Publication Date: Wednesday, March 12, 2003

After the dot-com bust
Foreclosures are slightly on the rise

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 experts.

"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!"
The posted message may be her last chance to save her home from being auctioned.

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 of homes.

"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 before 1935.

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," she said.
Buying foreclosed property doesn't always turn out to be the get-rich-quick scheme people think it is, said real estate agent Tariq Rafeeqi.

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.