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Foreclosure Crisis
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Banks have a new attitude toward home sales Adam and Suzette Coulton went house hunting with an ambitious target: They wanted a home with a pool and large yard for their 2-year-old son — and they wanted to pay no more than $500,000. A few years ago when home prices were rising, they would have been out of luck. Now, time and a dismal economy were on their side. The couple spotted a three-bedroom, three-bath Kendall home listed for $529,000 by a lender that had taken back the property in a foreclosure. The Coultons offered Wells Fargo $450,000, a 15 percent discount from the asking price, and the bank quickly accepted the offer. The deal closed in August. Not along ago, banks would have carried foreclosed properties like the Coulton's new home on the books until they received a near market-rate price for the houses. No more. As their foreclosure portfolios balloon, banks are fast-tracking sales, cutting asking prices and showing a greater willingness to deal with bargain-hunting buyers. "Around mid-year, banks became more flexible — and some are just now being more flexible — in order to sell troubled properties," said Ron Shuffield, president of Esslinger Wooten Maxwell. His real estate firm markets foreclosed homes on behalf of banks and also represents buyers of foreclosed properties. Lenders' new eagerness to make deals on repossessed properties is highlighted in a study that shows the ratio of bank-owned home sales to normal home sales in Miami-Dade County hit 32 percent in the third quarter. That compared to about 20 percent during the saving and loans crisis in the 1980s, said David Dabby, a Coral Gables real estate consultant. During a normal market, the figure is about five percent. Dabby determined the ratio by dividing the number of banked-owned properties — 1,197 — by the number of normal sales — 3,653 — and multiplying it by 100. Normal sales included short sales, in which distressed sellers sold their homes for less than they owed the bank. In the third quarter, 10 percent of the properties listed on the Multiple Listing Service were considered potential short-sales, Dabby said. Lenders, he said, are more flexible. "There are more foreclosed properties going to lenders than [bank-owned properties] being sold." The number of foreclosure cases filed from January through October totaled 22,314 in Miami-Dade County, 32,271 in Broward County and 24,091 in Palm Beach County, according to data collected by the Daily Business Review. The number of homes owned by banks totals about 11,150 in Miami-Dade, 11,900 in Broward and 3,000 in Palm Beach County, according to the Realty Trac research firm of Irvine, Calif. Wells Fargo, the seventh-largest U.S. bank, sold the house to the Coultons. Wells Fargo serves as trustee for pools of home mortgages owned by investors and is one of many lenders stepping up efforts to dispose of repossessed properties. "We believe getting these houses reoccupied is essential to rebuilding the nation's housing market," said Debora Blume, a spokeswoman for Wells Fargo Home Mortgage in Des Moines, Iowa. The lenders' new approach came during a quarter that saw several financial institutions fail and the government's injection of $2.8 trillion of taxpayer money into the financial system to keep other lenders afloat. In the last few weeks, the government has pledged $4.6 trillion more in the biggest response to an economic emergency since the New Deal of the 1930s. "Banks are more willing and able to sell troubled assets at a reasonable discount because now they've got a new source of capital," said Ken Thomas, a Miami bank consultant. "They received tens of billions in capital that they didn't have earlier this year to enable them to withstand the impact of reduced loan values." Banks are required to increase capital reserves as their losses grow. Real estate broker Hagen Hendrix, who markets bank-owned homes on behalf of lenders, said his clients are increasingly accepting buyer offers 15 percent below asking prices. A few months ago, they would only consider offers that came around six percent below the listed price, said Hendrix, with Avatar Real Estate Services in South Miami. Hendrix estimates the number of foreclosure sales will increase until mid-2009, as banks try to dispose of their current troubled properties gradually rather than flooding the market with foreclosed homes at once. Hendrix, who got into real estate several years ago, said he is making a living selling foreclosed single-family homes across Miami-Dade. About 90 percent of Hendrix's deals involve distressed properties and about 85 percent of those homes will be owner occupied, he said. Lenders say each property is different and they consider them on a case-by-case basis. "Our asking price takes into account the condition of the house as it compares with the local market," said Blume of Wells Fargo. Banks are speeding up sales and cutting prices on all levels of single-family homes, but the discounts on high-end properties are the most eye-catching. Earlier this year, Nathalie and Antoine D'Alincourt paid $740,000 for a Coral Gables home that sold for $1.5 million in 2005 during the peak of the housing boom. Wells Fargo originally marketed the property for $859,000. The final price gave the couple a 14 percent discount on the 4,010-square foot house with a pool. Antoine D'Alincourt, president of a sporting goods business in Doral, and his wife closed the deal in June. The couple has spent nearly $50,000 upgrading the kitchen and master bath and repairing the pools and roof, Nathalie D'Alincourt said. "With a foreclosure, you get a great home but you need to put a lot of money to make the house look like you want," she said. The D'Alincourts, who obtained a $400,000 mortgage loan to buy the 54-year-old house, moved in three weeks ago. If more buyers are able to follow the Coultons and the D'Alincourts, they could speed up the absorption of foreclosures, often turning into eyesores and depressing home values. Until the great majority of foreclosed homes are cleared through the system, prices can not stabilize with downward pressure," Dabby said. Sale prices in South Florida dropped 28.4 percent in September, compared to September 2007, according to the Standard & Poor's Case-Shiller Home Price Indices. The falling prices are fueling sales. In Miami, sales of single family homes jumped 23 percent to 453 in October, compared to October 2007, according to the Florida Association of Realtors. Sales of condos edged up by one percent to 439. Many of those sales involved distressed properties. The ratio of distressed sales to normal sales in Miami-Dade has jumped twice since the 1960s. In the mid-1960s, an an excessive number of single-family homes built in areas like Carol City and Miami Gardens ended up in a wave of foreclosures. At that time, the ratio reached 20 percent. And an overbuilt condo market during the saving and loans crisis of the late 1980s and early 1990s also pushed the ratio up to 20 percent, Dabby s id. "The price of used condos didn't increase but decreased every year until 1995," he said. Coulton, who got $79,000 cut off Wells Fargo's asking price, plans to live in his new Kendall home for the next decade or two, so he isn't concerned with the current drop in home values. He hopes eventually to make a profit from his investment, which included nearly $60,000 in remodeling, Coulton said. He and his wife obtained a $360,000 mortgage to buy the 32-year-old house near Southwest 102nd Court and 128th Street. "It required a lot of sweat equity and time, but I would do it again," said the information technology consultant, who did a lot of the remolding work himself. The banks' new attitude could mean a lot more than just a good bargain to couples like the Coultons and the D'Alincourts. "The fact that there are more sales may be signaling a bottom, that the process of lenders' disposition has begun and is the beginning of the end," Dabby said. "But it will take time for the foreclosures to be absorbed because of the lack of credit." Daily Business Review, December 04, 2008
Henry B. Nathan is a Florida Realtor at United Realty Group Inc.
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