The Miami Herald reports from Florida. "The top job-loss state in the nation. Shrinking wages. Collapsing population growth. Record home foreclosures. Florida's economy is not just firmly and bleakly in the red, it will likely stay that way until next June, according to the state government's top economists. At the heart of the problem is the falling housing market, upon which Florida's economy has a Monopoly game-like reliance. The economists projected new housing construction will fall to about 60,000 units this year, a decrease of 78 percent from a high of nearly 283,000 in 2005."

"Florida lost more jobs in the past 12 months -- 74,700 -- than any other state in the nation. And the economists predict that more people in construction, government, manufacturing, financial services, transportation and warehousing will be out of work soon."

"'We were No. 1 in jobs created in the entire country,' said Clyde Diao, one of Gov. Charlie Crist's economists, referring to the booming economy in 2005. 'Now, if you count the District of Columbia, we're 51. What is important is jobs. If you don't have a job, you can't buy a house.'"

"In unusually plainspoken terms, the experts struggled with the data to figure out just when the state can wrest itself from a vicious cycle in which the lagging housing market triggers job losses that, in turn, worsen market conditions. They cut the their population-growth estimate for the state by nearly 100,000 from 300,000 over the next three years."

"And the state has a surplus of housing units, especially in Miami-Dade, and Florida was No. 2 in foreclosures in the nation last month behind California. The combination -- fewer home buyers and more foreclosures -- will only increase the surplus housing stock and decrease the need for so-called 'starts' in new construction, said Alan Johansen, the Senate's chief economist."

"'What's going to support the starts when there's nobody here to buy them?' he asked."

"As foreclosures continue to mount, borrowers who have run out of options are turning to attorneys to fight back, and they're living mortgage-free for months in the process. Although the chances of ultimately keeping a foreclosed home are slim, for $1,500 to $3,000 some lawyers are offering to defend borrowers in court, causing the wheels of justice to turn more slowly."

"One way is forcing the lender to prove it owns the debt behind the mortgage by producing a promissory note. As mortgages were bought, bundled and sold off to investors, notes got lost in the shuffle, landing in vaults or warehouses around the country. Physically retrieving them can be difficult and sometimes impossible."

"When lenders can't prove they own the loan, lawyers can get cases dismissed, said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, whose firm has advertised foreclosure defense services on television. He began taking foreclosure clients about eight months ago. So far, none of his cases have gone to trial. His clients are still in their homes."

"'People think I am dealing with a bunch of con artists,' Ticktin said. 'I'm talking about families, innocent kids, people who got led into deals that are causing them trouble.'"

"Angela Bellsanctious, of Lauderhill, admits she is careless about opening her mail and said her mortgage was bought by a new servicer without her knowledge. Because her payments were automatically withdrawn from her bank account, she didn't know her loan wasn't being paid until it was too late. On June 12, the home she had lived in since 1990 was sold. Last week she got notice from the Broward sheriff that she had 48 hours to move."

"'I was freaking out. I was praying and praying, and this lawyer came on the TV and said something about foreclosures,' Bellsanctious said."

"It was Ticktin, who for $360 got a judge to waive the writ of possession while he tries to sort out the problem with the lender. 'I have no idea where I would have gone,' Bellsanctious said."

"Yet, for every legitimate miscommunication and misconduct by a mortgage lender, dozens of bogus defenses are filed, clogging up the courts, some lawyers said. Iris Hernandez, a lawyer who files foreclosures on behalf of lenders, said some local attorneys were known for filing boilerplate defenses without supporting their positions, acting for borrowers seeking to take advantage of the system."

"'Some people feel that 'If I don't pay for a year, I'm getting my down payment back,' Hernandez said."

"Marc Ben-Ezra, who also files foreclosures statewide for lenders, said the borrower who seeks to delay the inevitable can face consequences. Interest rates and other costs continue to pile up as the process drags on. Plus, homeowner and condo fees aren't being paid, which places hardships on people who are paying their debts."

"'With every single day that goes by, they could be helping their clients get into bigger and bigger debt, rather than if they face the problems head on and resolve them as quickly as possible,' Ben-Ezra said."

From TC Palm. "A multi-million dollar auction at Tesoro in St. Lucie West proved homes across Florida won't sell until homeowners face reality: They won't get top dollar for their homes. The reserve auction, which allows sellers to accept or decline the highest bid, was a bust. Not one property sold to any of the 150 people in attendance on June 28."

"The first and highest bid that was declined came in at $1.2 million for a four-bedroom, five-bath, furnished home that lists for $3.75 million. After the first bid of $450,000 on the second house was declined, the remaining properties were removed from the auction block."

