New York, NY —
Somewhere in the city, foreclosure auctions are going on almost every day. WNYC's Lisa Chow visited to see who’s going and whether they’re seeing any bargains.
REPORTER: If you believed the websites and the real estate seminars, getting a house at a foreclosure auction is a way to get rich, particularly if the housing market is climbing every year. If you’re an investor, you want to capitalize on the boom. If you just yearn to be a homeowner, you want to get into this crazy market somehow, someway. But these days, with all the news about the "credit crunch," the "subprime mortgage meltdown", and the "foreclosure crisis," can you get a good deal at the auction?
GREGG: I've been waiting about 6-7 years now for this day to happen.
REPORTER: Michael Gregg owns and rents out 35 apartments in the East Village and Washington Heights. Most of them he bought at public auction in foreclosure in the 1990s. He says in the last few years, there were so many bidders at the auctions, that prices were near market levels. But now with so many foreclosures, Gregg believes prices will fall.
GREGG: I can see the writing on the wall. This is exactly how it was in the late 80s. The debacle of the savings and loans. That's how I got my first coops. I bought a coop in an elevator building in Inwood for $6,250. And I bought one in the West Village on Bethune Street and I got that one for $45,000 and it had a working fireplace. So there were some deals to be had.
REPORTER: On this day, Gregg searches a website that lists all the tax lien foreclosures in New York.
GREGG: I think it's this Thursday. Kings county. Butler street. That one. I'm bidding on that one.
REPORTER: It's a three-story loft building in Brooklyn, surrounded by public housing and squeezed between the gentrifying neighborhoods of Boerum Hill and Carroll Gardens. The taxes haven’t been paid in over a year so it’s going up on the auction block. The upset price, or where the bidding will start, is low at $40,000. But Gregg’s real estate lawyer Lisa Urban says buying foreclosures can be risky.
URBAN: You don't get to do a home inspection. The homeowner or building owner is not going to let you in probably to look around so you don't really know what you're buying.
REPORTER: But she says … you can walk by and get a visual.
GREGG: It looks like they have some pretty good windows next to a little park.
REPORTER: On closer inspection, Gregg realizes the "park" is actually being used as a parking area for garbage trucks.
GREGG: I don't suggest you answer any questions if anyone comes out of the building.
REPORTER: The building has no mailboxes or intercom system. And the ringers don't appear to work. But Gregg notices through the second floor window a pair of mannequin heads. And there's a small metal sculpture leaning against the front of the building - signs that artists live here.
GREGG: I like it. You can't get your hopes up too much though. You have to go to dozens of these before you're the successful bidder and everything actually goes forward smoothly.
REPORTER: A day later, I find out the owner is an artist, and the auction sale has been canceled, because the artist paid his taxes. Gregg's on to the next property. Outside the courthouse in Brooklyn, I approach another bargain hunter.
BURNS: My name is Kevin Burns. I'm a technician. I work in the fuel and oil business.
REPORTER: He noticed a property in his neighborhood was gated up, it looked abandoned, so he came to the county clerk's office to check its status. He learned the owners were not in foreclosure - yet - that they were behind a few months in paying their taxes. Then the clerk suggested Burns check out the auction happening on the floor above.
BURNS: And I walked in, and the auction was taking place so I sat down, and everybody was quiet and so attentive.
REPORTER: Because they’re held in courthouses, I couldn't record the auctions.
BURNS: It got interesting and then exciting and kind of pulsating because the biddings that they were doing was like right up there as far as what the market is asking for.
REPORTER: Most of the properties being auctioned off were in Bushwick, Bed-Stuy and Flatbush. And the prices started between $450,000 and $750,000. These prices are set by the banks, based on what's still owed on the mortgage and any interest and fees. And because so many homeowners refinanced multiple times they owe every penny that the house is worth so the banks aren’t selling cheap. Even through the auctions are packed, observers say these days only one-tenth of the properties are actually bid on, and the vast majority reverts back to the bank.
MULZAC: Most of the properties are overpriced right now.
REPORTER: And that’s why Elias Mulzac is an investor turned spectator. But it’s also because it’s much harder to get financing.
MULZAC: It’s a domino effect. Right now everyone is hurting. The secondary buyer, the investor and the bank.
REPORTER: As investors wait out the market, Peggy Morris sits at her desk in Jamaica, Queens, and sifts through stacks and stacks of files. She's on the other end of the foreclosure process, representing homeowners.
MORRIS: My job is to keep them in the house and that's what I do.
REPORTER: She investigates cases of loan fraud and predatory lending. With enough documentation, she can pressure the banks to suspend the auction sale.
MORRIS: If the origination of the mortgage was fraudulent, then it should not be allowed to be sold. They shouldn't be able to benefit from their own poison deeds.
REPORTER: And she says if she can legally prove fraud, not only can she challenge the foreclosure, she can also fight the eviction of her clients after the sale, when the new owners want to move in. The files on her desk represent the 20 active cases she's fighting for people in foreclosure. And so Peggy Morris and these cases could pose one more risk for investors like Gregg.
GREGG: People have to really be careful that they get good information and that they know what they’re doing. You cannot just walk down 60 Centre Street and bid on auction at the rotunda if you haven’t really done your homework and due diligence.
REPORTER: And it’s this kind of due diligence, and care, that’s returning to a market that for years only saw one direction … up. For WNYC, I’m Lisa Chow.