Foreclosures Soaring
High-end spec builders take especially big hit
 Doug Kuntz
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(7/03/2008) After only six months, foreclosures on South Fork properties have already reached the level they were at after a full 12 months in 2007. In addition, the number of preforeclosure actions in East Hampton Town is now double what it was for the first six months of last year.
“Obviously, the percentage has increased, but it’s not at a panic level,” Paul Brennan, executive vice president of Prudential Douglas Elliman, said this week of the number of lis pendens or preforeclosure actions this year.
He has seen more “people calling and saying they need to sell their house or lose it,” he said, and each real estate office on the South Fork probably lists a couple of properties whose owners are in default on their mortgages.
“But the sky never falls in. There’s always enough money around,” Mr. Brennan said. “It’s not like we’re in Ronkonkoma, where a guy’s paycheck doesn’t cover the house and the mortgage is more than the house is worth now.”
“Nothing has changed in what I do,” said John Brady, who specializes in selling preforeclosure properties at a discount, “except now I see other real estaet agents selling their personal homes in short sales.”
Mr. Brady said he was still getting leads from banks, but that “now the properties are listed for $3 million to $4 million, and they’re in Wainscott, Water Mill, Sagaponack, and Sag Harbor.”
His clients hope a property can be sold before they have to initiate legal proceedings and those proceedings become public. He said 91 properties falling within East Hampton’s ZIP code were in the early stages of default, and that 75 were in Southampton. Sag Harbor and Water Mill each had 30 such properties. Amagansett had 14 and Montauk had 22. Bridgehampton had 9.
Among properties further along in the default process is one on Old Farm Road in Bridgehampton with a judgment of $1.3 million, according to Long Island Profiles, which compiles data about real estate transactions. The house is slated for sale on Tuesday.
A house on Carriage Court in East Hampton has a scheduled auction date of July 17 with a judgment of $1.4 million. An East Hampton Star legal notice announces the sale, scheduled for Aug. 6, of a property on Windmill Lane in Amagansett.
When those pending auctions are combined with at least three other foreclosure sales in East Hampton Town that already occurred this year, the total for the first six months of 2008 is more than the total for all of last year, when houses were auctioned off on Gardiner Avenue and Underwood Drive in Springs and on Morrell Street and Kirk’s Place in Northwest Woods.
Preforeclosure actions show a more dramatic increase. In this case a legal notice announces that a property is in default and that the lender intends to take action against the borrower. In these earlier stages of foreclosure, South Fork property owners often can find a way to refinance the loan or arrange with the bank to sell the property at a level lower than the current market rate, sparing the lender from having to sell it.
In the East Hampton ZIP code outside of the village, the number of preforeclosure actions rose from 16 for all of 2007 to 35 through June of this year. In East Hampton Village, only one preforeclosure action is recorded, a Main Street property on which $2 million is owed.
In Southampton’s ZIP code, preforeclosure actions rose from 14 last year to 25 from January through June of this year. In Southampton Village there have been 7 actions so far this year, the same number as for all of last year. Water Mill is up to 6 this year, as opposed to 4 over all of 2007.
In Bridgehampton, a speculation house used for the Hamptons Designer Showhouse in 2006 has a preforeclosure filing against it. The builder owes $4 million, and the property has dropped in price below $20 million from the original price of $27 million.
Mr. Brennan said speculative builders have been hit hardest at the high end of the market. Mr. Brady agreed, but added that buyers who work on Wall Street were also struggling.
“There were people from Bear Stearns buying houses on the mere fact of what their [company] stocks were worth,” Mr. Brady said. “They would go buy a $10 million house when the stock was $200 a share; now it’s $2.50 and they’re saying, ‘I have to sell my toys.’ ”
“Anyone who is financially savvy is never going to back those mortgages” when the property is worth less than what is owed, he said. And an advantage to the homeowner is that, “in a short sale, you only have to wait 18 to 24 months before buying again.”
Mr. Brady said the market now has about three years of inventory to sell before it can level out and begin to grow again.
Mr. Brennan said his experience shows that these cycles usually last about two years before they start going up again. He said this could be the absolute bottom, but also acknowledged that there is a buildup of inventory that has to be worked through.
The past few years saw “overexuberance, overabundance, overbuilding,” Mr. Brennan said. “The excesses take a while to clean up. It won’t get cleaned up until the economy begins to rebound.”
“It’s like a bad hangover that can last a couple of days,” he said.
Mr. Brennan said analyzing the height and depth of the market is always a guessing game, although he and Mr. Brady agreed that now is the time to buy. “Two years from now you’re looking like a genius,” Mr. Brennan said.
Mr. Brady added that for those who previously could not afford East Hampton, either as a first-time buyer or as a second-home buyer at the lower end, this is a great time to see prices fall back to earth.
Still, Mr. Brennan said he was angry that the government and financial industry let the situation reach this point, saying it was similar to the savings and loan crisis of the late 1980s. “It was unregulated and unbridled lending of money through greed,” he said. “All you had to do was breathe and you could get a mortgage. Money meant nothing.”
At that time, he said, you could barely give away 40 to 50 acres of farmland in Sagaponack and “now you can buy an acre for what 50 acres went for 20 years ago.”
“It all cycles around,” he concluded.