From: Statesman Journal Posted on: Wednesday, September 26, 2012
Tracy Weedman gets a closeup view of the housing bubble’s lingering damage every day from his “office,” a white Toyota 4Runner.
On a recent morning, Weedman cruised through a southeast Salem neighborhood and looked at houses scheduled to be sold at a foreclosure auction in a few hours.
First up, a house Weedman calls “the purple beast.” Weedman doesn’t like what he sees. His notes, taken during a previous drive-by visit, describe the 1960s-era house as “ghetto.” He snaps a photo and moves on.
Weedman, 55, works for Gorilla Capital, a Eugene-based company that’s one of the nation’s largest purchasers of homes sold at foreclosure auction. Gorilla Capital buys, renovates, and sells hundreds of homes. It’s a rare example of success emerging from the deflated housing bubble.
Although statistics show improvement in the housing market, long-term joblessness, a sharp drop in homeowner wealth, and municipal finances drained by falling property taxes will hurt the state’s economy for years.
In Oregon, construction employment went from a near record 110,800 jobs in 2007 to 75,600 jobs as of August of this year. More than 10,230 Oregon home foreclosures were completed in the 12 months ending in July, according to CoreLogic, a provider of business analytics. Nationally, 794,744 foreclosures were completed in the same period.
And home equity now accounts for the smallest share of net wealth since record keeping began in 1945, according to Harvard University researchers.
The housing crisis isn’t always obvious. Another house scheduled for this morning’s auction has a Datsun pickup and a child’s bicycle in the driveway. It’s an ordinary suburban scene, concealing a family’s crisis.
“This is an average deal,” Weedman said, as he briefly stops in front of the ranch-style home. “They pick up their garbage. Their house is probably tidy inside.”
Luciano Reyes, 84, never earned high wages during a lifetime of work in agriculture and vegetable packing plants. When he retired, Social Security payments didn’t cover the mortgage for his modest two-story house in Stayton.
His adult daughter, Catalina, a substitute teacher, moved in and helped pay expenses. This year, however, she hasn’t been able to find steady work as a teacher. Picking blueberries has supplemented the family’s income.
“I am working in the fields again, back where I started,” Catalina Reyes said.
Her father has only recently been granted a home loan modification after three years of sending, and resending, paperwork to the bank. The family maintains the bank was simply stalling and wanted them out of the house.
At one point, the bank insisted that the homeowner was listed as deceased in its records.
Frustration with lenders is a common theme.
Dean Trask lives in a 128-year-old farmhouse, surrounded by forests and farmland in Polk County. His financial problems started with a divorce and were exacerbated by the stock market crash in 2008 and a job loss.
For a quarter century, the rural property has been Trask’s piece of paradise. He came within days of losing it in foreclosure.
“I don’t care if the sheriff has to come out here and drag me away, I’m not leaving,” Trask said.
At the eleventh hour, Trask, 57, raised cash by selling the assets of his now closed financial planning business.
Trask doesn’t understand the complexities behind the housing bubble. He is certain that wealthy bankers, who he blames for the economic meltdown, aren’t taking in renters to help pay bills as he is forced to do.
The full monty
Along Weedman’s route this morning is an abandoned house. The yard is overgrown with weeds, but it’s the deteriorating roof and siding that catches Weedman’s eye.
“You’re going to have to gut that thing,” he said. He figures the house would require “the full monty” of repairs and renovations before it could be re-sold.
Founded in 2006, when home prices were near their peak, Gorilla Capital this year purchased its 1,000th property. Gorilla Capital established its business on the courthouse steps by buying foreclosed houses. The company, however, will pounce on any deal where it sees an opportunity to buy cheap, renovate, and make a profit.
Privately held Gorilla Capital has branched out to 20 Oregon counties and to Washington, Idaho, Utah, California, Colorado, Arizona and Florida.
Weedman pulls up in front of a newer house on track for foreclosure. This one is also a tough sell.
On a tiny lot, the home is wedged between two other houses. The property has no off-street parking or garage. The front yard is a narrow strip of turf.
“Any place they could get a cheap piece of dirt, they were cramming in a house, and people were buying them,” Weedman said.
In fall 2006, housing developments with more than 5,000 lots were under review by Salem’s planning and public works department. South Salem and West Salem became hotspots for new home construction.
Then, the frenetic pace of building stopped. By 2011, sales of newly constructed homes in the United States hit a record low.
