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Foreclosure Fallout

In danger of losing your home? Don't give up; learn from Gilbert Ramos' example, and negotiate

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The thunderheads of Tucson's foreclosure storm have been gathering since the end of 2006. Whether they will soon disperse--or grow--remains to be seen.

Whatever happens will be of little consolation to the thousands of Tucson families who have already lost their homes to foreclosure. It will also offer little solace to those who managed to save their homes from the foreclosure process.

"There's a lot of stress, and you can't sleep at night," recalls 67-year old Gilbert Ramos of his foreclosure experience. Ramos was one of the lucky ones; with help, he kept the home his family has lived in for 15 years.

Most people facing foreclosure aren't so fortunate. While the local housing market hasn't suffered from the extraordinary foreclosure rates that cities like Las Vegas or Phoenix have, the area has been setting local records. The number of foreclosures in metropolitan Tucson nearly doubled from 2006 to 2007--and will almost double again in 2008, approaching an estimated 8,600.

The causes behind this dubious distinction are numerous. Both nationally and locally, the current financial storm was preceded by a period of rapidly rising home prices and the use of "creative" mortgages which seemingly allowed almost anybody to buy a house.

These factors resulted in more home sales and the easy availability of second mortgages and large home-equity loans for existing owners.

As Rick Hodges of the Tucson Association of Realtors points out: "Certainly, people got into homes they couldn't afford."

When foreclosures began to rise in Tucson late in 2006, the first casualties were those with subprime loans who were unable to refinance because of stagnating home values. The problem quickly spread to the wider arena of all adjustable-rate mortgages.

Instead of abating there, the real estate storm just kept growing. Now, because of the economic downturn, many people who only a few years ago seemed financially secure could lose their homes through foreclosure.

As the dark clouds of the economic crisis continue to build, the rising number of foreclosures is having a tremendous impact across Tucson.

City Councilwoman Regina Romero meandered through the sparse crowd attending the Tucson Money Faire last month. Many of those who were there participated in a foreclosure workshop, but Romero says that isn't the norm.

"Most people don't want to face the facts," Romero says about those nearing foreclosure, "and they often feel embarrassed. They say, 'Don't talk about money issues'. "

These money issues have been discussed for months in the nation's capital. To address the torrential downpour of national foreclosures, the federal government has thrown out (but not enacted) proposal after proposal, pitching hundreds of billions of dollars in programs. The National Association of Realtors has a four-point program it is recommending that Congress adopt.

To document how foreclosures are impacting metropolitan Tucson, the City Council recently had a study prepared by the Southwest Fair Housing Council. Titled "The American Nightmare," the report reveals grim facts about local foreclosures.

Based on figures through the end of August, the study predicted that foreclosures in Tucson would probably exceed 8,000 this year--but the rate has since increased, and that number is likely to be closer to 9,000.

Unfortunately, even this higher projection may be low. RealtyTrac Inc. compiles foreclosure statistics from a wider range of sources, and its numbers often run 10 to 20 percent higher than those obtained solely from filings at the Pima County Recorder's Office.

Among the other scary statistics cited in "The American Nightmare" report is one which indicates the average sales price of a foreclosed property is 22 percent below market value. The study additionally states that the vast majority of foreclosures occur within three years of the home's purchase.

The forecast for the coming new year, according to the report, doesn't look any better than 2008. "The rate of foreclosures ... will likely increase into 2009," it suggests, adding that things may not improve until the end of next year.

This study points out that the zip codes with the largest number of foreclosures are 85706, 85713 and 85746. Grouped together on Tucson's south and southwest side, the households in these areas are predominately Hispanic, says "The American Nightmare" report.

A map prepared by Pima County showing 2008 foreclosures confirms this distribution. While dense clusters of foreclosures appear across the metropolitan area's northwest side and throughout the southeast corridor, the heaviest concentration is in Midvale Park and other subdivisions on the south and southwest sides of town.

Romero represents some of the people who live in these areas and participated in the City Council's October discussion of the issue. She doesn't think Tucson's foreclosure problem will be going away any time soon.

"This economic downturn will go through 2010," Romero predicts.

Betty Villegas, housing program manager for Pima County, agrees the community's foreclosure situation isn't going to end quickly.

"I like to have an optimistic attitude," she says, "but I hear things are going to get worse because of the job situation. This just isn't about bad mortgages (like subprime loans) anymore."

To confront the foreclosure issue, both the city and county governments are participating in a foreclosure-prevention coalition. Villegas' office tracks all the "notices of trustee sale" that are legally recorded with the county; they indicate a foreclosure action is underway.

All of the thousands of households affected by these notices are sent a letter from Villegas listing possible options to avoid foreclosure. These suggestions include contacting the Don't Borrow Trouble hotline for advice, and avoiding assistance scams.

Another recommendation contained in the letter: "Don't delay, the clock is ticking! You should begin to work with your lender immediately."

