Fargo-Moorhead area sees flurry of foreclosures
Cass and Clay counties held a record or near-record number of mortgage foreclosure sales in 2008, and local observers say the outlook isn't much better for 2009.
The numbers suggest that while the mortgage crisis may not have hit the Fargo-Moorhead area as hard as other parts of the country, high-risk mortgages and hard economic times are taking a toll on local property owners.
"I think what we're seeing now is kind of the peak of the disaster," said Lt. Bruce Fleury, who oversees foreclosures for the Clay County Sheriff's Office.
Clay County held 76 sales last year, breaking the record of 70 sales set in 2007.
Cass County held 134 foreclosure sales last year, the same number as in 1989 and 14 less than in 1991, when high interest rates and an economic downtown led to many foreclosures.
As of Wednesday, Cass County had held three sales this year, with 34 more slated through Feb. 18, said Cindy Zetocha, principal clerk in the civil division of the Cass County Sheriff's Office.
While some of those sales will be canceled or postponed, "I think this is going to be a way worse year," she said.
Clay County had 27 sales scheduled through February as of Wednesday.
Fleury and officials in other counties said it's not just homeowners who are affected.
Abandoned homes can devalue nearby property, resulting in less tax revenue for local governments, and are also susceptible to vandalism and squatters or drug dealers taking up residence.
Foreclosures also can add to the number of homeless, putting a strain on social services.
"There's a lot of concern beyond just the mortgage," Fleury said.
Foreclosure records don't list why the property owners couldn't make their mortgage payments. Those who work with the process say there are a number of reasons.
Poor financial decisions are the primary reason, said Clay County Deputy Dave Johnson, who conducts the sales.
In other cases, homeowners may lose their jobs or suffer a traumatic event, such as a severe illness or death in the family, that stretches finances too thin, he said.
Blaise Johnson, director of lending for Gate City Bank, said divorce is the No. 1 cause of foreclosures that the bank sees, usually because the couple needs two incomes to afford the house payment.
Homebuyers who entered into subprime loans and later found they couldn't afford the payment after the interest rate was adjusted also have played a role in local foreclosures, though not to the extent they have in other parts of the nation, Blaise Johnson said.
"We've talked to a few people that have come in to refinance their loan and have found out that they owe more than the house is actually worth, and that's difficult," he said. "And that was caused by these subprime loans or hybrid mortgages that they've referred to. So, I think that's been the cause of some of it."
Easier to walk away?
Paul Hubbard, a foreclosure attorney since 1973, said he's been unable to pinpoint any single factor responsible for the rise in foreclosures.
"I think people are just having a tough time keeping jobs and making ends meet. I also think people got in over their heads to begin with," he said.
Interest-only mortgages have made it easier for some owners to walk away from their homes, said Hubbard, of Conmy Feste Ltd. of Fargo.
"When people can do 100 percent financing, they don't have the same motivation to struggle to keep the property as those who've got some equity in the property," he said.
A drop in market values also may be spurring more foreclosures, Hubbard said.
The average sale price of an existing single-family home last year in the Fargo-Moorhead area was $153,536, down about $2,700 from 2007, according to figures released Friday by the F-M Area Association of Realtors.
When a buyer gets 100 percent financing on a home and its market value drops below the amount of debt against it, "they'll just take a hike, because they don't want to subsidize the sale," Hubbard said.
Hubbard and Blaise Johnson both said local borrowers and lenders tend to be more fiscally conservative and responsible than their counterparts in other areas, which has softened the blow from the national mortgage crisis.
Bad sign for economy
Banks still have to pay property taxes on foreclosed homes, so local governments don't lose that revenue.
Cass County hasn't experienced any side effects, such as greater demand for social services, from the rise in foreclosures, county Auditor Mike Montplaisir said. In fact, the county has fewer properties on its delinquent taxes list than in past years, he said.
Still, foreclosures are bad "because it shows an underlying weakness in the economy," Montplaisir said.
The appraised values assigned to homes by cities and counties are based not only on the age, size and condition of the home, but also on the prices being paid for other homes in that neighborhood and community.
However, local governments typically lag behind in setting property values for tax purposes, because they take into account sale prices for the entire previous year, Montplaisir said.
"What we are getting calls on is people saying, 'Gee, you know, you raised the value on my house this last year. Haven't you read the paper? Housing values are dropping.' Well, that's true in the rest of the country, or at least in parts of the rest of the country, but it's not necessarily true here," he said.
The Minnesota Legislature is expected to tackle foreclosures again this session.
Rep. Jim Davnie, DFL-Minneapolis, said he plans to reintroduce a bill today that would delay foreclosures up to a year for certain homeowners - giving them time to work out a new mortgage plan that meets federal affordability guidelines. The Legislature passed a similar bill last year, but it was vetoed by Gov. Tim Pawlenty.
The Minnesota Coalition for a People's Bailout is calling for a moratorium on home foreclosures and evictions from foreclosures.
Homeowners don't automatically lose their property when it goes through a foreclosure sale.
Minnesota provides a six-month redemption period during which the owner can pay to get the property back from the bank or a third-party buyer. North Dakota generally has a redemption period of at least 60 days. Last year, third-party sales accounted for 21 of Cass County's 134 foreclosure sales.
Blaise Johnson said the area could see the rise in foreclosures continue if job layoffs increase. Last week, wind tower manufacturer DMI Industries cut 60 jobs at its West Fargo plant.
"That, I think, is our biggest risk right now," he said.
Fargo-Moorhead home sales, prices down in 2008
The average sale price of existing single-family homes in the Fargo-Moorhead area dropped in 2008 for the first time in 14 years, but the head of the local Realtors association says the market is still in good shape compared with many areas of the country.
The average sale price fell about 1.7 percent, from $156,200 in 2007 to $153,536 last year, said Scott Breidenbach, president of the F-M Area Association of Realtors.
Breidenbach said he's happy with the numbers, considering sale prices in some coastal areas plunged 40 percent last year. The Rocky Mountain News reported Wednesday that Denver-area home sale prices plunged a record 13 percent in 2008.
The last time the average F-M sale price dropped was a 1 percent decrease in 1994.
"The bottom line is that people have to look beyond one year," Breidenbach said.
Sales of all residential homes in the F-M listing area, including condos and twinhomes, also were down 13 percent last year, following a 4.1 percent increase from 2006 to 2007. The number of closed sales dropped from 2,707 in 2007 to 2,352 last year.
Breidenbach is optimistic about the outlook for 2009. Interest rates are low, and a lot of Realtors are busier now than they were in all of November or December, he said.
"I think people are looking to see what's happening with the new leadership, and hopefully they're going to increase their ... confidence in the economy," he said.