Foreclosures will not budge, and neither will some homeowners

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The Latest
Wednesday, October 20, 2010

By Jacq Lacy

As the number of foreclosures plateaus, more homeowners are sinking their heels into their properties, refusing to vacate repossessed properties. Some do not make a mortgage payment for more than two years yet refuse to budge according to real estate insiders. This is contributing to the bogged down state of the housing market and further muddying the far-from-cleaned-up mortgage mess.


Above: Mortgages in foreclosure and in delinquency in Oregon since 2005.  Source: MBA
Below: Total foreclosure activity last 12 months in Oregon.  Source: RealtyTrac
Real estate broker Margot Murphy, who deals in bank-owned properties, says she has seen an increase in the amount of people willing to risk foreclosure, repossession and eviction. 

Nine of Murphy’s 20 repossessed properties, currently on her desk, remain occupied.

The eviction process can take anywhere from six to eight months and by then the tenants usually leave before the court issues a lock-out, Murphy said. 

“The tenants are choosing to remain on the property. They are not afraid to face eviction,” Murphy said.

John Helmick, CEO of Gorilla Capital, a Eugene-based company that buys and sells the most foreclosed homes of any company in Oregon, sees a related trend. In February Helmick sold three homeowners their previously foreclosed homes with new lower mortgage rates. The owner never left his living room throughout the foreclosure process, Helmick said. Before this year, Helmick had never seen anything like it.

Helmick calls it an innovative refinance strategy. The family of a house in Marion County never moved out. Gorilla Capital bought the house at auction and within 24 hours sold it back to the homeowner for 56% of the original mortgage.

At least those homes sold. Many more are stuck in limbo as banks try to verify faulty foreclosure documentation, dragging out the process and further clogging the market.

State foreclosure prevention has also helped stabilize the number of foreclosures, said Darren Blomquist, a spokesman for RealtyTrac, a California-based real estate company that monitors foreclosures. But that does not change the number of people who choose to forego their credit rating because their homes are worth less than they owe on their mortgages.

As of the end of September, the U.S Department of Treasury's Hardest Hit Fund designated approximately $220.7 million to assist Oregon homeowners facing foreclosure. In addition, Oregon Housing and Community Services (OHCS) received a total of $31.4 million through the Neighborhood Stabilization Program (NSP) as of last week. Since 2008, NSP money has rebuilt foreclosed homes in 46 cities in Oregon for low and middle-income families. Also, 173 zero interest, $30-40,000 loans have been made to homebuyers across the state through NSP down payment assistance.

“NSP2 money is going like free beer at the fair,” Rich Malloy, NSP coordinator for OHCS, said.

Some homeowners who do not qualify for loan modification programs or cannot cash in on the opportunities offered by OHCS choose strategic default and walk away from the house. Others walk away from the mortgage, but not the house. Although hundreds of thousands of people across the nation take advantage of federal loan modification programs, Blomquist and Helmick continue to witness more people strategically allowing their homes to go to foreclosure.

When Gorilla Capital began buying foreclosure properties in 2002-2006, every house was a dump, Helmick said. The money was in the remodel. Now, the company buys homes refinanced in 2006-2007, at the peak of the market.

“In Bend and Medford prices are so far below that it’s not realistic to negotiate with a bank,” Helmick said. “They’re choosing to walk away from the mortgage of the house. Usually the house is vacant and pristine.”

Murphy would rather see a vacant pristine home than one occupied by someone who stopped paying the bills. Her clients will have to pay for an eviction lawyer in order to purchase the house she tries to sell them. In these cases, the homeowners have become squatters in their own abodes.

One bank asked Murphy to offer $500 to tenants to vacate a house in two weeks. She says the request was unrealistically low. After all, it took another bank months to deal with a similar situation in Tigard, and the bank ended up paying $10,000 dollars for the former owner to vacate a Bull Mountain property worth approximately $1 million in its glory days, Murphy says.

Murphy has a newly repossessed house in Portland on her desk that she has yet to visit.

“I can only hope the house will be vacant,”  she says.

Jacq Lacy is an associate writer for Oregon Business.

 

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