Denver-area foreclosures set record

Number tops 1988's oil industry bust - 17,782 and counting

John Rebchook, Rocky Mountain News

Tuesday, December 5, 2006

It's official.

A record number of real estate foreclosures have been filed in the Denver area this year.

In the first 11 months of 2006, public trustees in the seven-county metro area opened 17,782 foreclosures. That's 3.85 percent higher than the record set in 1988, during the oil industry bust.

Experts say other parts of the country that recently had hot real estate markets need only look to Denver to see what's in store for them.

A large percentage of filings are concentrated in the "foreclosure belts" of Adams and Weld counties, north Aurora, and northeastern Denver neighborhoods such as Montbello and Green Valley Ranch.

Some upscale neighborhoods are virtually untouched.

"I was curious how many foreclosures there were in Washington Park and Platte Park, so I went into the foreclosure data by ZIP codes, and there weren't any," said Mike Rinner of the Genesis Group, which tracks Front Range housing data.

As a percentage of the number of homes and loans on the market, the foreclosure rate is still lower today than after the loss of jobs in the wake of the energy crash in 1988.

Still, today's foreclosure crisis is increasingly taking its toll on homeowners, especially with scams and fraud on the rise. Last year, the FBI described Denver as one of the 10 top "hot spots" in the country for mortgage fraud.

"It's like the wild, wild West out there," said Zach Urban, a housing counseling manager for the nonprofit Brothers Redevelopment, on Monday. Urban operates the Colorado Foreclosure Hotline for the Colorado Division of Housing.

"Just today, I was talking to a couple in their 70s in Wheat Ridge," Urban said. "They bought their house in 1994 and got into a bad loan. He had a heart attack in September and lost his job. Now he and his wife are working at Wal-Mart" with hopes of earning enough to keep their home.

Mark A. Murphy, 42, is trying to sell his house in Aurora before the lender takes it back. He has fallen four months behind on his mortgage after losing his job as a production manager for a textile company.

"Basically, they were downsizing," Murphy said. "After being out of work for a few months, it came down to paying my bills or paying my mortgage."

When he bought his home two years ago, other comparable homes in his neighborhood were selling for $235,000, he said, about $50,000 more than he paid.

The four-bedroom, three-bath home, with 1,944 square feet of finished space, is on the market for $205,000.

"My house was really trashed (when I bought it)," Murphy said.

"I've put in new floors, new carpet, and a new kitchen and basically painted it."

Ironically, Murphy bought his home out of foreclosure.

"I believe this property has been in foreclosure four times," Murphy said. "I really like living here. It's a very nice neighborhood. If I can get a full-time job quickly, I may be able to get current and keep it."

Urban, of Brothers Redevelopment, said he is seeing an increasing number of mortgage-fraud schemes.

"There are a number of ways to skin the cat," he said. "The piece that really . . . pulls my chain are these foreclosure-fraud outfits that are pretending to sell hope, and they are really selling eviction notices."

In some cases, people are offered more than the house is worth in exchange for a "gift" donation. The phony buyer collects the gift and never makes a mortgage payment.

In other cases, homeowners who think they are refinancing their mortgage really are signing quitclaim deeds, so the person becomes a renter in their own home.

Chris Holbert, president of the Colorado Mortgage Lenders Association, said he is worried future laws cracking down on so-called mortgage abuse will have unintended consequences.

He said that's happening in Cook County, Ill., where people with low credit ratings, called FICO scores, need to receive counseling before they can buy a home.

Because of the well-intentioned law, home sales have fallen in poor, mostly minority areas, he said.

Also, if lenders do not provide qualified buyers with controversial loans - such as no-interest loans - they risk being charged with discrimination, he said.

The biggest culprits in the rising mortgage tide are a flat housing market and overbuilding in certain areas, such as north Interstate 25, said Boulder lender Lou Barnes, principal of Boulder West Financial Services.

"Our housing market went flat in early 2001, and since then, foreclosures have been rising in the foreclosure belts about 50 percent a year," Barnes said.

Despite what some think, foreclosures aren't being driven 100 percent by financing, he said. He noted that the Veterans Administration has been providing zero-down loans for decades, and Federal Housing Administration-insured loans only require a 3 percent down payment.

But it's never been easier to qualify for a loan, so many people who would have been unable to buy a home previously can now buy one, he said.

Despite rising foreclosures, Barnes said there has been no move to tighten borrowing requirements because the federal government wants to encourage homeownership.

Previously hot markets such as the West Coast, Phoenix and Las Vegas now are softening. In those cities, unlike in Denver, many of the buyers were people speculating on rising home prices in order to flip properties quickly for a profit.

Said Barnes: "If the national lag in these 'bubble zones' is anything like the lag we saw after the technology crash," he predicts other cities will see an increase in the foreclosure rate similar to Denver's.

"I think (the metro area's record foreclosures) are very significant for the rest of the country," he said.

For help

• Foreclosure hotline: 1-877-601-HOPE (4673)

Foreclosure facts

County Nov. 2005 Nov. 2006 YTD 2005 YTD 2006

Adams 312 448 3,006 3,986

Arapahoe 260 381 3,220 4,362

Boulder 56 67 573 729

Broomfield 11 23 117 174

Denver 315 444 3,611 4,721

Douglas 40 108 859 1,085

Jefferson 188 241 1,932 2,725

Total 2006 YTD: 17,782 Previous record, 1988: 17,122

Metro-area foreclosure rate

Year Rate Significance

1988 3.8% All-time high

1995 0.4% All-time low

1992 1.1% Close to 25-year average of 1.4%

2006* 2% Most current figuresSources: Public Trustee Offices Metro-Area Foreclosure Rate *Third Quarter. Source: The Genesis Group

rebchookj@RockyMountainNews.com or 303-954-5207