Rising Tide of High-End Foreclosures

PHOTO The former estate of hockey legend Wayne Gretsky, which was designed by world renowned architect Richard Landry, is shown.
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Jim Bellino, a real estate investor better known for his role on "The Real Housewives of Orange County," wants to make one thing clear: Defaulting on the $4.6 million loan for his family's stately home in Newport Beach, Calif., made perfect sense.

"Here's the assumption everybody makes when you're getting your loan modified -- you're destitute and you're bankrupt," he said. "That's not the case. It can strictly be a business decision, especially when you're talking about several million dollars."

While the pace of foreclosures has receded in the general housing market, it continues to rise in well-to-do pockets of the country, especially Southern California.

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In growing numbers, minor and major celebrities as well as ex-athletes are seeing their million-dollar homes revert to lender ownership, foreclosure analysts said.

"It really cuts all across the board," said Sean O'Toole, founder and CEO of ForeclosureRadar.com, a California-based company that documents the perils of the housing market.

Data from ForeclosureRadar.com shows that in Los Angeles County the number of bank owned million-dollar-plus homes tripled in the second quarter compared with the same period three years earlier. The affluent county is home to the majority of Southern California's high-end lender-owned houses, known as REO, or real-estate owned, according to analysts.

"Higher income people are more likely to go into default than lower income people," said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. "They're more ruthless about their finances than maybe middle-class and low-income people because perhaps they have other resources available to them. They could afford to take the hit on their credit record that others don't."

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But even celebrities may not be off the hook when it comes to walking away from their debts. Depending on the state and the type of mortgage, lenders can come after them for the difference if the house sells for less than what is owed.

The majority of foreclosures involved homes priced at $417,000 and below. But the spike in top-of-the-market foreclosures likely signals that more affluent homeowners were better equipped to weather the first years of the downturn, he said.

"Our impression is that there are quite a few delinquencies in those higher-priced homes but they're less likely to be pushed through to foreclosure," O'Toole said.

The landscape of Southern California is dotted with mansions that the wealthy defaulted on or lost to foreclosure because of unfortunate financial management, lost businesses or sinking home values.

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Last month, a beachfront house in gated Malibu Colony that gained notoriety as the alleged Wells Fargo party house was sold for nearly $15 million – almost 30 percent less than the original $21.5 million asking price.

The spectacular bank-owned home made news last year when a Wells Fargo executive who handled foreclosures allegedly used it for lavish social events. The executive was later fired. The original home owners were victims of Bernard Madoff's fraud scheme.

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