The Star-Ledger

As Market Stalls, Home Auctions Lure Interested Buyers

The Star-Ledger — Sunday, February 8, 2009

By Ralph R. Ortega
Star-Ledger

John Williams drove home from work in late January and noticed a bright yellow billboard on Route 280, announcing 125 foreclosed, bank-owned homes in North and Central New Jersey were days away from being auctioned to the highest bidder.

"It popped up out of nowhere," said Williams, a Verizon technician and 38-year-old father of three who followed up on the advertisement and placed the winning bid on a home in Hillside that's in need of major repairs.

Private auctions, a marketing tool for banks to unload foreclosed homes that failed to move in sheriff and county sales, are becoming big business for companies like Hudson & Marshall, the Dallas-based firm that held the Jan. 31 auction attended by more than 500 people at a Newark hotel.

The number of these kinds of auction firms wane and grow in cycles depending on economic times, said Daren Blomquist, marketing communications manager at RealtyTrac.

"They definitely are doing a lot more business these days, with all the bank foreclosures," Blomquist said.

These firms, and their auctions, are exactly what housing advocates and government officials, who track foreclosures, say they don't want more of in their communities. They are a sign, they say, that lenders aren't doing enough to prevent people from losing their properties.

"It's awful. It's what should be happening when everything else has failed, and everything shouldn't have failed yet," said Phyllis Salowe-Kay, executive director of New Jersey Citizen Action, a statewide watchdog group providing home ownership counseling.

Salowe-Kay and others focused on preventing homeowners from losing their properties contend banks have been slow to help after last year's $700 billion federal bailout package was signed into law.

"They're getting the bailout money and turning their backs on people who need this assistance," said Al Faella, head of a foreclosure task force in Union County that sent 3,844 pre-foreclosure notices to homeowners last year, up more than 1,200 from 2007.

Crystal Wright, a spokeswoman for Hudson & Marshall, disagreed, saying banks aren't trying to hurt homeowners.

"Nobody wants a homeowner to lose a home. It's not like we take joy in this," she said.

Wright pointed out that lenders take homes at the end of a year-long foreclosure process, in which attempts are made to help the property owners. If those efforts fail, and the properties don't move at sheriff and county sales, banks that take over the homes still try to get them sold, by offering incentives and financing that's tailored for foreclosure buyers, she said.

Write declined to name which banks are offering the deals, citing policy. She said in the end taking ownership of foreclosed properties costs lenders $40,000 to $50,000 for every $100,000 of a property's value.

For Realtors, selling foreclosed homes provides some income when the regular real estate market has slowed significantly. But, they say, the foreclosed homes are a tough sell because many of the homes have fallen into disrepair and have been vandalized. The longer they're on the market, the worse the damage.

For example, a 1,750-square-foot home that made the list of properties to be auctioned by Hudson & Marshall, located on Sussex Avenue in Newark, sold to its last owner for $310,000 in 2006. That was before the market bottomed out, said real estate agent Gregory Panayoti.

Panayoti listed the pale green, 70-year-old home for $125,000, after the property was foreclosed, and a bank took ownership in April. Two families renting apartments in the home moved out about a month later. The home was then broken into twice, and its copper was stolen. The last asking price, Panayoti said, before the property was set to go on the auction block, was $65,000.

By then, the kitchen and bathrooms had been gutted, and the roof was leaking. Panayoti didn't expect the price to go any lower. "At some point the price of dirt kicks in," he said, referring to the value of the land.

New Jersey this year is playing middle man between property owners and lenders to prevent foreclosures. A statewide foreclosure mediation program, using $12.5 million authorized by Gov. Jon Corzine in December and $12 million in grant funds, will assign housing counselors, attorneys and mediators to resolve foreclosure actions for 16,600 homeowners.

The program's efforts include brokering payment arrangements and settlements between lenders and property owners in the state, which expects 60,000 homeowners may go through foreclosure in 2009.

Officials in Newark said the city may start joining investors at auctions, with $3.4 million from the federal government's Neighborhood Stabilization Program on hand to bid on foreclosed homes. Michael Meyer, the city's director of housing and real estate, said the amount, which is allocated through the Department of Housing and Urban Development, was intended for acquiring and redeveloping bank-owned foreclosures.

"It's not a lot of money. Three-point-four million doesn't go very far. It's something we're trying to use strategically," said Meyer.

Williams, who attended the Hudson & Marshall auction in Newark, said the crowd there was a lot larger than ones he had seen at other sales.

With three children he hopes to put through college, Williams, of Roselle, said he decided to take the risk of bidding, which required a nonrefundable $5,000 deposit. The auction house was to receive 5 percent of the $68,000 bid he placed on the three-bedroom property.

He must still add a kitchen and make cosmetic repairs to convert the home into a rental so that it delivers a return on his investment. Otherwise, he'll get stuck with the property, just as the bank was.

"I don't see that happening," he said. "Not with the price I got for it."

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