Miami Herald: Government selling South Florida homes at fire-sale prices

The Miami Herald published this article on December 17, 2009

BY WILLIAM E. GIBSON

Sales are brisk for South Florida homes hawked by the federal government in the wake of the Great Recession.

Uncle Sam and two government-sponsored companies are unloading property, from waterside mansions to burned-out shells, often at fire-sale prices 10 percent to 20 percent below market value.

The wave of foreclosed property in distressed regions like South Florida has forced the government, along with Freddie Mac and Fannie Mae, to become major movers of real estate to clear a growing inventory of empty homes.

The Federal Deposit Insurance Corp., an agency set up during the Great Depression to protect depositors from bank failures, sold 1,706 properties across the country in the first nine months of this year, far more than in any year since 1996.

Fannie Mae and Freddie Mac, companies chartered by Congress to facilitate lending and keep credit flowing, together sold 138,259 homes nationwide during the first nine months of this year. That’s more than double the number during the same period last year.

Fannie Mae alone lists 4,352 homes currently for sale in Florida — 568 of them in Broward County, 267 in Miami-Dade County and 190 in Palm Beach County. To help keep property occupied, Fannie launched a separate program last month that allows owners who cannot pay their mortgages to pay rent to stay in their homes if they surrender their deeds to their lenders.

Under the Deed for Lease program, residents lose ownership but are spared mortgage debts, the trauma of foreclosure, a big hit on their credit rating and the disruption of being tossed onto the street. They can rent at market rates for a year while the lender or Fannie prepares to sell the property.

Some South Florida homeowners welcome government attempts to fill empty houses in neighborhoods faced with vandalism, deterioration and declining property values.

“Any opportunity to get people in these vacant houses is a step in the right direction,” said Daphne Grad, a homeowner in Lantana. “It creates less chance of unseemly people living in these houses. And it’s more likely to bring in people who mow the lawn and take care of them.

“It helps the neighborhood economically and emotionally.”

Real estate analysts say the government-related initiatives help individuals and prod the market but do not provide long-term solutions to South Florida’s housing crisis.

“This environment — whether you want to call it government intrusion or support — is going to be with us until the feds truly believe the industry can stand on its own,” said Mike Larson, a real estate analyst at Weiss Research in Jupiter.

Larson said discounts on foreclosed property may dampen market prices in the short run. “But the faster you clear that inventory overhang, the sooner you get to a recovery,” he said.

Critics say federal property sales help savvy investors find bargains but leave most consumers unaware of low-price deals.

“The problem is they haven’t done a good job of marketing it,” said Louis Spagnuolo, vice president for mortgage banking at WCS Lending in Boca Raton. “People [with moderate incomes] who could take advantage of these sales aren’t aware of them.”

The FDIC website http://www2.fdic.gov/drrore/index.asp lists real estate for sale by state. The site shows 1,580 listings nationwide and 210 in Florida.

They include a house in Fort Lauderdale listed at $495,000, a condo in Lauderhill at $76,230 and a house in Lake Worth at $220,000. Some property can be picked up for little more than the cost of transaction fees and the taxes owed.

“They sell pretty quickly if they are priced right,” said Raoul Lopez, an agent in Miami who sells FDIC houses and other foreclosed property in Broward and Palm Beach counties. “It’s not unusual to get multiple offers. Starting in October and November, we’ve seen a big volume of buyers. In the beginning, they are skeptical. But after hearing about good deals, they jump on the bandwagon.”

He said many houses were left in sad shape by former owners — full of junk with peeling paint and bad odors. The houses are cleaned up for sale, but buyers must accept them “as is.”

“I sold a single-family house for $6,500 in Hallandale that was burnt and had tax liens on it,” Lopez said. “I just sold another place, a waterfront home on a canal in Pompano, for about $400,000. Most places are more like $100,000 or $150,000.”

FDIC sales in Florida went from two during the first nine months of 2008 to 97 during the same period this year.

The agency has a long history of unloading troubled real estate during financial crises.

Bank failures after the last recession led to a spike of 11,109 FDIC sales nationwide in 1992. The number dwindled to six in 2006 before rising dramatically around the end of last year. The flood of sales may never reach the levels of the mid-1990s, partly because the current recession did not prompt as many bank failures as the last one.

Fannie Mae and Freddie Mac also have been saddled with large numbers of foreclosed homes.

These government-sponsored companies often buy mortgages from lenders to free them up to provide more loans to buyers. It keeps credit and capital flowing through the real estate market. As a result, Freddie and Fannie are stuck with thousands of troubled mortgages during an economic slump.

These days, they are selling foreclosed property almost as fast as they acquire it.

Fannie’s listings can be found online at http://www.homepath.com/. Freddie’s can be found at http://www.homesteps.com/hm01_1findahome.htm

Fannie sales nearly doubled, from 39,864 in the first nine months of 2008 to 89,691 during the same period this year. Freddie sales more than doubled, from 24,534 to 48,568.

“We try very hard to avoid foreclosure. But sometimes people can’t afford the property,” said Freddie spokesman Brad German. “As the recession plays out, more and more people have fallen behind.”

As a result, the government and related companies will be reluctant but prominent players in Florida real estate well into the new year and perhaps beyond.

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