737 Drew StreetMinority and working-class Brooklyn neighborhoods like Bed-Stuy, Canarsie and East New York have been suffering from high concentrations of foreclosures since before 2007.
But recent statistics indicate that distress is creeping into gentrified neighborhoods like Williamsburg, Greenpoint, Fort Greene and Brooklyn Heights now, too.
The Williamsburg-Greenpoint area saw a 141 percent quarterly increase in foreclosure filings during the first three quarters of 2009 compared to 2008, while Fort Greene and Brooklyn Heights saw a 71 percent jump.
Brooklyn-based appraiser Sam Heskel counted 99 distressed real estate listings in Williamsburg, including 44 condominiums that are in “pre-foreclosure.”
“We’ve come across a fairly decent amount of short sales,” added David Maundrell, the founder of brokerage aptsandlofts.com, which specializes in Williamsburg. “Basically, you are talking about people who have bought within the past three or four years and the prices they paid are no longer doable.”
According to PropertyShark, the median sales price in Williamsburg-Greenpoint dropped 14 percent from its peak during the second quarter of 2007. But appraiser Jonathan Miller said the citywide drop has generally been much higher for new construction.
Several new condos in Williamsburg were listed for auction by PropertyShark last month, including a penthouse at Schaefer Landing North, which was bought for $1.4 million in 2007 and has $1 million left on its mortgage. Other new Williamsburg projects that had boom-time buyers in foreclosure last month included the Karl Fischer-designed Withers Place and the Mill Building, a restoration that features high-end finishes and rooftop cabanas.
Generally, investors and brokers say newly constructed condos are an unattractive purchase at a foreclosure auction because, in a declining market, the amount owed on the mortgage tends to exceed the unit’s present-day value.
And the overwhelming majority of properties that went to foreclosure auction in the borough didn’t sell. Of the 704 Brooklyn properties auctioned since 2007, only 19 percent were bid on by investors, according to PropertyShark. The rest went back to the bank as REOs. According to The Real Deal‘s analysis of RealtyTrac data, banks lost an average of 35 percent reselling these Brooklyn REO properties.
One deterrent for investors looking to buy property at foreclosure is tenants, who can be hard to evict, especially when they are rent controlled.
Adam, the auction investor, gave one example of an investor he knows who almost forked over a $30,000 deposit for a Park Slope co-op last month, but reneged after learning that a rent-controlled tenant currently leases the apartment from the owner. Those types of facts are never revealed at auction, but in this case, another resident of the building happened to be at the auction and told the investor.
“It’s actually easier to deal with squatters than it would be [to deal] with a former owner or tenant,” said Adam. “You make money [at auctions] by buying a lot and knowing there’s a certain percentage of deals that will fail. If you buy just one, you most certainly will lose money.”
Meanwhile, RealtyTrac found that Brooklyn had the eighth highest concentration of foreclosures statewide in November.
Ken MacBride, director of REO marketing for Fillmore Real Estate, said he has seen a lot of foreclosures caused by tenants who couldn’t pay the rent and who in turn left owners in the lurch. Many owner-occupied homes throughout Brooklyn have one or two additional units that are rented to cover the mortgage.
“Some people, sadly, will just base their purchase upon the tenants paying rent every month. And now if that tenant has an issue … the [owner] can’t meet their obligation at the end of the month,” he said.
Brooklyn’s cheapest 2009 foreclosure auctions
Auctions are not for amateurs, and even hard-core investors can get burned. Auctioneers don’t disclose additional liens on the property, which the buyer is obligated to pay before the title is transferred, and don’t reveal whether tenants (who are often difficult or impossible to remove) are living there. As a result, even the most research-savvy investors are sometimes surprised to learn there’s still an additional, say, $500,000 in debt on a property they thought they were getting for cheap. Borrowing activity, and the status of mortgages, can be particularly hard to track since the onset of rapid, computerized trading of mortgage-backed securities through a company called Mortgage Electronic Registration Systems, which holds title to 60 million mortgages nationwide, but often leaves a spotty paper trail. Additionally, not all of these sales are finalized, and judges can overturn a sale. The following properties were the three cheapest winning auction bids in Brooklyn for 2009 — as documented in person by PropertyShark, the real estate data aggregator Web site that investors commonly use to research properties and track foreclosures.
1. 737 Drew Street, Lindwood: $86,000
This dilapidated two-family home with boarded windows was purchased in 2006 for $585,000. Its primary mortgage of $506,186 was auctioned in November for $86,000, but the sale hasn’t been finalized and it’s unclear if there is a secondary mortgage left on the property, which a neighbor said is filled with water and raccoons.
2. 89 Hemlock Street, Cypress Hills: $109,000
This two-family detached house was purchased in 2006 for $625,000, with 100 percent financing, in a highly profitable flip — the prior owner, who owned the property for only one day, made $215,000 on the sale. The property’s $548,163 debt was auctioned in November for $109,000, but the sale hasn’t been finalized.
3. 77 A Stanhope Street, Bushwick: $151,000
This wood-frame house was purchased in 2006 for $340,000. Its $353,515 in remaining primary debt was auctioned for $151,000 in August.