"'Until sellers readjust their asking price, there will continue to be an overhang of properties in Florida,' said Jose Boza, spokesman for J.P. King Auction Co., which hosted the auction and promoted it in a national campaign."

"Reserve auctions aren't working in today's market and they're wasting the sellers' money, said Daniel Decaro, president and broker of Daniel Decaro Real Estate Auctions Inc., which handles a large percentage of Florida's auctions. His firm auctioned Vero Beach luxury homes in April. 'Sellers are in denial when it comes to the market,' he said."

From Local 6. "The Orlando housing market is beginning to stabilize, but it's not improving quickly enough for people who have a house that has to sell now. The Local 6 report featured a three-bedroom, two-bath home in Orlando's Almond Tree subdivision."

"When the Howe family put its home on the market, it listed it at $425,000. The family's Realtor, Art Kent, told them the price needed to come down -- even though homes in the same neighborhood were selling for mid-$400,000 and even low $500,000 prices a few years ago."

"'What their home was worth when they bought it doesn't matter and what their home was worth two years ago doesn't matter,' Kent said."

"And price alone is not the only consideration. 'It's a price war, and it's a beauty contest,' Kent said."

The Herald Tribune. "The region's economic downturn is not paying attention to social status and is starting to take down commercial and residential developers alike. The latest casualty is Mark Ogles, a Manatee County commercial real estate developer who led Southwest Florida's legislative delegation in Florida's House of Representatives in the 1990s."

"Since March, Ogles has defaulted on five loans totaling $2.24 million. Ogles says he is not ashamed of his debts. A recent divorce from his wife of 20 years that stripped him of more than half his net worth and the worsening global credit crunch made it impossible for him to come up with the capital necessary to stay afloat."

"'I was in, like, 10 projects,' Ogles said. 'I couldn't get construction loans, and a year ago, I started going under.'"

"Former Florida Senate President John McKay defaulted on a $4.135 million loan in April after being unable to bring a 288-unit Lakewood Ranch apartment complex out of the ground. Even U.S. Rep. Vern Buchanan, one of the wealthiest members of Congress, has had to sell real estate at a loss. In November 2006, Buchanan sold a condominium at the Residences at the Ritz-Carlton in Sarasota for $300,000 less than he paid nearly two years earlier. Buchanan has since listed a waterfront house near Sarasota's Stickney Point Bridge for $600,000 less than he paid for it in 2004."

"'It's been hard for a whole bunch of us,' Ogles said. 'The bottom line is that nothing is turning, and whole lot more foreclosures are coming.'"

"The worst blow Ogles took was the foreclosure on his house on 137th Street East in Bradenton in July. Ogles had borrowed $327,600 against the house to support his business ventures and help pay money owed from his divorce. 'What really killed us is that banks are unwilling to do any land or development loans right now,' Ogles said. 'All I can do is let go of stuff, and try to turn negative into positive.'"

The St Petersburg Times. "Desperate to salvage the $300-million Trump Tower Tampa with last-ditch financing, SimDag, the Tampa developer of the proposed deluxe skyscraper, sought a nine-figure loan from Providence Funding Inc. Providence bills itself as a faith-based lender. Its chairman identifies himself as 'the Very Reverend Father Barney.'"

"With creditors baying for satisfaction last spring, SimDag principals Frank Dagostino and Jody Simon took the plunge. They paid Providence $150,000 as a 'loan commitment fee' to secure $200-million in financing for the 52-story condo tower. But Father Barney, the reassuring figure in the black clerical garb and white collar, is actually an ex-convict named Barney Canada."

"The Providence Funding revelation comes as SimDag's creditors gather today in a Tampa courtroom to press for repayment of nearly $40-million. It highlights the dubious sources and extreme lengths to which SimDag, rebuffed by conventional lenders, went in search of a substantial loan for a project largely given up for dead."

"Donald Trump, who licensed his name to the tower in exchange for half the profits, sued SimDag for breach of contract more than a year ago, taking the wind out of the project. 'If this information about SimDag is true, this is a very sad turn of events,' Trump spokeswoman Rhona Graff said on Thursday."

"Turning the tables, Father Barney's Indiana attorney, Thomas Lewis accused SimDag of bad faith. He said the Tampa developers withheld information about liens on the Trump Tower lot during the loan application. Said Lewis: 'These guys weren't exactly saints on the other end of the deal.'"