Villegas says that far too few people fight foreclosure.

"I don't understand why so many people are giving up so soon," Villegas says. "Most subprime and other lenders are now working with people, and our counselors at nonprofit agencies are having a good success rate."

As an example of the defeatist attitude held by many people, Villegas remembers how one lender made appointments with 30 households facing foreclosure. The goal was to work out solutions--but only seven of those invited actually appeared.

"People are giving up, because they think things won't work out," Villegas says, "but they are."

In San Francisco, Ginna Green is employed by the Center for Responsible Lending, a nonprofit group focused on protecting homeownership and opposing "abusive financial practices." She agrees with Villegas that people should not give up.

"When people get behind on their mortgage payments, they don't want to open their mail or answer the phone," Green says. That, she insists, is the wrong approach.

"We tell people to talk to their lenders and (not to) ignore their phone calls," Green says. "It's getting to a point where lenders are much more likely to consider a loan modification."

Gilbert Ramos was one of those who fortunately didn't choose to ignore his mortgage situation. He lives with his wife and grandchild in a well-kept neighborhood of modest homes west of the Tucson International Airport.

Ramos says he paid off his original mortgage, but wanted to make improvements to his almost-60-year-old house, Ramos secured another mortgage to raise needed capital, and then added another smaller loan.

His wife became ill, and Ramos lost his job as a maintenance supervisor; however, with income from Social Security, the couple managed to make payments on the two loans.

But eventually, Ramos got sick and had to undergo chemotherapy treatments.

"I just couldn't do anything," Ramos says. "I got sick, and things went downhill."

After a dispute with his lenders about who was responsible for paying the taxes and insurance on the house, Ramos withheld some of his mortgage payments based on the advice of others, he says.

Several months ago, Ramos remembers, the larger mortgage-holder left a note on his door, informing him that foreclosure action was going to be taken. Therefore, he talked to the company.

When that didn't work out, Ramos contacted Chicanos por la Causa, a nonprofit group. "They helped me a lot," Ramos recalls.

A staff member with the organization was able to work with the lenders to reduce the interest rates to a level where Ramos can once again afford the monthly payments.

This agreement is only good for a three-year period, after which Ramos hopes to refinance. Meanwhile, Ramos says he's learned some lessons.

"Don't miss your mortgage payments, and don't listen to financial advice from other people," he says.

Ramos is just one of the thousands of homeowners caught in the foreclosure storm sweeping across Tucson. Unfortunately, many homeowners don't see as happy of an ending, and the community-wide effects of home losses run deep.

"What is happening with the stability of children (living in foreclosed households)?" Villegas asks. "Foreclosures can also affect the dynamics of a family. It's logical to think they may be moving in with other family members, thus probably creating overcrowded housing conditions."

Villegas points out that foreclosures can also affect local retailers. With large numbers of people moving out of some areas, the customer base for some small businesses could be crumbling.

Regarding what other negative effects foreclosures can have on the whole community, Villegas suggests: "Vacant properties can be an issue, because they draw bad elements to the area and can be used for illegal activities."

Renters can be harmed by foreclosures, too. Through no fault of their own, they can get caught up in the financial situations of their landlords and lose their homes--even though they've paid the rent.

Villegas says property taxes may not be paid on foreclosed homes, thus negatively affecting the tax base of local governments and school districts. Not only that, but the lower market price of homes thanks to foreclosure sales means values for property-tax purposes will eventually fall substantially.

To put this last impact into perspective, "The American Nightmare" predicts a "loss in home values in Pima County between June 2008 and June 2010 of over $5 billion." The result of this decline could be dramatically lower property tax-revenues--unless elected officials increase tax rates.

Meanwhile, the ongoing decline in overall housing values, at least in part, can be attributed to the sale of these foreclosed homes.

Rick Hodges acknowledges that foreclosure transactions aren't factored into the Tucson Association of Realtors' Multiple Listing Service (MLS) statistics for home sales, but he agrees they have an impact. "They can't help but have a downward effect (on prices)," he says.

Hodges says he understands that foreclosures and "short sales" now account for 20 percent of home purchases, but that figure does not come from his association. Other real estate representatives believe this percentage is much higher, at almost 40 percent.

Hodges defines a "short sale" as one in which a homeowner, with the mortgage lender's approval, sells a house for less than the amount that is owed.

Even with the exclusion of foreclosures from its monthly listings of home-sales activity, MLS information shows that median home prices in town fell more than 14 percent from October 2007 to October 2008. That median figure now stands at $180,000, off substantially from the record high of more than $226,000 in 2005.

The median home price should fall even further, according to a report prepared in September by Global Insight, a worldwide financial analysis company, and National City Corporation, a large banking conglomerate. Their study of the cost of homes in the United States shows home prices in Tucson are still too high and suggests values could fall another 9 percent or more before the market's bottom is reached.

That obviously wouldn't be good news for any homeowner.

