Story first appeared in USA Today.
When a local real estate agent pulls up to a battered, four-unit apartment building at lunch hour, he's just over a mile as the seagull flies from the gated, oceanfront palaces of South Florida's wealthiest.
The real estate agent, who specializes in distressed properties, takes photos of a kitchen ceiling while checking a house in West Palm Beach, Fla., last month.
But this stretch of 21st Street, pocked by homes with boarded-up windows and dead-ending at railroad tracks, is unlikely to make it to a tourism poster. He turns the car around in case he needs to make a quick exit and tucks a Smith & Wesson pistol into his jeans.
The unit is missing its front door, and there is what looks like a dead animal in the center of the living-room floor. The stench is unbearable, but it seems like nobody is home currently.
The agent is here because he specializes in distressed properties and Florida, thrashed by the mortgage crisis, has thousands. But figuring out just how many is not simple.
Each month, analysts issue reports detailing the number of homes nationwide in foreclosure or held by banks. The implication is that if we can match buyers with these houses or help borrowers stay put, the economy will be able to heal at last.
At ground level, though, it's more complicated. The building on 21st Street is a good example.
The last buyer paid $309,000 six years ago. But today the county appraiser says it's worth less than a quarter of that amount. A bank filed foreclosure papers in 2008, but it still belongs to the original owner, subject to fines and liens by the city. The bank sold the underlying mortgage note to a hedge fund for pennies on the dollar. That company has hired the agent to check the condition and occupancy status of its investment, on the way to making it profitable.
It's one thing to measure the crisis in the black and white of statistics. But here's a reminder that reality also comes shaded in gray.
People in the foreclosure trade have a name for buildings like the one on 21st Street: "shadow inventory." Broadly speaking, it refers to all the homes in the foreclosure pipeline that will eventually reach the market but aren't there yet. The definition, though, varies considerably from analyst to analyst and there is truth to be gleaned from each of their studies.
Numbers matter because figuring out how long the debacle will last requires knowing the extent of the damage. But if we're going to take stock, reading reports may not be enough.
The only way to fully comprehend what's going on out there is to move beyond the figures and charts, and venture into the shadows.
On a Monday afternoon, Courtroom 4B's benches are packed. Lawyers and home owners cluster around the door and stand along the walls. On a board in the lobby, 16 sheets of paper list 136 foreclosure cases awaiting the Judge on this one afternoon.
Too late for a seat, a lawyer representing homeowners leans over to explain that today's crowd in 4A is merely the norm, reflecting all those houses piling up in the pipeline.
Florida is one of 20 states that rely entirely on courts to deal with the crisis. A major reason cases drag on for an average of two years is that last year's robo-signing scandal forced banks to put the brakes on many cases with suspect documents. A settlement with state and federal officials has allowed the process to get moving again.
But proceedings in this courtroom hint at the confusion, as well as delaying tactics by lenders and borrowers, leaving scores of homes stuck.
One of the first cases is Wells Fargo v. Killgore. The lawyer for a condo association steps forward, pursuing $15,000 in unpaid dues and fines on a Boynton Beach apartment in foreclosure. But a woman objects. She is the daughter of the man who lived in the condominium. She explains that her father is in a nursing home. Years ago, he took out a reverse mortgage and when he got ill, the family agreed to surrender the home, a deal they thought was long done. Somehow, though, the condo is still listed in her father's name. It's not clear exactly how a home like this one should be classified or what it will take to figure out a solution.
Later, the Judge calls up the parties in another case, Nationstar Mortgage v. Sands. The homeowner tells the judge he thought a loan modification had been finalized, allowing him to keep the home, until a lawyer called to say it was back in foreclosure.
From the courthouse, it's a 15-minute drive to a neighborhood called Eden Place. On alphabetically named streets, well-tended homes built a half-century ago snuggle amid tropical foliage.
Of 13 houses on this block in Lake Worth, two are owned by banks following foreclosure. Two more sit abandoned. One was bought out of foreclosure by a local doctor last fall, but appears uninhabitable. The other, boarded up, still belongs to its original owner.
Houses on this block once sold for $250,000 or more; they've lost at least half their value. Eventually, the vacant homes will come on to the market, affecting the worth of neighboring houses. Analysts pore over data trying to figure out just how many homes like this are hidden from view.