The Tampa Tribune. "For two years, Edwin Letras searched for a home he could afford. Discouraged, he thought his three young children were destined to grow up in a two-bedroom apartment. But the now-sluggish real estate market has brought better luck for the family."

"This weekend they're moving in to a new, three-bedroom, 1,271-square-foot house in the Highland Ridge subdivision in Hudson. They paid $138,400. Husband and wife both work at the nearby, and several of their co-workers are buying homes in the subdivision, too."

"'This is great,' Letras said while doing yard work last week. 'Real estate is finally low enough. And we'll already know some of our neighbors.'"

"Builders are rearranging floor plans, shrinking rooms, even changing the type of grass in the front yard to cut down on construction costs and offer more affordable prices. In some cases they're figuring out how to pack in four bedrooms, a feature in high demand for targeted buyers: young families."

"Smaller homes also can be profitable, especially at a time when builders have suffered from the housing bust: The price per square foot is about the same, said Kevin Robles, VP for the Tampa Division of Atlanta-based McCar Homes."

"The larger homes in Highland Ridge were 1,800 to 2,200 square feet and cost $189,000 to $259,900 in 2007. Kevin Robles, VP for the Tampa Division of Atlanta-based McCar Homes. said McCar didn't want to cut down on the number of bedrooms and bathrooms for the smaller homes, and they didn't want to put in cheaper light fixtures, flooring and cabinets. Instead, it cut costs by putting the garage in the backyard, and adding a front porch instead of a back patio."

"K. Hovnanian traditionally built smaller homes and catered to first-time buyers. As land costs rose during the housing boom, though, the company decided to concentrate on larger homes."

"It's changing directions again now that the market has slowed and land prices have fallen, Tampa division president George Schulmeyer said. The new communities the company is launching in 2009 will have homes starting at 1,130 feet and $117,900. It will continue to build homes up to 3,500 square feet and $360,000 in various neighborhoods, mostly in Pasco County, he said."

"One thing the company is doing to trim costs is to cut out vaulted ceilings and plant shelves, which were staples in many Windward Homes. They were popular because they give the home a cottage feel, Schulmeyer said, but they are an 'unnecessary cost.'"

"'When you have them, you're just giving away square-footage that could be used in a two-story,' he said. 'Also, they waste energy.'"

"Pulte Homes is experimenting with smaller home products as well, said Reed Williams, VP of sales and marketing. In both Harrison Ranch in Parrish and Trillium in Hernando, new homes start at $127,400 for a 1,265-square-foot home and $131,400 for a 1,598-square-foot home. The two communities are 70 percent of the Tampa division's sales right now, Williams said."

"For Pulte, he said, the thinking was to target first-time homebuyers who don't have to sell another home in this problematic real estate market. The only thing holding many of those buyers back, Williams said, was price."

"'The response has been fantastic,' he said. 'People are a bit skeptical as what they'll get for this amount of money. But they're pleasantly surprised. You can get into these homes for about $1,100 a month.'"

WSJ recourse loans

Wall Street Journal

After a decade of easy lending, the dreaded personal guarantee is making a comeback in the real-estate industry, bringing back the kind of tough terms that borrowers hoped not to see again.

As loans for commercial projects have become difficult to come by in this credit crunch, borrowers are being forced to consider loans that would give the lenders "recourse" to the borrowers' personal fortunes -- terms that led many a developer, including Donald Trump and William Zeckendorf Jr., to near ruin in the real-estate crash of the early '90s. More recently, New York developer Harry Macklowe found himself in a bind after he signed a personal guarantee on a $1.2 billion loan.
[illustration]
Rob Shepperson

Despite Mr. Macklowe's experience, these recourse loans -- once a staple of commercial lending -- had largely fallen by the wayside during the past decade as banks found ways to minimize their risk.

Now, with the securities market for commercial loans still anemic, recourse loans are popping up again -- and striking fear in the hearts of developers.

Dale Anne Reiss, global director of real estate for Ernst & Young, recalls the efforts involved in restructuring recourse loans, with some people losing numerous properties including their own homes: "Some of the workouts were extremely painful," she said. "You were tearing apart people's lives."

Yet commercial investors who can't wait out the credit crisis may have little choice but take a deep breath and sign a recourse loan. "Oftentimes, it's either sign personally or you don't get the loan," said Donald Isken, a real-estate attorney at Morris, Nichols, Arsht & Tunnell LLP. "The tide has changed."

Take, for example, Judah Hertz, chief executive of Hertz Investment Group in Santa Monica, Calif. About 3½ years ago, Mr. Hertz took out a $50 million mortgage from LaSalle Bank to buy an office building in New Orleans. That loan required no personal guarantee. As the loan is due next month, he is left with little choice but to accept a new $50 million loan from Wells Fargo that requires him to personally guarantee 25% of that amount.

