By Paige Gance
Rockbridge County’s top foreclosure broker used to sell six to eight foreclosed homes a year. So far this year, he has sold 51 homes of people who could no longer make their monthly payments and he expects to close on two more by the end of December.
The upsurge in foreclosures began in 2009 after the national economy had gone into a recession, he said, and it has not abated since.
“A lot hasn’t even hit the market yet,” said Buena Vista-based real estate broker Dennis Howe.
P. Duaine Fitzgerald, senior vice president at Bank of Botetourt, said his bank has handled more foreclosures in the past two years than in the entire decade before.
“It’s the last thing we want,” Fitzgerald said. If a house does not sell at auction on the courthouse steps, after being advertised in the newspaper, then the bank owns the property and must pay for its maintenance.
Fitzgerald said his bank just started winterizing all its foreclosed properties to protect against cold-weather damage such as frozen pipes. When the bank finally manages to sell the home through a real estate agent, broker, or even Craigslist, it typically accepts a 20 to 25 percent “haircut” on the value of the home.
If the homeowner owes $100,000, said Fitzgerald, and it sells for $75,000, “we consider that successful.”
Banks are so backlogged they have had to hire outside firms based in California and Texas to handle their foreclosures, said Howe. Some of these firms are more competent than others, he added.
Inaccurate appraisals, poor house clean-up and bureaucratic confusion have plagued the outsourcing of foreclosures to these firms, said Howe.
Investors capitalize on deals
James Grondin and his wife Linda Babcock ran into such problems when buying a foreclosed home on Appalachian Drive just north of Lexington a few weeks ago.
“Our deed came with the wrong county listed,” said Babcock. The couple said during the closing process, different people would ask for the same information or documents that had already been submitted.
“It was like the left hand didn’t know what the right was doing,” said Babcock.
Still, Grondin and Babcock said foreclosed homes were the best deals on the real estate market right now, in part because “there are just more of them.” As investors, they have been “flipping” homes for more than 20 years and added foreclosed homes to their portfolio in recent years.
The couple bought their most recent foreclosed home before Thanksgiving for $65,000 after the home’s “fixer-upper” status scared away the first bidder. “We always just assume they need work,” said Grondin.
The couple said they haven’t experienced the horror stories they have heard from some other real estate investors. Tales of cut water pipes and houses stripped bare have reached Grondin and Babcock. Despairing occupants sometimes make an expressive exit.
“They just sabotage the house,” said Grondin. “They know they ain’t coming back.” Babcock said the worst they’ve seen is stolen light fixtures and unintentional water damage.
Howe said the foreclosed owners are allowed to take anything “unattached” to the home, which includes refrigerators but not ceiling fans, the most common purloined item.
Fitzgerald said the previous owners might take appliances, such as dishwashers, but that acts of vandalism or eviction have not been an issue.
A more common problem is too many items left behind. If no one claims them, they are simply thrown away.
Vacant homes
Howe said he rarely meets the previous occupants, who are long gone before his first inspection of the house. He said he has only had to evict one resident in his 17 years as a broker of foreclosed property, which is known as “real estate owned” or REO.
The cause of defaults is different these days than it once was, though. The most common reason used to be divorce or medical bills, said Howe. Now, multiple refinancings on mortgages and job loss have hit homeowners hard.
Lee R. Taylor, a partner at local law firm Spencer & Taylor, said he handles a few foreclosures a year for banks and blames “people borrowing more money than they should have.”
He explained that as home prices rose during boom times, some homeowners refinanced, expecting that the value of their homes would continue to rise. Now that home values have dropped precipitously, many are stuck with mortgage debt that dwarfs the value of their home.
Borrowers were not the only factor in the housing market collapse, though. Many mortgage companies have been faulted, as well, for marketing large loans to people who did not meet traditional standards for borrowing that much money.
Neither Grondin nor Babcock said they believe the market will pick up anytime soon. They intend to keep the house they’re working on now for at least five years–much longer, they said, than any other house they’ve flipped in recent years.
Some areas of the county have been affected more than others by the housing industry’s collapse. Of all the homes Howe sells in Buena Vista, he estimates 80 percent are REO’s, compared to 20 percent in the county overall. In Lexington, fewer than 10 percent of the homes he sells are foreclosed.
Drawing from his years of experience, Howe said national trends tend to be delayed and diluted by the time they reach Rockbridge County. He said he guessed that any revival in the overall housing market will be slower in this area, but the downturn was not as bad here in the first place.