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  • 'Zombie Foreclosures' haunt housing market

    Prolonged foreclosures irk neighbors and keep ready properties out of the housing market
  • Gary Poulos planned to spend this summer packing his bags, selling his house and moving on from his west Medford home on Shadow Wood Drive.
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  • Gary Poulos planned to spend this summer packing his bags, selling his house and moving on from his west Medford home on Shadow Wood Drive.
    Instead, the retired Harry & David systems engineer is compiling a dossier on his next-door neighbor, whom he caustically calls Mr. Chase M. Bank.
    As neighbors go, "Mr. Bank" isn't a good one, failing to maintain his yard, ignoring a mangled garage door and allowing junk to pile up outside his house. When he does answer the phone, he's none too talkative.
    Over the past 12 months, Poulos has painstakingly compiled documents and telephoned a litany of loan and property servicers, as well as the police, and finally City Hall. Poulos has delayed selling his home because he fears the eyesore next door will scare potential buyers away. He hopes other people with similar issues will take a look at his blog (http://myneighborchasebank.blogspot.com).
    Poulos isn't alone in his frustration with an abandoned house. Across Jackson County, vacant houses sit empty as lenders fail to complete the foreclosure process.
    Real estate agents are begging for more inventory and neighbors are concerned about diminished property values, yet government officials remain perplexed by the "zombie foreclosures," easily identified by the multiple notices stapled to their front doors and taped to windows.
    The narrative changes from address to address, but the general pattern is consistent, said John Helmick, president of Gorilla Capital, a Eugene-based company that buys fixer-uppers and resells them. The owner is notified of pending foreclosure and moves out. A lengthy foreclosure process ensues, the home foreclosure stalls, and years later, the property remains unsold.
    Often, the lender is collecting mortgage insurance payments even as the house falls into disrepair.
    "The owner of the property has no incentive to maintain the property in terms of neighborhood standards," said Poulos. "And the banks won't, because they don't have to."
    It's well-documented — especially in states and localities where judicial foreclosures have long been in place — that banks protect themselves by keeping their names off titles until they are ready to dispose of a property.
    "There may be something in the (county) clerk's records indicating the bank has filed something," County Assessor Josh Gibson said. "But that doesn't change ownership."
    Yet, it appears the lenders are willing to pay property taxes — likely to avoid the county foreclosing on the houses under their noses. A check of county records for six Medford properties with tags in the windows showed that in each case, property taxes were paid up.
    "Banks won't move if it doesn't make sense," said Eric Eckardt, vice president and general manager of Hubzu.com, whose firm has sold more than 100,000 bank-owned properties, including some in Medford. Hubzu's parent company, Luxembourg-based Altisource, provides an array of services, including default management, real estate owned (lender-owned) management and sales, settlement services and mortgage origination.
    "There are two primary things that can factor into their decision," Eckardt said. "One, they may have a surplus of REO properties they're trying to move off the balance sheet. The second is, costs associated with foreclosure may be greater than the value. At the end of the day, it's really a case-by-case matter."
    Once communication ends between the bank and borrower, the matter drifts into a dark zone.
    "After a loan is made at a local bank it goes on to mortgage services, and someone else may purchase the mortgage servicing rights from them," Eckardt said. "Portfolios are sold between mortgage servicing companies."
    When the properties actually go through the foreclosure process, it's often with an eye toward institutional investors ready to snap up the right locations, he said.
    When it's simply not worth a lender's effort to foreclose, it won't.
    "In some areas, foreclosures have an extremely low value and the bank makes a financial decision that it's not in its best interest to foreclose," said Daren Bloomquist, vice president at RealtyTrac. "At some point they've decided the value of the property is so low that it would cost more to foreclose."
    Real estate agents circle such properties knowing the surrounding neighborhoods will more often than not attract buyers. But even the most desirable places can't be bought without a seller to pursue.
    "It's very odd and takes a lot of time to figure out who has the right to make a decision about a short-sale property or foreclosure," Helmick said.
    Another element keeping houses vacant is investors and lenders collecting mortgage insurance payoffs.
    Ron Galbreath, an agent with Coldwell Banker Pro West in Medford, said he began running into dead ends with such properties in about 2008 when Bank of America purchased failing Countrywide Financial, which had originated 20 percent of mortgages during the height of Jackson County's real estate boom in 2006. (Correction: The company Galbreath is with has been updated in this story.)