"If you're going to banks today, they all require recourse," said Mr. Hertz, while adding that he isn't worried about his ability to pay off the loan.

During the recent sales frenzy for commercial properties, nonrecourse loans were the norm. Typically, this meant that the developers put up as collateral only the buildings they were purchasing. If they couldn't pay off the loans, they simply handed the building's keys to the lender and walked away. The borrowers' other holdings -- including personal assets such as homes and boats -- remained intact. The investment banks that originated many of these loans felt comfortable with the arrangement because they typically packaged those loans into commercial-mortgage-backed securities, or CMBS, and sold them as bonds, reducing their own risk if the borrowers couldn't pay.
[Harry Macklowe]

Now, with a 90% drop in CMBS sales, banks have all but stopped originating loans aimed at the bond markets. Instead, they are returning to the traditional model of holding on to -- as opposed to selling -- the loans. "We're not closing loans for securitization. We're closing loans for balance sheet," said Brett Smith, managing director in Wachovia Corp.'s real-estate group. And with the return of balance-sheeting lending comes the return of recourse loans.

Even for banks, recourse lending can cause headaches. Borrowers are more likely to fight the banks if they face losing much of their net worth over one bad gamble. Plus, the banks make less money; the interest rates they can charge on recourse loans are about 1% lower than on nonrecourse loans.

Banks that have already suffered losses related to residential mortgages are increasingly viewing recourse loans as a necessary layer of protection. When prices were rising, the bank could take control of a building and sell it to pay off the loan. Now, with falling valuations, the building could be worth less than the debt on it. In that scenario, banks want a way to make up the difference.

Investors who buy debt welcome the return of discipline that recourse loans represent. "With more discipline, you're going to develop and derive a better product," said Jack Foster, managing director for Franklin Templeton Real Estate Advisors.

Borrowing recourse debt is one of the few options available to Dallas developer John Sughrue, who is leading a group that is trying for financing to build a $180 million condominium project in the city's thriving new arts district. He and his partners can contribute about $40 million in equity and get an additional $100 million in conventional financing. "We're missing about $40 million," he said.

One possibility would be to take out a "mezzanine" loan, which fills the gap between the equity and the first mortgage, but the rates would be so high that it would make it unfeasible given the amount of risk involved. The other major option would be to guarantee the additional $40 million. Mr. Sughrue said he won't personally sign for the loan and is still pondering his options.

With such onerous terms, some developers may opt not to do deals at all. "It is definitely slowing down the pace of real-estate transactions," said Douglas Buck, a partner with Foley & Lardner who recently represented several developers who decided to put off doing deals because of their reluctance to sign a personal guarantee.

Mr. Macklowe's travails in buying $7 billion of Manhattan property in February 2007 provide a reminder of the high stakes. Even though Mr. Macklowe didn't have to tap into his personal fortune to pay off a loan from the private-equity firm that helped finance the transaction, Fortress Investment Group, the knowledge that $1 billion of his fortune was at stake likely made him work hard to pay off the creditor, industry observers said. He ended up selling five of his Manhattan properties including his trophy General Motors building at 767 Fifth Ave.

Many borrowers may have no choice but to swallow the tightened lending terms. According to a March study by the Mortgage Bankers Association, $16 billion in loans that were packaged into CMBS -- which are nonrecourse -- are expected to come due this year, followed by about $19 billion next year.

Jerry Wolkoff, a developer in Long Island, N.Y., is among those who will do anything to avoid recourse. Mr. Wolkoff is planning to build a $1 billion mixed-used property in Suffolk County. He said he plans to put down equity that represents as much as 40% of the value of the project, in hopes of qualifying for a nonrecourse loan.

--Peter Grant and Jennifer S. Forsyth contributed to the article.

Write to Lingling Wei at lingling.wei@dowjones.com

CA buyers decend

Mercury News

GREGG WINCHESTER and his wife, Cynthia, made an offer on the 2,430-square-foot, four-bedroom, three-bath house the same day they saw it.

"We felt now was the time to purchase something for our family now that prices had come down," he said. The couple bought the bank-owned house for $355,000.

Sales rose in most of East Contra Costa County in April, but Brentwood sales, rising to 107 purchases, ensured some of the highest sales in the Bay Area, DataQuick Information Systems reported.

Sales also rose significantly in Antioch, Daly City, Fairfield and most of San Joaquin County — all areas famous for foreclosures.

