Sometimes, fewer foreclosures are bad for business

CAPE CORAL, Fla. — Across the nation, troubled homeowners have cheered the news that some banks are slowing the foreclosure process to review questionable documents. Then there are places like Lee County, Fla., where not everyone is applauding.

Foreclosures became so common here that they spawned a cottage industry. Real-estate agents had homes to sell, landscapers and plumbers had work to do, and furniture stores and restaurants benefited, too.

So in October, when some big banks suspended foreclosures in states like Florida where lenders need a judge's approval to foreclose, some local businesses became alarmed. Foreclosures had become good for business.

The situation created a Catch-22 for Lee County. Hundreds of homes were seized a month, some possibly with flawed foreclosure documents. A slowing of foreclosures helps guard against wrongful evictions. Yet until the resale of foreclosed homes picks up, many local businesses may struggle.

Jason Ruggles, a foreman for B. Perez Landscaping in the Lee County city of Fort Myers, said he has cleaned and cultivated greenery at only a handful of foreclosed homes for banks and new owners in the past month. Without a pipeline of foreclosed homes with new owners, business has all but halted.

"Now, we have to search for work," he said. "Sometimes we have to underbid for a job, and we're doing fliers now. We don't like to look needy, but we have to do something."

In other places clobbered by the real-estate bust — Las Vegas, parts of Arizona — foreclosure sales have become a rare bright spot in otherwise bleak economies. Now, as the pace of foreclosures slows, many local economies could, too.

In October, the number of U.S. homes repossessed by lenders fell 9 percent — the sharpest monthly drop this year, according to RealtyTrac.

The slowdown occurred as lenders suspended tens of thousands of foreclosures after allegations that bank employees signed but didn't read foreclosure paperwork. In Lee County, foreclosure filings last month numbered 565, the fewest in any month since 2007.

Some big lenders say they're resuming foreclosures, though at a more measured pace, to review documents more closely.

One, Bank of America, has restarted the foreclosure process in about half the country, including Florida, though its nationwide halt in foreclosure-home sales remains in place. Another, Ally Financial's GMAC unit, is resuming some foreclosure actions, too.

The number of homes lost to foreclosure should eventually begin rising again. But with some large lenders like Bank of America halting foreclosure sales, purchases will remain sluggish. And attorneys general in Florida and other states argue that the systems the banks used to process foreclosures likely remain flawed. Their investigations could further slow the pace of foreclosures.

Peter Murphy, a Florida real-estate consultant, is among those who worry about a slowdown in foreclosures in areas like Lee County. He argues that keeping foreclosures going, and thereby clearing a vast supply of vacant homes, is necessary to stabilize the local real-estate market.

"We are not going to see any kind of recovery until this mess resolves," Murphy said.

Consider how the local economy depends on people like Gene Richards, of Burlington, Vt., who wants to invest in a $30,000 foreclosed condo in Lee County. Richards is still waiting for the foreclosure sale to be approved.

If he and other would-be buyers of foreclosed homes could complete their purchases, they could send money flowing through Lee County. Richards planned, for example, to spend thousands on renovations. That money would have helped support the jobs of a plumber, electrician and carpet installer.

He also intended to buy new beds and sofas at area stores. For now, those retailers won't get that money. Neither will the management company that would benefit from his plan to rent the condo to seasonal residents — people who would shop at stores and eat in restaurants in Lee County.

Richards says he isn't sure why the lender has delayed the sale. He says he's received scant information about the problem. But if the situation isn't resolved soon, he says he may dump the deal and find another property to buy.

"The domino effect is huge," said Marc Joseph, a real-estate agent who used to run bus and boat tours of foreclosed homes — until the document crisis halted them. "It's going to hurt every trade business who would potentially make money off that foreclosed home."

Joseph worries that a slowdown in foreclosures means a smaller supply of homes to show. And with the upcoming "snowbird" season, when retirees come South for the winter, Richards wants to give potential buyers ample choices.

Flanked by the Gulf of Mexico's sands on one side and southwest Florida swampland on the other, Lee County is home to 440,000 people. It grew boundlessly over the past 20 years, driven by housing developments and fueled by the national real-estate mania. But Lee County had no growth industry to speak of. Tourism and construction mainly drove the economy.

Then the housing bust upended everything. Lee County had the highest proportion of homeowners in default in Florida. Even now, "For Sale" signs crowd streets lined with boarded-up stucco homes. Furniture, dumped after evictions, lies curbside.

Lee was the first county to implement Florida's so-called "rocket docket": a daily court hearing to clear the backlog of foreclosure cases. Judges were known to plow through hundreds of cases a day, to the consternation of defense attorneys and homeowners.

"There's a lot of mistakes being made and a lot of shortcuts being taken," said Kevin Jursinski, a homeowners' lawyer in Fort Myers. "There are 100 to 400 cases in front of the same judge in the same day. That's a system that really creates a lot of strain. How can you read those files?"

Across Florida in September, nearly 373,000 homes were in some state of foreclosure, according to RealtyTrac. It was the nation's second-highest rate, behind Nevada.

Charlie Green, the Lee County clerk of court, is still waiting to see how the freeze will affect both his office and the county in general. Green said banks are still halting foreclosure sales. More than a third are being canceled each day, he said.

Overall, circuit civil-case filings — and fees banks pay to sell foreclosed homes — are down. Green said he had to lay off three temporary workers and ask regular employees to start using their vacation before the end of the year.

"If this continues, we will respond by contracting again and letting more temps go," he said. "We're not moving the number of properties through. We don't have the caseload that we just had three months ago."