There's been a notable jump in the number of home foreclosures in the county.
"I have clients who are on the road to foreclosure, and nothing's going to stop that train," said Pamela Simmons, a Soquel attorney with a specialty in mortgage lending law who works statewide.
She estimated that 20 to 30 of her 150 clients in mortgage trouble are from Santa Cruz County.
Among the warning signs seen in the county during the first six weeks of the year:
- Foreclosure sales in 2007 have more than tripled from the same period a year ago, from 11 to 41. Compare that to the number of single-family homes sold last year, an average of 159 per month.
- The Santa Cruz Record, a legal publication that tracks forecloures, has expanded to 20 pages, mostly due to foreclosure-related activity.
- Real estate agents and mortgage brokers are getting advice on how to handle foreclosure transactions, which are strictly regulated. One session took place last week; another will take place Wednesday, sponsored by the Santa Cruz chapter of the Women's Council of Realtors.
- The number of defaults in the county — cases where people fall behind on their mortgage payments — has jumped from 59 to 83, adding to the likelihood that more homes will be sold in foreclosure.
Homeowners traditionally fall behind on monthly mortgage payments due to outside catastrophe, such as a loss of a job, a divorce or a death in the family. Now, though, Simmons is seeing problems arise for other reasons.
- Investors who planned to sell homes got caught as the housing market cooled and they couldn't find buyers. Home prices are so high — last year's median was $744,000 — that it's near impossible to rent a house at a price that will cover the mortgage and the property taxes. A three-bedroom, two-bath home might fetch $2,000 a month in rent, not enough for a mortgage payment that tops $4,000. Charging more rent just makes it harder to find renters.
- Buyers eager to become homeowners opted for new types of mortgages that put them at risk, such as mortgages offered with initially low rates that increased after a certain period of time. Some of these offers were advertised as "fixed payment" loans with an asterisk indicating it was actually an "ARM," an adjustable rate mortgage. Buyers who focused on the monthly payment without devising a plan to pay higher rates are now in trouble.
Another kind of mortgage creating problems is the kind where borrowers pay less than what they actually owe. The interest is tacked on to the total, and interest accrues on the interest. The payment is recalcuated upward after a few years. This kind of payment plan could work for borrowers who expect their income to rise; one example might be a new physician opening a practice. Borrowers whose income is stable are having problems making payments.
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Real estate agents and mortgage brokers are paid on commission, so there is an incentive to increase sales. The commissions can be sizeable.
Simmons said she is reviewing one complaint in which a buyer was charged $28,000 in mortgage fees and commissions.
Ronnie Trubek, an agent at Century 21 Showcase Realtors with 28 years in the business, said she has seen "short sales," where a lender takes less than what is owed to close an escrow. The reason is that lenders don't want to be saddled with non-performing assets, and they would rather avoid the time and expense of going through the foreclosure process.
"I haven't seen a real bona fide foreclosure on the market, the way it was in the '90s," said Trubek, who specialized in foreclosures then. "Having 12 or 15 foreclosure listings was normal. Most were investor-owned properties; it was not the average Joe"
She acknowledged the market has changed, but she said she sees the economy as stronger now than it was in the '90s, with a double whammy of layoffs and military base closures.
County prosecutor William Atkinson warns homeowners that foreclosure fraud operators are looking to take advantage of people in distress.
"Our office is currently investigating several of these types of cases," Atkinson said.
Contact Jondi Gumz at jgumz@santacruzsentinel.com.
High mortgage got you down?
Attorney Pamela Simmons, who specializes in mortgage lending law, recommends people who are behind on their payments consider whether to quit fighting.
'I've had to have that talk with a lot of clients,' she said, noting that some feel better once they let their house go.
For those who can't afford payments, it's not possible to keep the home, she said. A new loan won't improve the situation, and the borrower will simply end up paying more fees.
For those whose payment problems are temporary, the lender may be willing to accept catch-up payments.
For those with an adjustable interest rate at 8 percent, it may be possible to get a fixed-rate loan at 6 percent, which would lower the payments. Simmons tells borrowers to consult a reputable mortgage broker. Members of the California Association of Mortgage Brokers have taken a stand against predatory lending.
Real estate agent Ronnie Trubek of Century 21 Showcase Realtors recommends consulting a tax professional because losing a property through foreclosure is 'a taxable event.'
County prosecutor William Atkinson advises borrowers to use 'utmost caution' when unsolicited offers arrive to cure a foreclosure. If people want money upfront or want you to transfer property, those are major red flags, he said, suggesting borrowers ask for the names of five satisfied clients before making a deal.
'There's no such thing as a free lunch,' Atkinson added. 'The borrower is better off working through the lender or selling the property himself.'
— Jondi Gumz
