Buyers' Revenge: Trash the House After Foreclosure
Thursday March 27, 11:32 pm ET
By Michael M. Phillips WSJ
Mr. Buompensiero, a gray-bearded inspector for REO Asset Services-1st Realty Group, rang the bell. When no one answered, he taped a letter to the door offering the occupants $1,000 to move out. The catch: They won't get a cent if they trash the house before they leave.
"If it was me, I'd take the money," Mr. Buompensiero said as he drove away. Either way, they're "going to get thrown out in a couple of weeks."
The stucco subdivisions of Las Vegas are caught up in the nation's foreclosure crisis. These days, bankers and mortgage companies often find that by the time they get the keys back, embittered homeowners have stripped out appliances, punched holes in walls, dumped paint on carpets and, as a parting gift, locked their pets inside to wreak further havoc. Real-estate agents estimate that about half of foreclosed properties to be sold by mortgage companies nationwide have "substantial" damage, according to a new survey by Campbell Communications, a marketing and research firm based in Washington, D.C.
The most practical way to ensure the houses are returned in decent shape, lenders and their agents say, is to pay homeowners hundreds or even thousands of dollars to put their anger in escrow and leave quietly. A ransom? A bribe? "Yeah, somewhat," says John Carver, an agent specializing in foreclosed homes for Prudential Americana Group in Las Vegas. But "you lose a house, and then you get some financial help -- it's a good thing...It's a win-win for both parties."
No one tracks how frequently such payoffs are made. In Las Vegas, agents hired by the banks to handle foreclosed properties say the "cash for keys" approach, as it's known in the industry, is a regular part of the job. After all, formal eviction proceedings can take months and cost potentially much more than a payoff.
Analysts predict that as many as two million homeowners could enter foreclosure this year, caught by a slowing economy, falling house prices and, in many cases, adjustable mortgages with rates rising from high to higher. In Las Vegas, 1.9% of homes in the Las Vegas area were in the foreclosure process in January, almost triple the rate of a year earlier, according to First American CoreLogic Inc., a Santa Ana, Calif., real-estate and mortgage data company.
Each day, auctioneers offer 150 to 200 properties for sale in the small lobby of the Nevada Legal News -- a high-speed inventory of dreams forfeited on Lucky Boy Drive, Jackpot Circle and other Las Vegas addresses. Often in attendance is Eddie Haddad, a 36-year-old who cut his real-estate teeth buying and restoring foreclosed properties. During the boom, he tried developing a 38-story tower of lofts for the Las Vegas art set. But the project stalled, and a few weeks ago, Mr. Haddad again found himself shopping for bargains at the foreclosure auction.
"We expect them to be trashed," Mr. Haddad says of the homes he buys. He prefers to call in the sheriff when he needs to evict hold-out occupants; for him, paying cash is a "last resort."
About 95% of the auctioned properties, however, go unsold and revert to banks eager to get the properties off their books. Some owners just walk away peacefully. But agents say a significant number take what they can carry and take revenge on the rest.
"I'm one of the thousands of people in town in foreclosure so I'd like to get as much as possible for the items," said one recent Las Vegas online ad offering a double wall oven, dishwasher and built-in microwave, all of which, in most cases, legally belong to the bank. Rules vary by state and county, but in Las Vegas, banks typically own everything that is built into a foreclosed home.
"When you're losing your dream, and you're paying all this money to it...and you're hoping that it's going to go up, and you're going to make 100 grand like everybody else did, and it doesn't happen -- you know, people get upset," says Joe Kraemer, a broker with Century 21 Advantage Gold who deals in foreclosed homes.
The evidence of that discontent was all over the carpet when Mr. Carver, of Prudential Americana Group, first visited a foreclosed house on Perfect Parsley Street. It didn't look like the usual waste from an abandoned dog or cat. "I would say 'ferret' from the way it's all along the baseboard, the way an animal would scurry," he said recently, leafing through photos of his most-memorable vandalized properties.
The original owner bought the house new in 2003 for $131,000. A year ago, Mr. Carver says, it could have fetched a quarter of a million. But the market fell fast and the owner, for unknown reasons, fell delinquent. The bank hired Mr. Carver and Leslie Carver, his wife and business partner, to list it, but chose not to refurbish before selling. The house sold for $170,000 in November, ferret scat included.
Cruising the wreckage of the Las Vegas property market every day in his silver Cadillac Escalade, the 38-year-old Mr. Carver has developed a connoisseur's eye for pointless destruction. Vandals who break into empty houses often smash windows and paint graffiti on the walls, he says. But it takes an enraged, delinquent mortgagor to indulge in a frenzy of destruction, such as the one that took place recently in a three-bedroom, 1,949-square-foot house in a residential and industrial area northeast of the casinos on the Strip.
Light switches, outlet covers and thermostats were smashed. There was what looked to be crowbar damage along the staircase. A large pool of paint had hardened on the living-room carpet. It appeared that someone had dripped motor oil in a trail that wound its way through every carpeted room. The appliances were gone, as were most light fixtures. A cabinet door had been removed and left soaking in a full tub of water. Not a wall was left without a hole the diameter of a closet rod, including the pink child's room once carefully decorated with a floral wallpaper stripe. It's damage that Mr. Carver described as "a vengeance-type thing."
"Some people have issues, and need to do what they have to do, I guess," he said.
The former owners, who couldn't be located, paid $261,892 for the house when it was new in March 2006, borrowing $209,513 in their first mortgage, according to public records. Now it's listed for $149,000 -- as is.
Banks rarely pursue charges against destructive homeowners; it's not worth the cost and trouble. Instead, they try to prevent home rage by giving agents such as Mr. Carver blanket authorization to offer at least $300 to occupants to get them to leave peacefully.
Late last month, Mr. Carver left a letter on the door of a house with a red-tiled roof in Henderson, abutting Las Vegas. "I may be able to offer you cash to vacate the property," the note said.
The owner, a 43-year-old man with two children who spoke on the condition that his name not be used, says he bought the property in 1993 for $140,000. Three years ago, he says he had the house appraised for $440,000 and took out a $207,000 home-equity loan to pay off credit-card bills and buy his wife a new van. His initial payments were an affordable $1,800 a month.
He fell behind, however, after he went through a divorce and his landscaping business faltered, just as his interest rate was rising. The man worked out a payment plan with the bank and borrowed heavily from his father, but, including penalties, his monthly payments rose to $4,000, he says. After two months, he says, he ran out of money, and the bank foreclosed.
He called Mr. Carver after receiving the cash-for-keys note, but was left cold by the bank's initial $500 offer to leave the house soon, intact and broom-swept. "If I stay here it will cost them a lot more money," both men remember the former owner saying.
The man says he was just pointing out that eviction is expensive for the bank and says he had no intention of damaging the house. But he had "pushed the right buttons" for Mr. Carver. "He didn't actually come out and threaten the property in any way," Mr. Carver says. "But I assumed that he probably wouldn't be too happy if he got evicted and locked out."
Mr. Carver consulted with the bank and upped the offer to $2,800.
"Better than nothing," the owner responded.
Last week, Mr. Carver went to the house, found it clean and whole, and handed the man a check. "Everybody walks away somewhat happy," Mr. Carver said. "I guess."
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