"If projections for further decreases in home values are accurate," says "The American Nightmare" report, "it is possible that by the end of 2009, a third of all mortgage holders in Pima County will be, on paper, upside down."

While having one-third of local homes financially "upside down" (meaning homeowners owe more on the home than it's worth) may sound dramatic, according to a national listing, the state of Arizona has already reached that alarming level, and ranks third-highest in the United States in this ominous category.

Wes Wiggins, vice president of the Tucson MLS, tries to put all of these numbers into perspective. "(The years) 2005 and 2006 were out of the norm," Wiggins says of escalating home prices, "because they were investor-driven. Next year will be more in line with where we should be (concerning real estate values)."

Despite the current economic tough times, Hodges is optimistic there will be a slow recovery in home sales next year in Tucson. He says mortgage credit is available, and that even with the current financial difficulties, recent home-purchase activity is comparable with that of 1998. "That wasn't such a bad time," he says. And in the 10 years since, home values increased an average of almost 6 percent per year. "That's pretty good," he suggests.

"Real estate is still a sound investment, and there's never been a better time to buy," Hodges says.

Bob Zachmeier, of Win3 Realty, also thinks times are good to purchase a house. His firm deals with a lot of foreclosures, and he says lenders often want an offer on the home within 30 days, and a mortgage closing within 60 days.

With the average Tucson home staying on the market for 78 days, according to the MLS, some price discounting is inevitable on foreclosed properties in order to meet that 60-day timeline. On top of that, Zachmeier points out that house prices are already reduced by about 10 percent, because this is the slow time of year for home sales.

Because of what some people see as low prices, Zachmeier says his business is booming, and he's hired 10 new agents since May, with plans to add three more this month.

"It's a perfect time to buy, and people are snapping up bargains," he says.

Zachmeier predicts his business will double next year, but his focus on foreclosures won't last forever, he says.

"Banks are starting to second-guess their policy of dumping foreclosed properties," he observes. "Instead, they're looking at renting them."

Based on that possible change in the marketplace, Zachmeier predicts: "If lenders start hoarding the housing supply, and with a ton of people wanting to buy, prices will go up, and there'll be a stampede on the market."

For now, there are still hundreds of foreclosures occurring monthly in Tucson. Witness the effects on a small subdivision on the city's northwest side.

Tucked just off the intersection of Oldfather and Magee roads, The Patios at Hobby Horse Ranch looks a lot like the developments around it from the outside. Located in unincorporated Pima County, the neighborhood features tan, stucco homes built on 3,600-square-foot lots; pickups and large cars line most of the area's narrow streets.

Compared to newer subdivisions situated on Tucson's urban extremities, the 15- to-25-year-old patio homes of Hobby Horse Ranch would seem to an outsider to be more economically stable. But that appearance is deceiving.

According to information from the Pima County Recorder's Office, since 2006, seven of the subdivision's 150 homes have been involved in foreclosure sales--including two which have gone through the process twice. In addition, eight homes are now for sale, including at least one which faces a foreclosure auction early in 2009 if it isn't sold before then.

This three-bed, two-bath home is advertised as a "handyman's special" and is priced at $154,900. At the same time, the asking price on a somewhat larger home one block away, which isn't facing foreclosure, is $30,000 more.

Real estate agent Darlene Damiani has the listing on the latter home and says that foreclosures always adversely impact the prices of all of the other homes for sale in the neighborhood.

"It makes it difficult to sell," Damiani says, estimating that foreclosures could reduce the sales prices of other area homes by up to 10 percent.

Not only are foreclosures affecting the real estate values in Hobby Horse Ranch; they also may be changing the makeup of the neighborhood.

Subdivision resident Karl Bollnow points out that "for rent" signs often follow foreclosure sales.

In addition to impacting home values and owner-occupancy rates, foreclosures in Hobby Horse Ranch could also be negatively affecting its homeowners' association.

This group, which is responsible for maintaining the development's swimming pool and common areas, among other responsibilities, assesses monthly fees of about $50 per house and has a yearly budget of around $100,000. If homeowners fearing foreclosure don't pay their monthly fees, the association suffers financially.

In August, the homeowners' group placed liens on nine homes for nonpayment of the fees and other costs. These liens ranged in value from $955 to $1,835 and totaled more than $12,000.

Andrew Way, of Y Cross Management Group, works with the homeowners' association and says the group is still financially sound.

"The association loses out on assessment revenues (from these homes), so that's a problem," Way says. "But it still has money."

Meanwhile, at Hobby Horse Ranch and in neighborhoods across Tucson, the number of foreclosures continues to grow.

In his neighborhood near the Tucson International Airport, Gilbert Ramos reflects on the hard lessons he learned from his brush with foreclosure.

"I wouldn't get any more mortgages," Ramos says. "I shouldn't have gotten that first one (after I paid off the house), but I wanted to fix the place up."

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