“There are countless examples of lots in town that banks have unloaded at fire-sale prices,” said Mike Erdmann, chief executive officer of the Home Builders Association of Marion and Polk Counties.
Housing lots that once sold for as much as $150,000 have sold for as little as $30,000 to $40,000, Erdmann said.
Kaufman Homes, a custom home builder in Salem, has done well in the downturn by emphasizing home remodeling and taking on smaller jobs.
“We really don’t turn anything down,” said Dean Kaufman, a partner in the company.
Kaufman, a 38-year veteran of the home building industry, sensed the market was overheated and began changing the company’s strategy.
“I saw people building spec houses who really weren’t builders,” Kaufman said.
In the days before the Great Recession, families would often move every three to five years, Kaufman said. Now, they’re often reluctant, or financially unable, to step up to a new home, he said.
Drunken sailor money
Weedman once wore a business suit every day, working in jobs such as general manager for a furniture store, an employee for a business liquidator, and an asset manager for a mortgage service company.
Today, he wears T-shirts and shorts to work at Gorilla Capital. He puts 40,000 miles per year on his work vehicle.
Besides inspecting houses from curbside, Weedman knocks on doors and meets people inside to gather information about the property.
While most of the homeowners know they’re in default, others appear too stunned to comprehend what’s happening. A few have ignored repeated warnings from the bank.
“You have a responsibility to read your mail, for crying out loud, but some people don’t,” Weedman said.
Some made the mistake of treating their home purchase as an investment strategy. As Weedman puts it, consumers were paying “drunken sailor money” under the assumption that real estate prices would continue to soar.
On Dewpoint Street SE, the Lay family is concerned about real estate prices in their neighborhood. One nearby home, recently placed on the market, is priced at $189,900.
“When I see that number, it scares me,” Greg Lay said.
The Lay family bought their home in 2005, just a year or so before the housing bubble burst, for $270,000.
Nationally, about 18 percent of borrowers who are current on loan payments are “underwater”— owing more on the mortgage than the home’s market value, according to Lender Processing Services. In Oregon, the numbers of underwater homeowners is a little above the national average at 19 percent.
Local governments and schools also are nervously watching the real estate market. Property tax revenue losses are accelerated not only by falling real estate values, but by Measure 5 and Measure 50 property tax limitations.
This reduction, known as compression, results in millions of dollars in lost revenue statewide. Oregon cities experienced a 44 percent increase in lost revenue this year, from $19.6 million in fiscal year 2010-11 to $28.2 million in fiscal year 2011-12, according to the state revenue department.
Meanwhile, counties statewide saw revenue lost to compression increase by 58 percent this year to $34.3 million. School districts experienced a 70 percent increase, losing $74.5 million.
Back to the bank
When Weedman finds a deal worth chasing, he has to act fast. Foreclosure auctions are usually held twice a day, at 10 a.m. and 11 a.m., on the steps of Marion County Courthouse.
Weedman takes a steady stream of calls and text messages as auction time draws near.
It’s a buyer beware situation. Unwary purchasers, who haven’t researched title company records, might get with stuck past due taxes or a second mortgage they weren’t aware of.
Nothing looks like a good deal for Gorilla Capital today. Weedman and his assistant still go to the steps of the Marion County Courthouse to monitor their competitors, a small cadre of professional house-flippers.
Floyd Bennett is another regular at the auction. Bennett, like a Colonial America town crier, reads aloud scripts announcing the foreclosure auction or the postponement sales. He works for foreclosure trustees, a go-between for the bank and the mortgage holder.
“Two weeks ago, I sold three houses in a row, but a lot of times it goes back to the bank,” Bennett said.
It makes no difference to Bennett. He just read his scripts, a legal requirement in the foreclosure process.
Recently, two women stood by and watched Bennett sell their foreclosed home. Bennett admits times like that hurt, even though the women had no animosity toward him.
“Some of them are happy to see it go,” he said of those losing their homes. “It’s so underwater.”
Bennett reads his scripts at 10 a.m. sharp. The auction of two homes is postponed. No one bids on a third property and it joins the vast inventory of bank-owned homes.
Since fall 2008, the total number of homes lost to foreclosure nationwide has reached 3.8 million, according to CoreLogic.
Statesman Journal reporters Elida S. Perez and Timm Collins contributed to this story.
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