Local foreclosures soar threefold in two years

On a plateau overlooking the White River in Auburn, Rich Faires is patrolling for signs of abandoned homes — ragged grass, newspapers in the driveway and doorknob fliers for foreclosure-rescue schemes.

More and more, Faires' job as property manager for the Lakeland Homeowners Association is to make foreclosed houses in this planned community of 2,800 homes look lived in.

Four years ago, dozens of families competed to buy the two-story frame houses in Lakeland's new Verona subdivision. Kids played in the cul-de-sacs and soon filled a new elementary school.

Today, even the gates here can't keep out the economic pressures deflating suburban dreams.

One out of every 13 homes has entered foreclosure since 2006 in the Lakeland neighborhoods of Verona, Verona North and Verona South, most in the past year. Some homeowners will sell their property at a loss, others will renegotiate their mortgage and some may walk away, letting the bank take over.

"It's been such a constant flow, it's become a part of our life," Faires said.

The empty homes represent a sad ending to an era when many borrowers got a house without a down payment or even proof of a job.

"It all speaks to a time when ... all you needed was a heartbeat to get a loan," Faires said.

In King, Pierce and Snohomish counties, nearly 6,300 homes received a foreclosure notice in the last three months — a threefold increase from just two years ago.

Broad swath

Pierce County and South King County saw the most foreclosures. But the problem reaches across all types of neighborhoods, from old, inner-city homes in Tacoma and Everett to newer suburban developments from Puyallup to Marysville, according to a Seattle Times analysis of data from ForeclosurePoint, a company that tracks distressed properties.

North Seattle and the Eastside are relatively unscathed, so far.

Newer developments like Lakeland, built on the edges of metropolitan Seattle and Tacoma, are among the hardest hit by foreclosures. Some 500 houses were built in its Verona subdivisions.

Property values in that area have dropped more than 25 percent since 2007, according to online real-estate broker Redfin, making it hard to sell and hard to refinance.

In the Verona neighborhoods, three-quarters of the 38 homes in foreclosure were purchased with subprime adjustable-rate mortgages. Most buyers put little or no money down.

Typically, if a homeowner gets into financial trouble and can't pay the mortgage, the bank starts a foreclosure, a process that can end with a property auction at the county courthouse. If no one bids on the home, the bank takes the property back.

Along the way, the bank also can renegotiate with the homeowner or allow a sale for less than the mortgage's value.

But today, banks are increasingly repossessing homes. In the Puget Sound region, the number of bank-owned properties has skyrocketed since mid-2006, from about 6 percent of all foreclosure filings to about 40 percent now.

The surge in bank-owned properties reflects two trends: Falling home values and a tighter credit market make it harder to sell houses. What's more, banks are simply not renegotiating with Washington homeowners fast enough to keep up with the explosion in foreclosures, according to the Federal Reserve.

President Obama's administration has announced several programs designed to prevent foreclosure and push banks to renegotiate loans. But that will take time.

And more foreclosures are looming. One-third of Washington homeowners who financed with adjustable-rate mortgages are still paying low, introductory rates. Those teaser rates, some as low as 1 percent, will jump in the coming year.

In most other states, those low initial rates have already expired, according to the Washington Budget & Policy Center.

"When they reset, it's not going to be pretty," said Glenn Crellin, director of the Center for Real Estate Research at Washington State University.

Road tells the tale

The story of the housing boom in the region is laid out here on Montevista Drive Southeast, a long curving road in the Verona neighborhood. The first houses sold in 2004 for about $400,000. By the time the last houses were built in 2006, the same models were selling for more than $600,000.

Yet properties in the area seemed a bargain compared with Seattle. Lenders lined up to help borrowers get into the homes, offering low introductory interest rates with little or no down payments.

It seemed a dream come true for many first-time buyers, including Asian and Eastern European immigrants who previously had only rented.

That's what Marina and Andrey Samoylenko thought. They emigrated from Russia in 1999 and had lived in public housing with their three children while learning English and working toward degrees at Highline Community College.

In 2005, the couple purchased a $575,000 five-bedroom home on Montevista, with a no-money-down mortgage from Countrywide Home Loans. The mortgage payments were about $3,000 a month, the couple said. Andrey worked for Countrywide as a loan officer and the couple said they could afford the mortgage.

In 2006, they refinanced with his employer and dropped their monthly payment to about $1,500. Under the financing terms, the couple was paying a small fraction of the interest owed. The unpaid portion was added to their principal balance.

"He certainly understood this mortgage and the implications of making minimum payments," said Rick Simon, spokesman for Bank of America, which has since acquired Countrywide.

Andrey, increasingly unhappy at Countrywide, left for two new jobs — one at a security firm, the other at a local supermarket. Marina worked with him. Last year, both the security firm and the grocery store cut the Samoylenkos' hours.

By January of this year, their monthly payment had jumped and they said they owed $640,000 on a home now worth about $400,000. The Legislature last year banned state-regulated lenders from offering these subprime "negatively amortizing" loans, and Countrywide also agreed to end the practice.

To prevent foreclosure on the Samoylenkos' home, a real-estate agent negotiated a "short sale" — a bank-approved sale for less than the amount owed. Despite paying tens of thousands of dollars toward their mortgage over the past four years, the couple will walk away with nothing.

