isn’t all negative — it’s part of the process and the sooner they do it the better off we’re going to be.”
Another term that’s become familiar is “REO,” or Real Estate Owned by the lender. Put those discounted properties together with some 30-year fixed mortgages offering rates about 5 percent and you have elements of a buyer’s market. There’s also the new $8,000 tax credit for first-time home buyers.
“I would classify it as a buyer’s market,” said Barry Stafford, CEO of the Emerald Coast Association of Realtors. “There’s more inventory than buyers, and there are choices. It’s all about the price — sellers who price it right and make it presentable are selling.”
Stafford’s association lists 1,408 new contracts in the first quarter. That means buyers have made offers on those properties, whether or not they’re in foreclosure. And according to Jeff Gurney at Realtors association, 376 of those are short sales.
Jeff Adamson with Keller Williams Realty in Destin says he has closed some short sales in as quickly as 10 days, but that’s the exception.
“It’s an education process for the real estate agents, for the sellers and for the lenders — for all of us to get better at giving everyone what they need.”
Required documentation can be a stumbling block.
“The seller is required to provide documentation to lender, so the lender will agree to authorize the short sale,” Adamson said. “So the agent has to get the information and often provide the lender with 30 to 80 pages of documentation. That’s what they require.
“If the real estate agent doesn’t provide what’s needed, it gets rejected and goes to the bottom of the file, and you’ve got to rectify what’s missing,” he added. “And all the while the buyer has to wait. Is the buyer ready to wait six to nine months? What happens if they find something else while waiting? It happens, or they just get tired of waiting.”
Mike Kelly works for Adamson at Keller Williams.
“The big thing with a short sale is there has to be some hardship involved,” Mike Kelly said. “The bank is not going to walk away from their money if somebody still has assets elsewhere. … People also need to know that foreclosure stays on the credit record for seven years and a short sale stays on for two years.”
The short-sale process also includes appraisals to make sure the house has all its basic equipment and is ready to be sold. But Kelly cautioned that when the lender holding the property accepts an offer, it becomes an entirely new contract “that favors the bank entirely.”
“That scares some people, so they might want to consult an attorney,” he said.
Legal help is
an option
On the other side of the coin, someone dealing with foreclosure can decide that paying for legal help is less expensive than trying to make mortgage payments they can no longer afford.
Destin attorney Mark Violette has been involved with many such situations. He said there were 115 recent cases in which his office represents a homeowner in a foreclosure matter.
“Sometimes the homeowner comes in scared to death, because they’re dealing with the unknown.” Violette said.
One process is called “deed in lieu of foreclosure,” in which the owner hands over the keys to the lender and walks away. But that all depends on the situation.
Otherwise, from the time someone misses a first payment there’s about 60 to 90 days before the lender starts making phone calls, Violette said.
“Somewhere between 90 and 120 days the lis pendens gets filed,” he said.
But the paper chase that starts at that point can actually work to the defaulting owner’s advantage
“Documents can move around quite a bit, and a promissory note can be like a dollar bill,” Violette said. “You can endorse it over, then it gets transferred multiple times and a copy is made, but it’s not the original. … The more ways to highlight defects in (lender’s) case the more willing the plaintiff is to get out of this situation. It can be the first time they stop and listen.”
By forcing the lender to prove what it needs to prove, the foreclosure process can be stretch from several months to a year.
“But I tell the people I represent they should still be working, and if they’re not paying mortgage they should keep money aside for eventual costs,” Violette said.
NICK TOMECEK
Daily News
NICK TOMECEK | Daily News
Jeffrey Johnston with Real Estate Disposition Corp. assists bidders recently during a foreclosure auction at the Emerald Coast Conference Center.
