Fort Myers: ‘Perfect Storm’ for Foreclosures

Feb 10, 2009 11:44am

President Barack Obama takes his pitch on the road today to Fort Myers, Fla., an area hit hard by unemployment and rising foreclosures.    My younger brother Les lived in Fort Myers many years ago, and I thought it was such a lovely place so I was stunned to hear that.  I went online to check for Fort Myers — or more precisely, Lee County, which includes Fort Myers, Lehigh Acres, Cape Coral, Bonita Springs, Boca Grande, Estero, Pine Island and Sanibel and Captiva Islands.  The entire county isn’t devastated — there aren’t many foreclosures on tony Sanibel and Captiva; thank goodness for small mercies — but in some other areas, I found houses that cost less than cars.    A number of the bank-owned properties were being handled by a real estate agent named Lynn Rhinehart, of Quest Realty Solutions.  I caught her at home in Cape Coral Monday afternoon, in fine chatty form.  Lee County, she explained, became a "boom place like Vegas."   House prices were growing by an incredible (but unsustainable) 30 percent a year from 2004-2005 and 2005-2006.  "It was awful," Rhinehart said.  "It put buyers in [a] frenzy."  It put builders in [a] frenzy as well, Rhinehart says.  Contractors became so busy they were begging subcontractors to come from elsewhere to work for them.  And they came in droves.  "Have hammer, will travel," Rhinehart said.  What those subs discovered is that it was a nice community, a nice way of life, so they brought their families and settled in.  "They were making good money, working seven days a week, 12 hours a day," Rhinehart said.   Many couldn’t have qualified for a loan under the old conservative lending rules, she says.  But  at the time, lenders were handing out  " low doc "  and  " no doc "  loans to anyone who could , as Rhinehart put it,  "prove they had a heartbeat and a credit score over 600 .  It was a perfect storm."  Add to that some of those subcontractors graduated into contractors, putting up their own subdivisions and offering deals because the competition was so fierce.  Plus, they had to live somewhere, so they were buying, too.  House prices were flying upward and Rhinehart says it scared many people into jumping on the bandwagon at more than they could comfortably afford, because they were afraid that if they missed the moment, the prices would go even higher.  Then, the bottom fell out.  "In September of 2005 we woke up one morning and the phone didn’t ring anymore," Rhinehart said.  "It was like someone went to the garage, found the real estate breaker and turned it off.  We’ve been looking for that breaker ever since," she said with a sigh.    In the boom times, builders would let buyers put down a $1,000 deposit and not pay in full until the house was finished.  But homes that had been started in the boom were worth much less than the contract price in the year or so that it took for that home to be built.  "If you signed up at [the] end of ’05," Rhinehart said, “by the time  the house was ready it was worth $30,000 or $40,000 less than you agreed to pay.  The builder says, ‘your house is done, let’s close.’  But the appraisal comes in $40,000 under the contract price and the bank won’t lend the full amount, so you can’t close without that $40,000 in cash.  It made it awfully easy to walk away when you put down just $1,000."  And apparently that’s what buyers did, in droves.
"Builders got armloads of [houses] back, they were sitting on 30, 60, 90 houses," Rhinehart said.  "Small little guys who three years before were subcontractors for somebody else.  It was awful, watching prices drop, people making lower offers that the builders wouldn’t accept even though prices were still tumbling."    Those builders and subcontractors and the buyers have gone now, she says.  Those who are left are trying to make the most of a very bad situation.    Still, the area doesn’t feel like a ghost town, according to Rhinehart.  Some blocks may have four or five foreclosures, but others are still intact.  It’s sad to see people lose their homes and move away, but if we need an upside, there is one… sort of.  Prices are so low, Rhinehart says, that out-of-towners are starting to come in, looking for deals.  "Places that would have sold for $180,000 a few years ago may be listed for $80,000," she said.  "Some are new, most are new-ish, but some have never been lived in."  How are these new breed of buyers paying?  With cash, Rhinehart says.  "I never saw so much cash," she said.  "When you get to $50,000, $60,000, $70,000, they can pay in cash."   Rhinehart says it’s "heartbreaking" that the people who lost homes can’t take advantage of the market change – “if you lost your house you just shot your credit in the butt; it’ll be years before that’s forgiven," Rhinehart said — so it’s out-of-towners scooping up the deals.    With a certain resignedness, Rhinehart says that for her and her business partner (her stepson), business is good because they handle a lot of bank-owned properties.  This may or may not be a good sign, but some houses have sold for more than the asking price.  Prices have gotten so low there are multiple offers.  The house pictured at the top is in Cape Coral; it sold in May of 2005 for $190,000. When it went on the market recently for $70,000, there were six offers on it.  The house pictured here was purchased in 2005 for $385,000, and received 14 offers when it went on the market for $116,900. Cape Coral assessed it at more than $220,000. It sold last December for $134,000. Rhinehart says she doesn’t know what the president has in mind for the economy, but she hopes whatever it is, it works.  Will she go see him Wednesday?  "No," she said.  "I’m going to work tomorrow.  I’m hoping to sell two more houses."  That’s probably the best stimulus of all. 

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