Luxury homes hit foreclosure list
For the past year, foreclosures were clustered in western Sussex County near Seaford and Laurel. But in recent months, the web of delinquencies has spun toward the coast.
Now, the overextended affluent are being turned out of their million-dollar homes.
“The trend right now is more expensive properties, higher mortgages. In a lot of cases, it’s now even second homes,” said Lynn Kleb, a deputy in the Sussex County Sheriff’s Office who handles foreclosures.
“I definitely see a trend shifting from primary foreclosures to second homes in Ocean View, Selbyville. They’re in Bethany Beach, which we’ve very rarely had before, and Milton is another one that we generally didn’t have in the past,” she said.
From 2007 to 2008, foreclosure rates have nearly doubled.
In 2007, there were 418 foreclosures in Sussex County.
In 2008, foreclosures rose to 678. This year, for the first quarter, 192 foreclosures are under way and there’s no sign of the rate letting up. “I probably have another 100 already for April and May,” Kleb said. She said she couldn’t keep up with the filings. She used to sell 30 foreclosed homes a month. Today, she works on 60 or more. For the first time, the sheriff’s department held a sale in December because there were so many foreclosures, Kleb said.
There’s also a shortage of buyers. Kleb said about 100 people attend the county’s monthly sheriff’s sales, but about one-third fewer are casting bids, leaving banks with the homes.
Uncle Sam to the rescue?
State Banking Commissioner Robert Glen said, “I’m not surprised that for second homes, the market has dried up. It’s hard for them to sell homes at a good price, let alone at a price that would settle the outstanding debt on the property.” He also said federal programs have begun in an effort to keep homeowners in their homes. In February, President Barack Obama announced new U.S. Treasury Department guidelines for the $75 billion Homeowner Stability Initiative to reduce mortgage payments. The goal is to reduce homeowner payments to within 31 percent of homeowners’ income by providing incentives to lenders.
“If the borrower is currently paying more than 38 percent of income, the lender is being asked to find a way to reduce that to 31 percent on the lender’s nickel. The cost is shared by lowering the interest rate or lowering the principal,” he said.
In February, the U.S. Treasury also added $200 billion to mortgage lenders Fannie Mae and Freddie Mac to help 9 million Americans stay in their homes. Last year, Fannie Mae and Freddie Mac began to put foreclosure moratoriums in place. So have Bank of America and other lenders.
Time will tell if government efforts aimed to reduce a pileup of unsold homes – unwanted inventory – will help the foreclosure rate, Glen said.
In the short term, Glen said, “If homeowners have problems, be proactive. Don’t wait until you start getting notices. If you’re becoming delinquent, don’t ignore it. For homeowners who wait that long, it’s very, very difficult to help them.”
In Sussex County, some government intervention into the mortgage crisis is already visible.
Kleb said some homeowners that are on the stayed list, or those that have been removed from auction, have been helped by the foreclosure moratoriums initiated in December 2008 and the first quarter of 2009.
Second homeowners, however, are out of luck, as specific guidelines detailed in the federal mortgage bailout program don’t help everyone. “The mortgage help relief bill does not include second homes. They have to be owner occupied,” Kleb said.
Local response
Sussex County Sheriff Eric Swanson said deputies used to post notices on homes with people still in them. Today, few are around, an indication that absent owners are away in their primary homes.
“We’re now being hit with a second wave,” he said.
He’s also seeing more and more banks and mortgage companies trying to forestall foreclosures.
“When you’re falling behind in payments, especially if you’re sick or lost your job, the banks are willing to work more now with people. I think mortgage companies and lenders are sympathetic to it. They’re trying to feel for the people,” said Swanson.
At County Bank, President and CEO Harold Slatcher has restructured loans or only required payment on loan interest for short periods of time for some borrowers who have lost their jobs.
Compared to last year, residential home-mortgage delinquencies have increased by 15 percent, he said.
Of the residential loans at County Bank, only 10 percent are wholly owned by the bank. He said 90 percent of residential loans have been sold to a second market. “The problem with loans in the secondary market is that someone in London might own your home,” Slatcher said.
“Loans that we keep, one-on-one, are conventional loans with a lower interest rates,” he said. Slatcher said he is willing to work more with wholly owned bank loans. “We’re not in the foreclosure market business,” he said.
Loan delinquencies in the commercial sector, however, have doubled compared to last year, he said.
“Most Delaware small developers that have built one or two model homes are being foreclosed. Now they can’t afford to carry even model homes because they’re not selling. These are generally small developers – not mega-builders,” Slatcher said. “Once people in our market are convinced we’ve hit the bottom, we will see people buying these properties. People haven’t quite brought themselves to the end. I think we’re going to see this kind of market in ’09 and start recovering in 2010.”
Facing foreclosure
Homeowners facing foreclosure may be able to work out loan repayment terms with their lender, such as a deed-in-lieu or a short sale. If homeowners pursue a short sale or a deed-in-lieu, experts say it's essential to get the bank to agree in writing that any deficiency in money owed is waived.
Deed-in-lieu
A deed-in-lieu is short for deed-in-lieu of foreclosure where the homeowner gives the deed back to the lender. This process usually takes 30 days.
Short sale
A short sale means the lender will accept less than the total amount due on the mortgage, but the owner still owns the home. This process takes about 90 days.
SOURCE: Kim Peden, real estate agent
with Century 21 Mann & Sons