"Does it signal an absolute bottom?" asked DataQuick analyst Andrew LePage. "That's still unclear."

Last January, Antioch had 25.6 months and Brentwood had 22 months of inventory, or the amount of time it would take for all homes to sell if no new homes came on the market. In May, those numbers changed.

"Now we're looking at 4.9 months in Brentwood and 11 months in Antioch," said Bryce Ellsworth, a broker with Windermere Ellsworth & Associates in Brentwood. "Prices have come down. ."‚."‚. People have held back in buying and suddenly homes are flying off the market," he said.

"Flying" may be too a strong word, economists said.

"I think the movement begins where the prices have gotten low because there are a whole bunch
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of foreclosures. It's now become affordable," said Stephen Levy, director of the Palo Alto-based Center for the Continuing Study of the California Economy.

According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, price drops have changed affordability in the Bay Area — for the better.

In the East Bay, 32.4 percent of residents could buy a home in the first part of 2008 as opposed to only 17.4 percent in late 2007. In San Joaquin County, it went from 16.9 percent of people to 35.5 percent, while those on the Peninsula who could afford a home rose from 7.9 percent to 12.7 percent. Solano County's affordability rose from 20.4 percent to 35.1 percent.

First American CoreLogic reported prices in California declined 18 percent, with six markets, including Stockton, Merced and Modesto, experiencing price declines around 50 percent. The number of homeowners delinquent on payments rose from 1.5 percent in the first few months of 2007 to 4.8 percent during 2008. This "indicates that foreclosures and REOs will continue to rise for some time," the Core Mortgage Risk Monitor said.

Sean O'Toole, founder and chief executive officer of ForeclosureRadar in Discovery Bay, said that 22,324 homes reverted back to the bank in California in April. Of that, 954 were in Contra Costa County.

O'Toole, who also invests in real estate, said that the return on investment for buying distressed properties and renting them out is coming close to creating a positive cash flow. "We still have some people who are speculating that this is the bottom and they'll be rich in two years, but those are the same folks who got into trouble the last time."

Perhaps it's the price drops that are tempting more buyers. Homes that previously were selling for $800,000 can now be bought around $400,000, and although inflated prices were arguably due to a housing bubble, many are still attracted to what they view as a bargain.

Ellsworth said that homes that are priced well, especially foreclosures, receive multiple offers. And the majority buying are investors looking for positive cash flow, including himself. "Properties are being sold significantly below values. I think I'll take my chances," he said.

Mark Fleming, chief economist for First American CoreLogic, said that because of the tightening of the credit market in 2007, the number of loans with adjustable rates will peak and reset in 2008. He expects, as a result, that the numbers of foreclosures will begin to recede by next year.

"The ARM reset issue is coming to closure," he said. "But there's no guarantee prices won't continue to go down or whether it will rise, stay flat or reach back up to the prior peaks."

Fleming said that results can differ from recession to recession and he doesn't have a crystal ball. "It took the housing recession of the early 1990s until the late 1990s before it had recovered to pre-recession price levels," he said. "And if you look at 1910 or 1912, it wouldn't have been until the 1940s before it returned to price parity."

The Winchesters, who bought their Oakley home in 1997, wanted to move up to a home near the Highway 4 Bypass. He and his wife have decided to keep the Oakley house and rent it out to teachers at the private school where he works.

Although Winchester, 47, had to deal with some cracks in the pool and being overrun with mosquito larvae, he feels the Brentwood house was a good buy and paid 20 percent down.

"It was a great blessing," he said. Their home is scheduled to close June 20.

Barbara E. Hernandez covers real estate. Reach her at 925-952-5063 or bhernandez@bayareanewsgroup.com. Read her real estate blog, Property Lines, at www.ibabuzz.com/propertylines.
# FORECLOSED HOME SALES* Contra Costa County: 44.7 percent
# San Joaquin County: 70.2 percent
# San Mateo: 13.2 percent
# Solano County: 54.2 percent
*Percentage of homes that sold that were in foreclosure during the past 12 months
Source: DataQuick Information Systems

CA 200k

Mercury News

Renters Julie Herning and her husband, Oliver, have been trying to buy a home near San Jose's Japantown since February. With a slow housing market, and with enough money for a healthy down payment, they figured they finally had a shot at owning a piece of property.

What they didn't expect was the competition — so fierce that they've been outbid on four houses priced at around $500,000.

"It's kind of crazy," said Julie Herning. "One person I called said I would have been the 13th offer on the property."

