Greg Johnson’s construction business was booming. He was building houses, selling them and turning a high profit.
Life was good until the nationwide real estate market downturn hit the San Juan Islands.
“I was out of sync with the gyrations of the market,” said Johnson (not his real name). “As the economic tidal wave crested in Puget Sound, I realized there was no way we were getting out of this in 12 months. This was a five- or six-year thing.”
A review of the Islands’ Sounder and Journal of the San Juans legal notices for the past two years shows the number of bank-owned foreclosures at a higher number this year than last. Local realtors agree that there are more foreclosures hitting the market this year.
A story of foreclosure
Jennifer Wallace, assistant manager of Washington Federal in Eastsound, said the typical homeowner she sees experiencing trouble with mortgage payments is someone whose income is directly related to the economy, like a realtor or builder.
“You can’t generalize it, but that’s what we’ve seen up here,” she said. “People related to the housing market were hit the hardest.”
Johnson knows that better than most.
Since the mid-1990s, the long-time Orcas resident had been running a successful construction business as well as building spec homes and quickly selling them. In 2004, he built a house on Orcas, found renters, and then moved to Arizona for a new job. His renters were able to pay until serious medical problems caused them to miss several months’ rent.
“I left Tucson in 2006, right when the mortgage crisis had hit there,” he said. “We bought a house down there, and we were actually able to turn $50,000 in profit on the heels of the disaster. I was extremely lucky. I got a little too big for my britches when I got back to Orcas. Instead of kicking my renters out, I bought another piece of land and built another house to live in.”
In addition to carrying mortgages on two homes, Johnson’s construction business slowed. He went from making $10,000 a month to around $5,000. He put both homes on the market and hoped for the best.
“I kept relying on the former market to turn around,” he said. “I had not expected the national downfall. At the end of it all, I had close friends and attorneys whose opinions I respect, telling me that I just had to turn my back on these properties. Even with any money I might have gained down the road, I would do so much better starting at zero.”
Johnson says he negotiated with the banks for a while, but didn’t qualify for many of the deals.
“Both of the banks offered me suspended payment options, where the interest would accrue but the payments were suspended,” he said. “But the hitch in the giddy-up is that I was self-employed. I couldn’t tell them what my income would be. The banks told me to lie and just tell them a number. That was shocking.”
Johnson lost his rental house in 2009. His second property foreclosed in 2010, at which point he also filed for bankruptcy. He soon moved off the island.
“I’m the poster child for this not working out,” he said. “I was a little ashamed of all of it. But I had older, wiser people telling me: this was just business. I had one too many houses. If I had just stayed with the one house and kicked the renters out, this would never have been an issue.”
He says the most difficult part of the foreclosure process was watching houses he had built be turned over to someone else.
Local foreclosure numbers and the effect on real estate sales
According to Sounder and Journal legal notices, there were 56 foreclosures in 2010: 21 on San Juan; 25 on Orcas; and 10 on Lopez.
The 2011 foreclosure tally is already at 51. The breakdown is San Juan: 27; Orcas: 17; Lopez: 5; Crane: 1; Blakely: 1.
In the past two years, the county has only handled one foreclosure that was a result of unpaid taxes.
In neighboring Skagit County, there were 841 Notices of Trustee’s Sale in 2010 and 360 to date in 2011.
“Percentage-wise, I don’t think we are going to see as many as other markets,” said real estate agent Mariah Buck, who manages the Windermere office on Orcas. “Because our community is so small, any time you see just a few foreclosed homes, you feel the impact. Everything seems to be magnified.”
Buck says she has seen a broad spectrum of foreclosed homes, ranging from million dollar properties to lower-end houses.
Mary Clure, managing broker of Orcas Island Realty, gave the following numbers: in 2010 there were a total of 50 home/condo sales on Orcas and six were bank-owned. In 2011 to date, there have been 26 closings, eight of which were bank-owned. Of the 200 Orcas homes and condos currently on the market, six are bank-owned.
Clure says the increase in foreclosures has put downward financial pressure on other listings.
“The good news is that we aren’t too far off in volume of closings, even though the dollar volume is way off,” Clure said. “What is selling has been steeply discounted because these bank sales are so far below what the market was a few years ago. I think when we clear these foreclosure listings, then we’ll see some stabilizing on the market. But it will be a while. Buyers are wanting deals. They want to know that they are buying at the bottom of the market.”
John Erly of Cherie L. Lindholm Real Estate says while he has certainly seen more foreclosures, “the real indicator is the number of people who are behind on their payments.”
Buck told the Sounder she has seen some local lenders work with homeowners to stay in their houses.
“The lenders who have these foreclosures are being very careful not to flood our market with an abundance of foreclosed properties,” she said. “We are seeing more foreclosures on the market than we have before, and there are likely going to be more in the next six months to a year.”
Candace Bodenhamer, branch manager of Key Bank in Eastsound, says local branches do not handle foreclosures, and she is not aware of any on Orcas in recent years.
Wallace says Washington Federal has definitely taken possession of more houses on Orcas in the last two years, but it tries to keep as many homeowners afloat as possible.
“WA Fed has created a mortgage resource center that deals with folks in trouble,” Wallace said. “Homeowners state their position and what kind of help they need. We’ve granted lots of relief, whether it’s interest-only payments or suspended payments. We’ve been really creative about how to help people stay in their homes. We don’t want the houses back; we want people to stay in them.”
The bank has seen a decrease in loans since the recession began, but it’s beginning to look a little brighter.
“Purchase and construction loans are definitely down, but they are picking up,” Wallace said. “We had a lot of refinancing activity with interest rates so low. This year we’ve seen an increase in people getting loans for purchasing. It’s slowly coming back.”
County-wide, Islanders Bank has had one foreclosure in 2010 and four in 2011. Phyllis Davis, administrator for all Islanders Bank branches, says many of the local foreclosures are happening through off-island banks.
“Yes, we have experienced an increase in foreclosures in the last few years, but prior to that we only had two foreclosures in 30 years,” she said. “We have not had the majority of foreclosures in the county. They are coming from other banks … We are able to get customers in earlier and see if we can resolve these issues before it gets to that point.
