Spike in foreclosures reported here

By CONSTANCE SEE

Whitefish Pilot

A growing backlog of homes for sale in the Flathead Valley coupled with increases in foreclosures and bankruptcy filings have drawn the attention of professionals concerned about local real estate trends.

Northwest Montana Realtor Association president Ted Dykstra Jr. said he was surprised in March when the number of local homes in foreclosure increased from the typical 12-20 to as high as 80.

Annual foreclosure figures countywide had declined 34 percent from a high of 253 in 2002 to 166 in 2006, according to the Flathead County clerk and recorder's office. But on July 23, www.foreclosure.net listed 55 Flathead homes in foreclosure. A search of preforeclosures, foreclosures and bankruptcies showed 117 properties countywide.

"A lot of people have gotten themselves overextended," said Dykstra. "We've always been about six months to a year behind the rest of the nation. When 9/11 came, we were climbing in sales. Now that a recession or downturn in the market is here, we might be down for a little while, but it will probably turn around again by the end of the year."

He said the correction in the local real estate market began last March, traditionally the busiest month of the year for sales, and it's continuing.

"It came on in a slow spurt," said Dykstra. "I think it was due to the market being flooded with houses. Sales are just as strong this year, but there are more agents, more offices and everybody feels a little pinch. This March was the first quarter with a little bit of a downturn from the last six or eight years."

Whitefish appraiser Ellie Clark said she has noticed a large increase in real estate inventory.

"Historically, there's been a 12-month-or-less real estate inventory," Clark said. "Now we're facing 18 months or more, exceeding the past several years. I don't know that in Whitefish there is necessarily a slowing, but I don't think the sales volume is what it was."

Over the past few years we have seen in specific neighborhoods 15-30 percent annual increases for non-waterfront property in the Flathead Valley. We're not seeing that this year, she said.

"The preliminary data we have now is not indicating those appreciation ranges," Clark said. "It also seems as though the condo market is softening. There's a large inventory, and in the valley, we have an unprecedented number of new lots being created."

Leo King owns North Country Builders, in Whitefish. As a contractor with a wide niche, from multi-million dollar homes to small remodels, King said his business is solid, but it has slowed down a little lately.

"There's a lot of development going on, but whether or not they sell is another story," King said. "My feeling is there won't be as many buyers as there are lots being created, not by a long shot. It's a fact, there are a lot of for-sale signs on homes, and they're staying up a lot longer. Anybody can see it."

After riding a steady climb in development for about the last seven or eight years, now it's time to settle back and go a little slower, King said.

Whitefish Credit Union president Charlie Abell said his loan agents are still writing loans, but he's noticed homes over $300,000 staying on the market longer, beginning this past spring.

"The upper-end fancy places are still selling, and the lower-priced places are pretty active," Abell said. "It's the middle-upper level that is slow right now. We might be a little over-built in that area."

Dan Henderson, a Realtor with Realty Executives of Northwest Montana, said he's noticed "a definite downward price bias in the market."

Lisa Mack, of Whitefish, a mortgage broker for going-on-two decades, also watches the market carefully.

"Phones were ringing off the hooks for so many years with people buying here, but not anymore," said Mack. "That's why you're seeing 'for sale' signs on little houses. People are trying to get out from underneath, but it won't be as easy to flip them anymore. In my little neck of the world in Whitefish, with the quality of our high-end buyers, I don't see that many people in hot water with adjustables."

One recent Whitefish transplant who asked to remain anonymous has first-hand experience with adjustable rate mortgages, foreclosure and bankruptcy, experiencing what he called "the triple whammy."

Following a long illness, his father died. Then he was laid off from work in Colorado. Deciding to start fresh in Montana, he put his home up for sale and was shocked to realize he owed a lot more than it was currently worth. His whole world came crashing down.

"Never refinance your home," he said. "The interest rate was 5.3 percent when I bought my home. The first time it jumped, it was up to 10 percent. My monthly payments rose from $1,000 to $1,400 a month, and they changed the laws. A couple of years ago, you could do a clean wipe out with bankruptcy, but not anymore. I'm about to turn 57 and I've got nothing."

Borrowers with a limited or tainted credit history can turn to subprime lenders like Countrywide Financial Corp., known for their adjustable-rate mortgages. Countrywide's foreclosed properties have quadrupled from March through May of this year compared to the previous three months, according to the Orange County Register.

"Look at the newspaper any day of the week," said bankruptcy attorney Jim Cossitt, of Kalispell. "Countrywide is foreclosing left, right and sideways. Collection activity is up."

Cossitt said depressed values in the nationwide real estate market relate to the Flathead with an increase in bankruptcies and foreclosures. In the last six months, he's seen bankruptcies increase 15-30 percent. A new bankruptcy law that took effect October 2005, however, favors creditors not debtors, Cossitt said.

"The old law allowed people to get in and out of bankruptcy quickly," Cossitt said. "But the new bankruptcy law raised the bar. Consequently, people linger longer in what I call 'Debt Hell' — that place between the onset of serious financial difficulties, where creditors start calling, wages get garnished, lawsuits and foreclosures start, and the comprehensive resolution of those problems. I think foreclosure rates and bankruptcy filing will intensify. A lot of it is related to the real estate market."

In more than two decades helping clients through bankruptcies, Cossitt said he has personally known two cases where the debtor committed suicide.

"For a lot of these folks, its not just financial problems," Cossitt said. "It's a compendium of things — loss of job, medical problems, divorce, for example. We're all human, and at some point we reach the breaking point."

For more information about preventing foreclosure and bankruptcy options, contact a bankruptcy attorney or credit counseling service.