The Samoylenkos, who shared their story reluctantly, said many of their neighbors could tell the same tale.

"Step by step, for 10 years, our dream was getting closer," said Marina. "Now, it's like someone is taking our dream away."

Lure of location

Debra Dahl, 48, grew up in the area and loved the idea of living near her parents. So, when she found a $324,000 Verona condo in 2006, she plunked down almost 50 percent to buy it, taking out a $181,000 loan from World Savings Bank.

According to her loan documents, World Savings didn't require proof of income and offered a "pick a pay" feature that let her make minimum payments for the first three years.

"I thought it was a great deal and a great investment," Dahl said.

But soon, Dahl faced challenges that put her home in jeopardy. To settle a legal dispute, she borrowed $30,000 from her equity. Then an illness limited her ability to work.

Afraid of falling behind on payments and knowing her interest rate was about to increase, she contacted the bank last year to ask about a loan modification. The bank said it couldn't talk to her until she was at least two months behind.

Dahl filed for bankruptcy last July, which forestalls foreclosure. Then she stopped making payments.

Now she's $6,000 in arrears. Earlier this year, when she called Wachovia, which acquired World Savings and her mortgage in 2006, she said the bank told her it can't legally discuss her loan unless she drops the bankruptcy. (Wachovia has since been acquired by Wells Fargo.)

"I have begged"

"It's been really awful," Dahl said. "I have tried to work with them. I have begged. They have done nothing."

Wachovia wouldn't specifically address Dahl's case, citing confidentiality. But a spokesman said that personal circumstances, much more than any type of loan, cause most foreclosures.

Countrywide spokesman Simon said loan modifications and short sales are complicated because the loans were sold to investors, who must agree to take a loss.

While some loans carried higher risks, he suggested that growing unemployment and a sharp drop in house prices have been the main causes of foreclosures.

But records do seem to show high-risk loans have played a big role in foreclosures. A Seattle Times analysis of the Verona neighborhoods found three out of four mortgages on houses in foreclosure were subprime adjustable-rate mortgages.

That follows a statewide pattern: Homes financed with such loans were more likely to end up in foreclosure, according to a recent Federal Reserve report.

For some buyers who put no money down, things worked out.

Michelle Henry, 53, and her husband were part of the early wave of homebuyers in Verona. He worked for the federal government and she worked as an accountant.

She remembers being directed to Countrywide and getting their new house with two no-documentation loans and nothing more than a $500 earnest-money check. The builder covered the closing costs.

"I was really surprised we were able to get a mortgage when we already had two other houses," Henry said. "Clearly we should not have qualified."

Luckily she and her husband sold their two other homes shortly after they moved into the new one and refinanced.

But she didn't understand how young families could afford to buy: "You see people in their mid-20s buying half-million dollar homes and you wonder, 'How in the world did they get the money to do that?' "

In Lakeland, so many for-sale signs dot the front yards that one neighborhood association is considering restricting them to the front windows of houses.

Those who need to sell compete against homes in foreclosure and subdivisions under construction. One new five-bedroom house nearby is selling for $384,000, hundreds of thousands less than what some paid just a year or two ago.

Dr. Malcolm Dejnozka, a medical executive, recently accepted a job in Southern California and listed his $345,000 Lakeland condominium for $320,000.

Dejnozka and his wife, Susan, moved last month. The condo still hasn't sold. They'll rent in California until it does.

"You just have to accept what losses are there sometimes and move on," he said.

Even residents not facing foreclosure worry about decreasing property values. Caroline Sorensen, 40, moved here with her husband, a Weyerhaeuser employee, and two children in 2006.

"We see the homes sitting vacant, the moving truck in the driveway, the lock box on the door," she said.

The local real-estate slowdown is affecting more than just homeowners: At Lakeland Hills East, a place with roads and utilities but no homes, construction has ceased. At Lakeland Hills Elementary, enrollment stopped growing for the first time this year.

And at nearby Lakeland Town Center, merchants say business is down sharply. The owner of a photography studio said he's asked for rent relief because business has been so slow.

Rhet Russell, owner of a Ben & Jerry's ice-cream store, said his business fell 28 percent in 2008 and is down 12 percent so far this year.

"The housing situation is brutal," Russell said. "I talk to people all the time who tell me, 'Things are bad, we're moving to an apartment.' "

Daily routine

Lakeland property manager Faires goes out daily to look for signs of newly abandoned houses. He hires crews to mow lawns, retrieve blown newspapers and collect plastic toys and trash left behind.

The first sign that a family is in trouble, he said, often is when monthly homeowners-association dues go unpaid. Other times, he'll find a house abandoned even though the owners were current on their dues.

The homeowners association is hit twice, once in lost payments that support maintenance of the neighborhood, and again when they have to clean up and protect the empty houses.

Unlike the banks, which send form letters warning that payment is late, Faires often personally collects dues from financially strapped families. The homeowners have bigger problems than paying their dues, he says, but he has to enforce the rules to be fair to other residents.

"This isn't what we signed up for, but I guess it's a sign of the times," Faires said.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

Lynn Thompson: 206-464-8305 or lthompson@seattletimes.com

Justin Mayo: 206-464-3669 or jmayo@seattletimes.com

Seattle Times researchers Miyoko Wolf and David Turim contributed to this report.