In Southwest Florida Real Estate Market, Foreclosures Are Back With a Vengeance

Jim Willig is not shy about what he does for a living.

From the sign on his car (saying “We Buy Houses”) to his website (FloridaHomeRescue.com), he is always advertising the fact that he is prepared to buy homes from Southwest Florida homeowners who have gotten themselves into a jam.

And business is picking up.

After three years of happy times and prompt sales, the Florida foreclosure market is back in a big way. The U.S. real estate market has cooled, and foreclosure rates, while still manageable, are inching upward and are almost certain to head higher. Not surprisingly, states such as Florida and California, with their soaring home prices, are the most vulnerable. In the first quarter, Florida had more foreclosures than any state except Texas.

In a RealtyTrac study of the top 100 metropolitan areas, five in Florida showed up in the top 30 hardest-hit list. Jacksonville foreclosure rates came in at No. 7, with Orlando 21, Lakeland-Winter Haven 23, Miami-Fort Lauderdale 24, and West Palm Beach-Boca Raton, 28.

“This goes hand-in-hand with a softening housing market and rising interest rates,” said Greg McBride of BankRate.com, which reports mortgage rates and other data from North Palm Beach. “This is probably just the beginning, and certainly not the end.”

Willig got in the business four years ago, after leaving behind a Chicago bank marketing job to help a relative in Sarasota. During big boom years 2004 and ‘05, Willig was only able to acquire one distressed property per year. So far in 2006, he has managed to buy two in North Port and Port Charlotte, markets most experts agree are prime foreclosure territory.

Following his cookie-cutter approach, Willig picked up the Port Charlotte house, worth $170,000, for $120,000. After fixing it up with some paint, carpeting and trim — $5,000 worth of labor — he sold it for $170,000.

“That is real world. It is hard to do,” he said.

With the Florida home loan rate increases seen over the course of the past six months, for those with adjustable-rate mortgages especially, experts are predicting that “distressed property” is about to become a much more common term.

Consider a $300,000 adjustable-rate loan issued in 2003 under a marketing plan called a 3:1, in which the rate stays fixed at a low rate for the first three years, and then readjusts to match current market rates every year for the life of the loan. If the introductory rate was 3.5 percent, a borrower would pay just $1,300 a month. But at the dreaded three-year mark this year, they are staring at $1,800 to $2,100.

HOW THE FORECLOSURE GAME IS PLAYED

After a homeowner misses two or three payments, his/her distress becomes public knowledge when the owner’s Florida home mortgage loan provider files a document in court, warning that foreclosure proceedings are going to start. When it becomes public, the property owner is often inundated with inquiries about their homes. To stand out, some prospective buyers will make offers providing the owner with some extra cash. From the time of the first notice until the foreclosure sale, the property owner typically has a window of 3-6 months.

“That period is when an investor could contact that homeowner and help them by stopping the foreclosure. Instead of losing it, they can sell it, and actually save that customer’s credit,” Mike Kane, co-founder of Tampa’s ForeclosuresDaily.com, said.

Failing that, a judge eventually sets the date for an auction, where the property is sold on the courthouse steps to the highest bidder. Investors sometimes wait to buy houses at auction, while others make offers on the way to foreclosure. Willig prefers the latter, using form letters targeted to neighborhoods in which he is interested in buying.

“If you know of anybody who is distressed, or divorcing, or interested in relocating, I’d be interested in talking with them,” Willig said, adding that “distressed” does not just mean those with properties about to be yanked out from under them. “There’s burned-out landlords. I get a lot of people trying to move somewhere and just want to sell quickly and go.”

In return for getting a house at a bargain price, Willig adds that he is offering the property owner a solution to a problem: a quick closing and the chance for a scarred — rather than absolutely destroyed — credit score.

There are very few distressed properties in north Sarasota County, reports the Sarasota Herald-Tribune, but other areas have become hotbeds of late. In May, 1,441 homes were listed in North Port, although just 80 (or 5.5 percent) sold. In Port Charlotte things were worse, with 1,543 listings to just 72 sales, or 4.6 percent.

During the boom years, many lenders all but abandoned their departments performing the difficult work of foreclosure. Now the practice has become so commonplace that increasing numbers of foreclosure scams have been brought to light, as the opportunistic prey on the vulnerable. As Florida home loan rates continue to rise, we may see the situation worsen yet.