Bonner County's home loss rate doubles in 2008

SANDPOINT - More than a million U.S. homeowners are expected to hand over their house keys in 2009, as they lose property to foreclosure. According to Investment News, the number of foreclosures directly related to sub-prime loans will top 2 million by the end of this year.

Judging by the increase in trustee's sale notices, Bonner County has been swept up in this ugly national trend. Until recently, this region lagged a year or two behind the traditional real estate hot spots in the boom-and-bust cycles. That all changed when the tide of foreclosure began to topple markets in places like Phoenix, Las Vegas and parts of California.

Within months, not years, the wave began to sweep people from their homes here, as well.

"We had 107 foreclosures in Bonner County in 2008 - that would have been half as many a year earlier," said Rick Lynskey, title department manager for First American Title in Sandpoint. About 65 percent of those foreclosures were triggered in the second half of 2008, Lynskey added, pointing to negative momentum that continues to build as the new year begins.

"Three months ago, the title companies were telling us they had about four possible foreclosures coming in daily," said Lana Kay Hanson, 2008 president of the Selkirk Association of Realtors. "We thought the numbers were extraordinary."

"Now you can see six or seven trustee's sales every day, where a year ago, you'd maybe see three or four a week," said Ric Laws, director of title operations for Sandpoint Title. "I don't know if this area has ever seen this rate of foreclosure."

The rapid increase was even more notable in Boundary County, where only two foreclosures took place during the first six months of 2008, followed by 25 in the second half of the year.

See FORECLOSURES, Page 3

The family stories behind these lost homes are as complex as the community itself, but the reasons for their loss are less so. In many cases, a sub-prime loan led homebuyers into property, which, financially and realistically, was way over their heads. Factor in the damage caused when adjustable-rate mortgages tipped up just as home values plummeted and the combined effect is a home that ends up back at the bank.

"I think the biggest share of these are people who got in and then the market changed," said Judie Bluemer, a mortgage consultant for Wells Fargo Home Mortgage. "They're so upside down on their mortgages that they're just walking away from them."

Locally, much of the problem can also be attributed to a home refinance boom that tagged along behind skyrocketing real estate prices in 2004 and 2005. Seeing the inflated price tags on home sales all around them, homeowners mistook the bubble for free money that would keep flowing their way forever.

"When we had the boom, people took the equity out of their homes," Laws said. "Then the values dropped and now they can't refinance because of the tighter credit."

"And when lenders are tightening their belts, the foreclosure trend goes up," Lynskey said, adding that the ripple effect has been a drag on overall real estate activity. "There are so many houses on the market that it makes it harder to sell - even at a discount - so the home goes into foreclosure."

Laura DeLand, a Realtor with Century 21 Riverstone in Sandpoint, noted that more local homeowners are getting caught in that pinch than ever before. She, too, highlights the fact that momentum is building. DeLand had one foreclosure property listing between the fall of 2007 and the summer of 2008.

"And then, in July of 2008, I really started getting hit," she said. "Foreclosures are probably 75 percent of my business. And every indication is that, in 2009, we're going to see a lot more than we ever have in the past."

Even homeowners who attempt to avoid financial disaster through a "short sale" - where the bank allows the borrower to sell for less than they actually owe in order to get the property off the lender's books - are finding it difficult to pin down a buyer. DeLand said one client had a 10-acre property with a home and a barn on the market and couldn't move it, despite a sizeable discount.

"They owed $350,000 on it and I had it listed for $289,000," the Realtor said. "We still couldn't sell it."

With so many homeowners going into foreclosure - and with so many more desperately trying not to through short sales and pre-foreclosure discounts - the gap between what sellers can get for a home and what buyers are willing to pay has grown.

"The price spread is huge," said DeLand. "You're not talking about a difference of $20,000. You're looking at $100,000 and up any more."

The inventory of foreclosed homes has become so large in some parts of the country that real estate companies now host foreclosure bus tours for prospective buyers who want take them all in. Dozens of Internet sites allow interested parties to view these listings by zip code or city name.

Foreclosure.com promises that you can "enjoy complete access to more than 1.8 million nationwide" foreclosure listings by paying to join the site.      HomeSearch4Investors.com describes the current U.S. real estate environment as "a foreclosure marketplace."  For the past week, the site has shown an average of about 75 foreclosure-related sale opportunities in and immediately around Sandpoint, with new listings appearing daily.

The FHA has devoted a section of its Web site to advertising its own properties that have gone into foreclosure, with pages of listings for all 50 states.

And while the overabundance of home deals might look like a golden opportunity for families that have been locked out of ownership because of high prices, those buyers can't play in this arena. Foreclosure sales involve a "cash on the barrelhead" transaction, Lynskey explained.

"And that's the disadvantage for a normal person," said Laws. "They don't have access to that much cash at one time."

Who, then, is buying these heavily discounted homes? 

"It isn't the average homebuyer," Hanson said. "These are investors who have been holding back their money waiting for something like this." 

So, when that foreclosed property is advertised for a cash sale on the courthouse steps or in the lobby of a title company, it takes someone with a fistful of free cash to seal the deal.

"If I see someone at one of my sales, it's almost always an investor," Lynskey said.

That's a big "if" these days, since very few transactions actually take place at the trustee's sales. According to one local attorney who specializes in foreclosure sales, the process - which is required by law - has become purely symbolic. Ninety percent of the time, there are no bidders in Bonner County and the property is reclaimed by the bank, said the attorney, who asked not to be identified in this article.

The trend has opened up a whole, new industry for professional real estate investors who target foreclosed homes for acquisition. They are working at an advantage, because they can sit back and wait for the banks to blink.

"When the market was peaking out, a lot of these homes were sold at the trustee's sale," DeLand said. "These days, most of them go back to the lender and if it doesn't sell, they just keep reducing, reducing and reducing until it's gone."

During the market peak, some of those buyers might have resembled Chris Yates, who got his start "flipping" new construction homes that netted him as much as $150,000 at a whack as market prices leapfrogged themselves upward between 2003 and 2006 and left him solidly in the black.

It wasn't until the bottom dropped out of the housing market, however, that he started making real money. Today, Denver-based C.M.Yates, Inc., buys foreclosed properties directly from lenders. The banks, Yates pointed out, have become very accommodating.

"Absolutely - that's why we're doing it," he said. "There aren't that many good deals on the courthouse steps. The majority of our model is purchasing bank-owned properties.

"Ninety-five percent of our transactions are involved with foreclosure and my average purchase is 50 cents on the dollar," he added. "I'm operating at an institutional level now, not the 'mom and pop flip a house to make some money' level."

The hard times that could force a million or more homeowners into foreclosure in 2009 are boom times for real estate investors like Yates, who said he doesn't see doom and gloom on the economic horizon. In fact, he is using "a Starbucks model" that will give him offices in five states by year-end, with a national rollout in the planning stages.

"The opportunity in U.S. real estate is so phenomenal that I can't pick the money up off the ground fast enough right now," Yates said.

In tomorrow's Bee:  How private investors have cornered the foreclosure market and why some cities - including those in Idaho - could compete with them by working with lenders to route bank-owned properties into affordable housing inventory.