    During the downward spiral, Galbreath watched as an east Medford house that had previously sold for a million dollars eventually sold for $540,000. The owner stopped making $5,000 monthly payments, yet it took four-and-a-half years until a short sale began to close. He discovered the lender had been collecting mortgage insurance payments during the interim.
    "The bank was collecting monthly and was in a position where they didn't have to write off a bad loan until the end of the policy," Galbreath said.
    Homeowners, and sellers in particular, worry the zombie foreclosures will drive down values in their neighborhood. But a search of county property tax records for homes surrounding zombie properties revealed little tax difference through 2013, indicating little change in value. Gibson said any impact wouldn't take place until the abandoned properties sold.
    The presumption, Gibson said, is a house can be sold today and occupied tomorrow.
    "Since we have limited resources limiting what we can do, we have to assume every property is 100 percent complete and can be sold at any time," Gibson said. "We deal with every sale in the county; if a sale has gone through, that's when the stuff is cleared up."
    Two years ago, legislation was passed requiring mediation by large lenders who foreclose on 175 or more properties annually. That slowed foreclosures to a crawl as lenders reset their strategies. Since then, the foreclosure pace has picked up, but nothing like it was five or six years ago.
    Distressed property sales accounted for 14.3 percent of all U.S. residential sales in May, down from 15.6 percent of sales in April and from 15.9 percent of sales in May 2013. Real estate agents argue the release of the foreclosure properties would be helpful, given the dearth of houses on the market.
    "Once the inventory of those bank-owned properties decreases, they'll probably try to clear them on the books," said Scott Lewis, president-elect of the Southern Oregon Multiple Listing Service and an agent with John L. Scott Real Estate in Ashland. "I really think the banks are going to want to unload the inventory as soon as they can. I don't know what their incentive is other than they've got an anchor that's doing nothing right now. They could get it off their books and process it however it benefits them."
    What benefits a bank's books and what benefits adjacent property owners appear mutually exclusive.
    "I was surprised that Chase had an office of real estate owned and property protection," Poulos said. "My next surprise was to find it was a front to placate neighbors."
    Attempting to explain the issues with the house next door, Poulos quickly discovered he was up against a rival with vast resources.
    "They know what they're doing," he said. "They've done this before, and they are well set up to deal with these situations."
    The tags on the house provide phone numbers, but no guarantee of getting answers, Poulos said. The servicer number leads from one call menu to another.
    "The increased complexity in the world puts regular people at a disadvantage," he said. "It's unfortunate, because all you can do is keep calling people, putting a burden on them, and try to raise public awareness."
    A Portland employee of RCO Legal, a mortgage banking law firm that handles foreclosures and related matters in 17 states in the West and Southeast, referred questions to a spokesman in Bellevue, Wash., who did not return repeated calls and emails.
    On his blog site, Poulos posted a telephone exchange with a Chase Manhattan representative.
    When he asked whether the bank was taking any action about the neighboring property, he was told:
    "Due to the status of the loan and being that the homeowner still has title, Chase is not able to do any type of maintenance at this address at this point in time."
    Poulos, with restraint, went on to lay out Chase's failings:
    "It appears to all of us in the neighborhood that you must be delaying this foreclosure, otherwise it wouldn't take over a year. ... It seems like no matter what I do or where I go, that Chase has already been there. It's pretty annoying. ... Your legal office you hired to handle this filed papers over a year ago, so there doesn't seem to be any excuse why this is still dragging out.
    "I'm going to have to approach the City Council. Among other things, the taxpayers have to pay to cut the darn grass next door. I can't get them to cut my grass; I don't know why the heck they should cut yours. I understand you don't technically own this property yet. But you've had more than ample time to take responsibility for this property; you are the servicer and are responsible for it."
    Poulos inquired about Chase's time frame, and the response was a simple, "I can't give any of that information."
    Even though the Legislature gave local governments tools to prevent abandoned foreclosures from becoming neighborhood blight, resources are limited and liens aren't easily collected.
    State Rep. Peter Buckley, D-Ashland, is happy with the way the mediation process worked to keep people in their homes longer. On the flip side, he doesn't understand why banks aren't quicker to move.
    "You would think the lender would have the motivation," Buckley said. "If they end up owning a house, they would have an asset to sell again. With the market coming back, you would think there would be motivation to get things resolved and the house back on the market."
    Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter @GregMTBusiness, friend him on Facebook and read his blog at www.mailtribune.com/Economic Edge.
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