|Spring Real Estate 2003
Publication Date: Wednesday, March 12, 2003
After the dot-com bust
by Julie Patel
Foreclosures in the Bay Area have been inching up over the past
few years and jumped sharply in the last quarter, according to industry
"They hit record highs in October and November," said
Sabina Scott of Fidelity National Agency Sales and Postings, whose
parent company is in the title insurance business.
From 2001 to 2002, foreclosures jumped from 2,046 to 2,960 -- or
by 44.7 percent -- in Santa Clara County and from 746 to 965, or
29.3 percent, in San Mateo.
The increases are likely an after-effect of the dot-com bust and
the recent recession, said Tariq Rafeeqi, broker-owner of XC'Lent
Real Estate in Palo Alto. A foreclosure -- a process that takes
place over the course of a few months -- happens after default filings
are made, due to a homeowner falling behind on mortgage payments.
Unless the homeowner files for bankruptcy or reaches an agreement
with a lender, the home can be auctioned off.
The reasons for the rise in foreclosures are "very obvious,"
said Linda Hollister, who's been a real estate agent in Palo Alto,
Menlo Park, Los Altos and Half Moon Bay for 33 years. For one, she
said, "People bought property in 2000 and lost their jobs so
foreclosures went way up."
But there's more to the story. Banks have become increasingly lenient
about the qualification of buyers, Rafeeqi said.
The average down payment for first-time homebuyers, according to
a report by the National Association of Realtors, dropped to just
3 percent in 1999 -- compared to 10 percent a decade earlier.
Still, Rafeeqi said, there are too many buyers who get approved
for loans that they're not qualified for and then they fall behind
on payments and end up foreclosing.
One East Palo Alto resident whose home is in foreclosure filed
for bankruptcy and posted a message on the Craig's List Web site
pleading for help: "I am desperately seeking financial help
to save my property owned since 1984."
This person, Jane (not her real name), was struggling to pay her
father's medical bills after losing a job that paid her $60,000,
according to her message. She managed to get various temporary jobs
but made only a third of her previous salary -- not enough to keep
up with mortgage payments.
Jane recently got a job as a civil litigation paralegal at a small
law firm in Redwood City -- not before accruing $15,000 in debt
for post-bankruptcy mortgages and fees. If she doesn't pay the full
amount this month, the bank can take her home away.
Fortunately, Jane wrote, her new job is permanent and filled with
"promise and...a salary that can maintain household expenses,"
Jane wrote. Her idea in posting the message is to find someone to
pay off the debt. In turn, the investor would get to decide when
Jane has to pay the loan back and how much interest to tack on.
Three investors who had agreed to the deal backed out at the last
minute, Jane wrote.
They were all for "valid reasons: death in the family, not
able to get funds from investment, and too much activity for the
year already," she wrote.
"I am standing in good faith doing all I can to keep my place
despite the odds," she wrote. "Thanks -- if you can't
help -- keep a good thought for me!"
Over on the other side of the highway, past Foothill Expressway,
is a home that's almost there. A small bank in Minnesota is losing
a lot of money on it, Coldwell Banker Realtor Linda Hollister said.
"They'd be better off if they got rid of it," she said.
The home, at 4141 Old Trace Road in Palo Alto, is a cream-colored,
four-bedroom, three-bath, ranch style home with light-blue and brown
painted trim. It's 2,922 square feet in size. About 30 feet away
from it is a matching building, what looks like a guesthouse.
It's going for $2,775,000, under foreclosure.
The home includes an artist's studio the size of a three-car garage,
with a wood stove in the center of it, half a dozen slanted skylights
up above and large glass doors facing east. The home, which is nestled
about six feet below the driveway, and the studio are surrounding
by about a dozen trees -- a secluded, romantic setting.
Now, the home is empty, the studio walls bare. Algae grows on the
bricks near the front of the home and mosquitoes swarm near the
door in the early evening. What few leaves remain on the ivy along
the studio are withered.
When the real estate boom hit Palo Alto in 2000, longtime owners
sold the home for about $4.7 million, Hollister said.
The buyer never intended to live in it, she said. Most likely it
was an investor who wanted to cash in on the skyrocketing prices
"They bought it for around $4.6 million and thought they could
sell it for $5 or $6 million," Hollister said. "Then,
the bubble burst and the market went down."
The problem with a home like this is that if it has problems like
water damage, it may no longer be covered by insurance, she said.
For example, Hollister had clients in Berkeley whose policies were
cancelled because the insurance company said the home was built
Since insurance companies lost money in the stock market recently,
they've been canceling policies left and right, she said.
"The insurance companies can pretty much get away with anything,"
First, you don't know what the property will be like-for example,
to what extent it will be damaged-because you don't usually get
to see it before hand.
"Sometimes the owners have to be kicked out," he said.
"Some will destroy the walls, break the doors."
Plus, you have to pay the price of the house and any tax liens-the
unpaid taxes that have accrued, he said, which can double the cost
of the house.
It's a moral issue, too, he said. If his clients are considering
buying foreclosed properties that require residents to be forced
out, he asks them, "Are you sure you want to buy this house
on someone else's unhappiness and misfortune?"
"A home should be a place of happiness," he said.