Bidding wars have remained common in high-priced places where stellar school districts are the big draw. But in an area such as Santa Clara County — with more than 900 houses for sale for $450,000 or less — many home buyers assumed that the market was soft, and are shocked to find themselves outbid on foreclosed, bank-owned properties in this price range.

"The REO market is cooking-hot right now," said Jason Chan Lee of Intero Real Estate, who has numerous clients trying to buy REOs — real estate owned by banks and other financial institutions that have foreclosed on the properties.

Banks eager to unload their REO inventory — which forms a large chunk of the cheapest houses for sale in the county — have been lowering listing prices. It's become common to find bank-owned homes in South San Jose priced at roughly $400,000 that last sold in 2005 or 2006 for $600,000 or
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more, for example.

Lower prices have helped spur buyers' interest in bank-owned homes, especially because "regular" sellers generally have not brought their asking prices down to meet the banks' prices. Also, trying to buy homes in "short sales," another option for entry-level buyers, has proved frustrating, time-consuming and often fruitless for many buyers.

A short sale occurs when a mortgage lender gives approval to homeowners to sell for less than they owe on their mortgage in an attempt to avoid foreclosure. The trouble is, lenders often take months to OK the transactions, the foreclosure happens after all, and the property becomes an REO.

With more demand for REOs, multiple offers abound, a phenomenon that has stunned some buyers, said Lee.

"It's a secret nobody knows," he said. "You have to write a full-price offer. If you want it, everybody wants it."

Easy? Nah

The competitive landscape has discouraged the Hernings, who thought they'd have an easy time buying because "all you hear about is 'Oh, the market is terrible,'" Herning said.

"We had no idea we'd still be sitting here going, 'What's going on? Are we going to find a house?'"

As with "regular" listings, it's the bank-owned homes in the best condition that are most likely to attract a flood of offers. A bank-owned three-bedroom home for sale in South San Jose, for example, has new kitchen cabinets, a stainless steel dishwasher and pristine Pergo floors, with views of downtown San Jose. Listed at $429,500, it got five offers after only two days on the market, said listing agent Peter Carey of Realty World.

But not all REOs are as inviting. A few blocks away at a three-bedroom bank-owned house listed for $389,900, dirty water is stagnating in the backyard pool, unfinished construction remains in the family room, and a bedroom has been painted haphazardly in a deep-red color.

One San Jose resident, a mobile-home owner who has been looking for a house since February with a budget of up to $550,000, bid unsuccessfully on several short sales and half a dozen REOs before getting a bank-owned house for $540,000 that was listed at $529,900. The buyer, who did not want to be identified, said he's investing despite fears that valley home values may continue to fall.

"I have a feeling it's still risky to buy a house at this moment, but I want my kids to go to a good school, so I'll take a chance," he said. "I might stay there for 10 years. I look for the long-term, not the short-term."

Who's buying?

Some agents who specialize in REOs said about half the buyers now scouring the market for deals on bank-owned properties are people who want to live in the homes, while the other half are seeking investment property to rent out. But even at today's REO prices, some investors are waiting to buy because they can't get enough monthly rental income to cover their mortgage and expenses.

True, said Peter Carey, but the ones buying now are "gambling on better times" in the future, he said, hoping to buy property in the $400,000s that will eventually gain value.

It's not clear that the recent flurry of competition for REOs will last long.

Sen Dharmadas made an offer a few weeks ago on a bank-owned home in Los Gatos — a rare find compared with the number of bank-owned properties available in nearby communities. He offered the full list price of $775,000, and his was the lowest in a field of about five offers, he said. He raised his bid by $12,000, but the bank chose another, higher offer.

"Because of that we almost lost hope," said Dharmadas, a software engineer. "Getting an REO is very difficult."
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CA UHS

Los Gatos


Although it is fortunate the Silicon Valley region has not been hard hit with foreclosures in comparison to the rest of the state, a California real estate and tax attorney believes foreclosures will be with us for some time.

Pamela Simmons, an attorney with the law office of Simmons and Purdy in Soquel, said at a recent Silicon Valley Association of Realtors tour meeting the number of California homes going into foreclosure continues to increase as the market works its way through declining home values and a pool of at-risk mortgages. According to DataQuick Information Systems, Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter of 2008, up 327.6 percent from 11,032 in the same period last year.

Simmons started seeing the first flow of cases pertaining to foreclosures about a year and a half ago. Those affected in this first wave were homebuyers "who had no business buying a home in the first place," she said. These were people without steady jobs, who were targeted by predators with offers of zero down payment loans. She indicated these homebuyers have lost their homes.

