Cleaning Up Foreclosed Homes After the Mortgage Crisis

Large signs are now planted along the roadside, advertising housing deals such as "Inventory Clearance!" and "Closeout Specials."

One subdivision in the area that was hit particularly hard is Bear Creek Meadows. The neighborhood was developed about five years ago, with houses priced in the $120,000 range and marketed to first-time buyers.

There's little variation in the construction, apart from the color of the brick. Most homes are lined with khaki-colored siding. On almost every street, with names such as River Bottom Road and Cannon Fire Drive, properties are now vacant.

Bear Creek Meadows has also suffered because developers sold packages of homes to buyers who planned to rent out the properties.

"The builders that don't care about the integrity of the neighborhood, they were selling to pseudo-investors," Shehaj says. "They hit hard times, and this is what ­happens."

Last year, there were 11,766 foreclosures in Harris County, up from 9,429 in 2006. (The numbers still fall far behind the 30,000 foreclosures the county faced in 1987, following the oil crash and savings and loan collapse.)

Ralph Murdock, who collects data for the Woodlands-based Foreclosures Information & Listing Service, believes the number of area foreclosures will continue to rise.

"Many of those adjustable rate mortgages were set to reset early in this year," Murdock says. "I fully expect 2008 will be bigger than 2007."

Another problem is that foreclosed properties are becoming harder to sell. Mortgage companies have drawn back on lending, especially for investors who were rushing to the city to find good deals on foreclosed homes.

A year ago, Shehaj says, people as far away as Australia were contacting him looking for foreclosed properties. Only the most experienced investors are calling him now.

"The good foreclosures still don't stay on the market but two or three days," ­Shehaj says, "but 90 percent of the properties that come onto the market are not good deals."

Banks are also spending more money on homes to make them more attractive to buyers. Some of the largest lenders, including Fannie Mae, have started repairing, repainting and recarpeting foreclosed properties.

"It used to be 'cut your losses, and sell it as it is,'" Lang says. "But there's so much on the market now...you're going to have to make the pig look nicer."
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Steven Zapata thought his company could make some quick cash cleaning foreclosed homes.

His company, Nexus Disposal, was already in the trash business, renting out large trash bins for construction sites and placing smaller bins at businesses throughout the city.

Zapata had bought a foreclosed home himself, and the property was in good shape. He thought cleaning foreclosures would be a breeze.

He accepted about 25 jobs in a couple months, charging his normal rate for the trash bin plus $100 per hour for the labor.

None of the homes were in terrible condition, Zapata says. A pile of dirty underwear was about the worst he came across. Most properties took less than three hours to finish.

Trouble was, the banks wouldn't pay. When the lenders were late on his invoices, Zapata was told that payment was being held until the properties were resold.

"These are banks...and it's tough getting paid," Zapata says. "It's opened my eyes. I guess everyone is hurting."

Zapata still receives calls to clean foreclosed homes, but his new policy is not to accept the work unless he's paid in advance. Few banks have been willing to accept that deal.

Most mortgage lenders are ill-equipped to be in the business of reselling foreclosed homes. Rob Macioce, a banker with the Houston branch of SWBC Mortgage, says most firms, especially the smaller lenders, want nothing to do with it.

"We don't have the staff to do that, and it's not our expertise," Macioce says.

Macioce's previous company — Home Loan Corp. — sold its area branches to SWBC in February after some of the shakier mortgages the company had on its books became unattractive to Wall Street investors. When the mortgages couldn't be resold, the company couldn't survive.

"For a small company, if you got one or two loans back a year, and all of sudden you're getting ten or 20 or 40, you're either out of business or you're just trying to get the [servicing firm] to handle that for you," Macioce says.

But a mortgage is commonly sold to several different servicing firms in a short time, and details on cleaning and reconditioning a foreclosed property are often not included in the contract.

Macioce says those details can sometimes be negotiated after the fact. If not, the lender will then pass the job to a realtor. And there are plenty of realtors in the area who deal solely in foreclosures.

Kim Clay, who works for Signature Real Estate, is one, and she sometimes is the first on site after the bank files the ­foreclosure.

"If the home is clean, that's the anomaly," Clay says. "Most of the time, it's in complete disrepair."

Apart from the garbage and junk left in the house, Clay says that animal feces on carpets and holes in the walls are common. The plumbing and light fixtures, along with the dishwasher and refrigerator, have often been removed.