Cleanup Business Booming

Bloomberg is reporting, “Bear Stearns Meets Possums in Georgia as Foreclosures Increase”:

“Only the possums are enjoying the backyard of 2035 Lilac Lane in Decatur, Ga., where Wall Street titan Bear Stearns Cos. is just another homeowner by default.

“‘It’s a mess,’ said Kiwanna Ford, 31, who grew up next door to the vacant brick ranch-style house four miles south of the DeKalb County Courthouse. Bear Stearns seized the property three months ago after Ford’s neighbor stopped making payments on his mortgage. ‘If we wanted to sell our house right now with that next door, it would hurt,’ she said…

“The dilemma facing banks is whether to pay maintenance costs or dump the properties at fire-sale prices, said Keith Gumbinger, vice president at HSH Associates, a mortgage research firm in Pompton Plains, N.J. Both options can reduce real estate values. Homes that sit vacant can become neighborhood eyesores, while rock-bottom sale prices drag down values of similar properties in the area, he said.

“‘No lender wants to own real estate, but at the same time, you can’t just unload these properties, because you would send home prices into a free fall,’ Gumbinger said…

“The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount.

“The firm sold the Lilac Lane house on June 28 for $84,000, said Elisa Marks, a Bear Stearns spokeswoman. That’s about half the price paid two years ago. Other homes on the street sold this year for $85,000-185,000, according to public records.

“The house’s condition deteriorated while it was a rental property, Ford said. Being empty for six months only made it worse to the extent that possums had the run of the backyard, she said.”

Swimming in Mosquitoes

USA Today is reporting, “Vacant Pools Leave Neighbors Swimming in Mosquitoes”:

“A glut of vacant, unsold homes with swimming pools is contributing to a glut of mosquitoes in the West.

“An untended pool means stagnant water, a breeding ground for mosquitoes to lay eggs that can produce thousands of mosquitoes in a couple of weeks. ‘They become these little backyard swamps,’ says John Townsend, who runs the mosquito-control office in Arizona’s Maricopa County. ‘Mosquitoes move in and breed up a storm…’

“Eradication Strategies

  • “Sacramento’s mosquito-control operation has asked the Sacramento Association of Realtors for a list of vacant homes with swimming pools. Since May, 400 pools have been reported. ‘It’s really a community effort,’ Brown says. ‘We are trying to enlist everyone.’ Technicians follow up, visiting pools to spread chemicals to kill the larvae and add mosquito-eating fish to the water.
  • “In Maricopa County, the sheriff’s office spots potential backyard breeding grounds from a helicopter or plane. Townsend says 5-10% of the county’s 300,000 pools are poorly maintained. He gets at least 200 complaints a week about algae in pools. ‘You can have one bad swimming pool, and it can basically become a blight of the neighborhood,’ he says. Thousands of mosquitoes can breed in one pool, live for more than a month and travel more than a mile, he says.
  • “The Southern Nevada Health District, which includes pool-packed Las Vegas, relies on neighbors’ complaints to identify pools green with algae. By June 25, the district’s ‘green pool’ count outpaced last year’s numbers by more than a fourth. Many involved vacant homes in the process of foreclosure, environmental health supervisor Mark Bergtholdt says.
  • “In central California’s Santa Clara County, mosquito fighters say they can’t check each pool and that people are hesitant to report their neighbors, so the county hires a plane to take aerial photos, says Kriss Costa, community resource specialist.”

The O.C. Register is also talking about mosquito-infested pools, as well as birdcages, rats, and mountains of trash:

“Tough times in the real estate industry mean booming business for Michael S. Buescher, a Trabuco construction contractor who specializes in cleaning and fixing up repossessed homes.

“As more property owners fail to refinance or repay their subprime loans, Buescher’s paydays are getting bigger and bigger.

“In Orange County, the number of foreclosures through May hit 1,031 — sevenfold the number a year ago. Default notices soared 121%, to 4,520 homes, during the first five months of the year.

"‘We get more every day,’ Buescher said. ‘We’ve been waiting eight years for this to start happening again.’

“Buescher, 49, was building a $1.5 million spec home in San Clemente in February when a call came from a realtor friend offering a job at a foreclosed home in Mission Viejo. As more rehab offers trickled in, Buescher felt almost like he was back in the good old days of the ’90s, the last time Southern California’s real estate market tanked. During that era, he employed five crews to spiff up an average 30 repossessed homes a month.

“So far this year, business has taken Buescher to dozens of trash-outs and fix-ups in Orange, Riverside, and San Bernardino counties, to gated communities and rat-infested crack dens, all united under the title ‘real-estate owned’ or ‘bank repo’…

“Patti Donovan, president of Stearns Asset Services, a Santa Ana firm that manages and markets real estate-owned properties, said she got back in the business last year after a four-year hiatus when the market was hot and she ‘pretty much played a lot of golf.’ Donovan, who started in the foreclosure business in 1984, said she expects the down market to last three-five years.

"‘The difference this cycle is it’s not the economy that’s causing this to go upside down,’ she said. ‘It’s more the types of loans — 100%-financing, adjustable-rate mortgages. Before, it was people losing jobs. Now it’s just people borrowing too much.’

“Robert Rosenthal is a San Fernando Valley attorney who specializes in evicting tenants from foreclosed homes. He expects a lot of jobs over the next three or four years as more people lose their homes.

"‘With this market now, my guess is we’re in the first or second inning of a nine-inning baseball game,’ he said.

“As banks accumulate more property, they hire managers to coordinate contractors, maintenance crews, and payment schemes for insurers and tax bills. They also seek out home sellers who specialize in distressed property, like Staci Treloggen, who heads the real estate-owned group at Prudential California Realty in Laguna Niguel.

"‘Banks outsource to people like me,’ Treloggen said. ‘I need people like Mike [Buescher] to staff up.’

“Treloggen assigned Buescher and his five-man crew to an abandoned home at 17571 Rainier Drive in an unincorporated triangle between Orange, Tustin, and Santa Ana. Public records show Wachovia Bank foreclosed on the property in May. The asking price is $762,500.

“When Buescher and his crew arrived, the swimming pool was a mosquito breeding ground; birdcages and bales of hay littered the yard; the garage closeted a mountain of papers, clothing, toys, and other trash…

"‘It’s amazing what people leave behind,’ he said. ‘I see wedding albums. That usually means a divorce.’

“For some reason, he said, tenants almost always walk off with showerheads. Many rip out counters, air compressors, and other fixtures that belong to the bank. Sometimes neighbors join the looting.

"‘If the air compressor is gone, the first place I look is over the fence,’ he said…

“As the repairs get more complex, Buescher’s fees escalate. Granite counters, a reshingled roof, new wiring — they all make his cash register ring.

"‘My job is to convince the client to spend more money to sell the house,’ he said. ‘But at this point, the banks aren’t willing, because the market hasn’t hit bottom.’”

Who would have thought a few years ago that aerial photography of mosquito-infested pools and removal of birdcages, possums, and trash from foreclosed homes would be a booming business? Note, too, that banks are reluctant to spend money on cleanups "because the market hasn’t hit bottom."

It’s going to be a long wait, according to Robert Rosenthal. "We’re in the first or second inning of a nine-inning baseball game.”


July 6, 2007

The Daily Reckoning