Included in the second wave of foreclosures are homebuyers impacted by subprime borrowing, many of whom entered into loan agreements with adjustable interest rates. Those rates have now adjusted upward, and the homebuyers cannot keep up with the higher house payments.

Today, Simmons is seeing more of the third wave of
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foreclosures--homeowners with negative amortization loans. Included here are homeowners who could not afford their debt and took out too much equity from their home. Some of these homeowners have payments that have increased by as much as $3,000 a month. Homeowners with multiple properties, popularly known as "flippers," also belong in this third group.

"It's like playing musical chairs, and the music has stopped and these people are left without a chair," Simmons said.

Simmons explained the difference between a judicial foreclosure and a non-judicial foreclosure. Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint that states what the debt is, and why the default should allow the lender to foreclose and take the property given as security. If the court finds the debt valid, it will issue a judgment for the total amount owed, including the costs of the foreclosure process. After the judgment has been entered, a writ will be issued by the court authorizing a sheriff's sale. Since this process can entail as much as $100,000 in costs to a lender, virtually all of the foreclosures in California are conducted through the non-judicial foreclosure process.

Non-judicial foreclosures are processed without court intervention. Simmons said if a lender chooses this route, the lender cannot seek a deficiency judgment for the loss the lender suffers.

These days, cases involving lenders going after homeowners for misrepresentations on loan applications and lenders going after agents and brokers are on the rise as well, Simmons said.

She said, at least for much of the state, "I see a continuing market for people losing their homes."

The Silicon Valley Association of Realtors urges homeowners who anticipate falling behind on their payments to seek help immediately by calling 888-995-HOPE (or visit www.995HOPE.org). This toll-free, confidential hotline is sponsored by the Homeownership Preservation Foundation, which offers free advice and counseling to homeowners.

Information provided in this column is presented by the members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to rmeily@silvar.org.

CA SV

Mercury News


Finally, a glimmer of good news for Silicon Valley home sellers: Home sales were up 30 percent last month compared with March.

That was the steepest March-to-April increase in almost two decades for the county, according to DataQuick Information Systems, and it came after several months of record-low sales figures.

"You've finally hit a price point that is attracting people back into the market," said David Martz, an agent with Intero Real Estate. In San Jose's Alum Rock neighborhood, for example, homes priced at $350,000 or $400,000 are selling, while in the Rose Garden neighborhood, a bargain could mean finding a home in the high $600,000 range, he said. "There are some great deals available."

But it's not clear the rebound will last, cautioned DataQuick's Andrew LePage, discussing the figures released Tuesday. "We don't know how deep this demand is, even at the discounted prices."

While the sales trend may be a ray of hope for home sellers, price trends are favoring buyers. The median price of the existing houses that changed hands in Santa Clara County last month was $699,500, the company said. That was down 12.9 percent from $803,000 in April 2007. The median price of condos sold in the county slid 13.5 percent from a year ago, to $467,000.

A total of 1,440 new and resale houses and condos changed hands in Santa Clara County in April, up from 1,105 in March.

"It was a pretty good pop," LePage said.
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Despite the strong month-to-month showing, sales were down 28 percent from April 2007, making last month the second-slowest-selling April in DataQuick's records, which go back to 1988. Only April 1995 had fewer sales, with 1,426. LePage agreed that bargain hunters are probably responsible for sending the monthly sales up so much from March to April.

"The overwhelming trend across the state is markets that have seen the biggest price declines are now posting some of the biggest sales increases," he said.

In the nine-county Bay Area, for example, sales of existing single-family houses fell in most counties compared with April 2007, but rose 8 percent in Contra Costa and 5.3 percent in Solano, two counties in the region that have been hit hardest by foreclosures. Median house prices were down 38.4 percent in Contra Costa last month from April 2007, and down 24.9 percent in Solano.

DataQuick also reported that a quarter of all home sales in the Bay Area last month were of properties that had been foreclosed upon sometime in the past 12 months. In Santa Clara County, such sales made up 14.4 percent of transactions. San Francisco had the lowest portion of foreclosure resales among Bay Area counties, with 5.9 percent. Solano
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County was most affected; 54.2 percent of transactions there were foreclosure resales.

In those deals, the seller is typically the bank or financial institution that foreclosed on the previous owners. A bank, already taking a financial loss and eager to unload its ballooning foreclosure inventory, is likely to list its property at a lower price than the "regular" seller down the street, who may not be desperate to sell. When the bank-owned property sells, it sets a new benchmark for both institutional and "regular" sellers.

