The Next Wave

Some experts now anticipate a second wave of foreclosures in Connecticut, especially if the job market continues to languish.

 

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In the wake of the greatest wave of home foreclosures in America since the Depression, and despite recent passage of a federal anti-foreclosure effort aimed at helping distressed homeowners, the forecast for Connecticut remains stormy—and the effect still to come on the Connecticut economy could be profound.

With a 22 percent jump in foreclosure filings in March, Connecticut now rates just a little below the national average, according to RealtyTrac, an online foreclosure database. “Connecticut has never been one of the top-tier foreclosure spots,” says Daren Blomquist, marketing and communications manager at RealtyTrac. “But if you look at the general trend over the last three or four years, it’s definitely been upward.”

Now, with the economy only slowly reviving, job losses continuing and homeowners running out of savings and credit, another wave appears headed our way.  

Foreclosure is a wrenching experience. Given often torturous negotiations with banks and protracted dealings with attorneys, housing advocates and court-appointed mediators, the process can take as long as a year and only rarely do owners end up with their homes.

“It’s enormously stressful,” says Jeff Gentes, the foreclosure attorney with the Connecticut Fair Housing Center in Hartford. “Every day homeowners are in the house, they don’t know what’s going to happen next. They’re constantly thrown twists and turns by people who see them as nothing more than a delinquent account.”

Foreclosure proceedings typically begin once the owner of a home falls three months behind on mortgage payments. The bank or lender then files a lawsuit in court, which gives the owner an additional 30 days. If payment isn’t made by the end of that period, a judgment is made, the owner is evicted and, in most states, the property is sold through what is called a “foreclosure by sale”—a forced sale at public auction, with the proceeds going toward the mortgage debt.

Connecticut is one of the two states, along with Vermont, that permit “strict foreclosure.” This gives homeowners a chance to clear their debt and sets a “law day”—the date on which the owner’s right to a property is irretrievably lost. At that point, the title to a house reverts to the mortgage lender, which can sell it through a realtor. If the property is “underwater,” meaning the debt is greater than its market value, and the sale price doesn’t recoup the amount owed, the owner not only loses the house but can be liable for the difference and also suffer a loss of credit.

While the foreclosure crisis has been felt everywhere here—from cities like Hartford, New Haven, Bridgeport and New London to small towns like Sterling and Killingly and, in recent months, the relatively affluent suburbs—nowhere is it more acute than in Waterbury. And what is happening in that city could be replayed, to varying degrees in the coming months, elsewhere in the state.

It is a windy, rainy Monday, and the calendar outside courtroom 5, foreclosure court, in Waterbury Superior Court runs on and on: 111 cases, all but a handful of the lawsuits brought by major banks like Deutsche Bank, J.P. Morgan Chase and Wells Fargo, plus a raft of mortgage companies with comforting names—Financial Freedom, Household Realty, Everhome Mortgage.

When the courtroom doors open at 9 a.m., a phalanx of bank lawyers in pin-striped suits, lugging briefcases and files or wheeling cartons of files on airport luggage carts, quickly fills the front rows facing the judge. A sprinkling of defendants in tired-looking suits or jeans, sneakers and sweatshirts sit by themselves in the rear.

There aren’t many lawyers on hand to represent the homeowners. The majority of the city’s residents whose mortgages are in default have either placed their fate in the hands of the lenders and their attorneys or given up hope.

Last year, the town clerk’s office in Waterbury recorded 1,412 foreclosure filings, the highest in the state and, with one in every 335 housing units affected, almost twice the state average.

Part of the city’s housing woes can be traced to a real estate lift in the early 2000s. At that time, investors from out of town, even out of state, who were drawn to the city’s relatively low prices bought up multifamily homes at a dizzying rate.

“Things went totally out of control,” says Denise Pappas of Denise Pappas Realty, who has sold real estate in the Greater Waterbury area for 25 years. “We got a great influx of investors from New York and New Jersey, many of whom flipped the properties, almost doubling their investments. Others held on for the rents, thinking they were going to get $1,000 and $1,200 a month.” At the same time, prices on single-family houses rose quickly for a short period, trapping homeowners in mortgages they really couldn’t afford.

 

 

The Next Wave

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