Economists at CoreLogic, a California company that analyzes mortgage data, chart 1.6 million homes in shadow inventory nationwide. They count homes not listed for sale, with loans at least 90 days overdue, in foreclosure or bank-owned.
Others say the shadow is much bigger. Amherst Securities in New York says it covers from 8.3 million to 10.4 million homes. The analysis includes homes with loans at least 60 days overdue, those that were delinquent before and are likely to default again, and thousands whose owners are making payments but may give up because they owe more than homes are worth. Some people are definitely underestimating the seriousness of the problem.
Measuring shadows grows more difficult continuing down J Street. A two-family house with a carport has gone through foreclosure and is owned by the Federal Home Loan Mortgage Corp., records show. But tenants say they are still paying rent to the previous owner. There are scores of homes like this, experts say, owned by lenders who haven't pursued eviction.
Lenders have good reasons to delay. Empty homes require upkeep and claiming ownership means shouldering taxes and fines. As long as a case in still in process, loan servicers continue to collect their fees.
A recent check of records in this one county found more than 10,000 cases in which a bank secured a final judgment more than a year ago, yet there has still been no change in title.
Then there are houses like one where a man answers the door. The resident, former laser technician, bought it for $44,000 in 1995. After a car accident left him disabled, he says he tried to catch up on payments, but couldn't meet demands to pay accumulated late fees. The lender filed foreclosure papers three years ago. He says it's been years since he's made a payment, and he tried for a loan modification, but every three months was told to reapply. Last fall, the lender claimed his house at auction for $500.
It's now owned by Bank of America, whose representatives still call. He tells callers he no longer owns the place, but they don't believe him.
The housing market is working through a riddle, determining what homes are worth given limited demand. But shadow inventory keeps part of the supply hidden.
It's troubling to see vandalized homes and talk with families worried about eviction. But the difference between the number of homes listed for sale and all the others is troubling.
There is, however, substantial demand for foreclosures at the right price. Some properties can be purchased and turned around into profitable rentals. You can't build these houses for what they cost.
But investors complain banks are not realistic about the prices they'll accept. The real estate agent specializing in distressed properties, says slowing the flow of homes into the market artificially lowers inventory in some neighborhoods, which can temporarily lift prices. At the same time, lenders are increasingly selling homes or the underlying loans in bulk to hedge funds.
That's where he comes in, tracking down borrowers to convince them to trade deeds for cash, and turning around homes for rent or sale. At this rate, he figures it will be three to five years before lenders let all the homes go. The risk is that going too slow could artificially raise prices in some areas, which might spur investors who bought homes as rentals to put them up for sale.
The truth of the matter is we would have already gotten over it if they just let the properties get out there and get sold.
When a local lawyer moved to Florida three decades ago as a lawyer for farm workers, dirt along Lantana Road was planted with cash crops. Today, what once was a U-Pick farm is a neighborhood of 262 homes called Strawberry Lakes.
Sometimes you can't tell when a house is in foreclosure unless you go back two or three times, because the neighbors will do things like park their cars in the driveway, all in an effort to make things more secure.
But with all these foreclosed homes, there are zero 'For Sale' signs.
The lawyer hasn't counseled farm workers since the 1980s. But she found Strawberry Lakes after battling to keep her own house. In 2008, Deutsche Bank filed foreclosure papers against her. By then, she had spent years representing insurance companies in fraud cases. She spotted suspect signatures on loan documents. Her detective work was instrumental in exposing the robo-signing scandal, reflected in $18 million awarded in the settlement between lenders and government officials.
She remains unconvinced banks are doing enough to resolve the crisis. Strawberry Lakes is Exhibit A.
Homes here sell for a third of the $275,000 or more they fetched at the top of the bubble. At least three dozen are in foreclosure, with many cases dating back three or four years. Of those, at least five are houses where lenders have won final judgments without moving forward.
In addition, at least 57 houses not in foreclosure are owned by people who paid far above what they're now worth.
The president of the homeowner's association, says as neighbors fall behind, more responsibility lands on everyone else. In Strawberry Lakes, 105 homeowners are behind on HOA dues, a hint more could be in trouble.
Uncertainty makes it difficult to gauge the duration of the crisis. But Szymoniak cautions against assuming that the problem is going away.
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