Martz said he is listing an East San Jose home that the owner tried to sell months ago for $480,000. But perhaps 80 percent of the other homes for sale in the neighborhood are bank-owned properties or "short sales." In short sales, owners must seek their lender's approval to sell for less than they owe on their loans. Prices in this owner's area are dropping. "He had to go down to $350,000; that's what the neighborhood is doing," Martz said.

While prices have come down hard in places plagued by foreclosures, such as the East Side and Gilroy, declines have been less steep across much of the county. And it's still a competitive hunt for homes in popular school districts like Cupertino, Saratoga, Los Altos and Palo Alto, with price declines barely an issue.

Peter Congistre spent about eight months looking at houses in Willow Glen, the Rose Garden and near Santa Clara University before signing a contract a few weeks ago to buy a three-bedroom house in the Rose Garden.

"The homes you find that look like a really good deal for a low price, they happen to be in not an ideal area - there's a business in back or it's backed up to a duplex or an apartment complex," he said. Prices for "a nice home in a nice area" have certainly come down from their peaks, he said, but if some people think they can pick up a great home for $500,000, he said, it's "not in this area." One perk for buyers now, he added, is that "there are just a lot of places to look at out there. It's nice."

This week, there are nearly 7,500 houses and condominiums for sale in Santa Clara County, according to the local multiple listing service.

DataQuick said median prices for new homes in Santa Clara County dropped 24 percent last month from a year earlier, to $505,000. The figure measures sale prices of both new houses and new condos, LePage said, and could have fallen that much based on a changing mix of homes sold.

Vickie Nyland, president of home builder Taylor Morrison's Bay Area division, said new home prices are definitely falling in the South Bay. "We have to move our inventory through," she said. For example, at one of the company's townhouse developments in San Jose, "We've got three-bedroom homes . . . in the $450,000s," she said.

"A year ago we might not have had anything for sale in Santa Clara County under $505,000," the median new-home price in April.

DataQuick said its data shows that foreclosure activity remains at record levels in the Bay Area and financing with adjustable-rate mortgages is at a six-year low. It said investors appear to be returning to the market, as non-owner occupied buying is increasing.

Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.

CA MN seeking answers

Mercury News

Should you be concerned if your home value is dipping? Is this really a good time to buy a house? How do you avoid losing a home? And what the heck does "affordable" really mean in this market?

"Housing prices look so good right now that you're tempted to jump in," said perspective first-time home buyer Linda Durham. "But you don't want to end up like the people who have lost their homes and helped drive the market down."

Durham, like others considering dipping a toe in what is a shark-infested housing market, is trying to arm herself with as much information as possible to avoid getting in over her head.

About 20 people such as her attended an affordable housing seminar in San Jose on Saturday trying to get clear answers from experts. The event was planned as part of Affordable Housing Week.

"With the housing market being like it is, we think basic education is important," said Assemblyman Jim Beall, D-San Jose, whose office helped organize the event. "People just don't have a dime to spare."

The definition of affordable in Silicon Valley sometimes seems flexible. An affordable housing project built in San Jose by the non-profit Neighborhood Housing Services Silicon Valley started selling condos at $535,000 and now offered at $450,000. That's still out of reach for some.

Across the county from the workshop, the Silicon Valley Leadership Group sponsored a tour of affordable housing projects in Santa
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Clara for community leaders. Bena Chang, senior associate with the group, said the tour highlighted the need for different types of affordable homes - not just single-family homes or condos for professionals, but also transitional homes for the homeless and below-market-rate apartments for seniors.

At the seminar, one woman, who declined to give her name because she works for a mortgage broker, asked if she should tell her lender that she may be laid off. Sitting two rows in front of her, Haileyessus Tessema, of San Jose, wondered if it is a good idea to buy a foreclosed home.

Yi Chong Hun, of Los Gatos, is looking for help to buy his first home. He doesn't want to take advantage of the misfortune of others, but the housing bust has put some new condos closer to his price range.

"It makes you kind of nervous," he said. "But then you also get nervous about buying now - what if the market goes down a bit further?"

Speaker Miguel Palma, a San Jose CPA, addressed the concerns of first-time home buyers by saying that for them a house or a condo is more than an investment, it's a home that they're likely to stay in for a while. And during that time, the market is likely to improve, he said.

"If you can afford it, you can do it," he said, adding that it is still better for some people to rent rather than go into debt.

The most important thing, he said, is to talk to a professional who doesn't work for a mortgage broker or real estate agent.

Contact Leslie Griffy at lgriffy@mercurynews.com or (408) 920-5945.