The rush of foreclosures is causing heartbreak for thousands of families forced out of their homes, but it’s also created an explosion of interest from people who see opportunity in the chaos.

A thriving “distressed property” industry has sprung up, fueled by how-to books and seminars with titles such as “Get Rich, Rich and Richer with Bank Foreclosures” and “How to Profit NOW from the Real Estate Foreclosure Disaster!”

Interest is so high that one Tacoma company, Keller Williams Realty, has even begun offering bus tours of foreclosed homes. A sign on the side of the bus says, “Next Stop … Your Opportunity!”

Bargain hunting is standard practice in real estate, and those who deal in foreclosures say they have nothing to feel guilty about.

In their view, they’re performing a service by clearing the logjam of foreclosed homes owned by lenders who don’t want them.

Shandy Simchen of Tacoma and her mother bought two foreclosed homes at the Nov. 1 auction at the County-City Building in Tacoma, where the sales take place every Friday morning.

The important thing is not to get carried away by greed, Simchen said.

She and her mother plan to fix up the houses – one in Tacoma and the other in Auburn – and rent them at reasonable rates to families just starting out and in need of a break.

“Pigs get fat,” she said. “Hogs get slaughtered.”

The nation's housing industry, which boomed through much of this decade, began to crumble in 2007 as overextended consumers couldn't pay their mortgages and housing prices fell. The slowing economy and the credit crunch made it difficult to get out of high-priced loans. And the rising number of homes for sale flooded the market, pushing down prices.

Bad as it is, the rate of Washington’s foreclosures isn’t nearly as bad as in some other parts of the country.

In parts of California and Florida, as many as 6 percent of all mortgages are in foreclosure. In Washington, the rate is closer to 1 percent.

Here, as elsewhere, the situation occurred primarily because of lenders freely handing out loans that couldn’t be reasonably expected to be repaid.

Foreclosed properties are located primarily in low-income areas, but by no means exclusively. They include expensive dream homes and even entire multihome developments, abandoned before they were finished by bankrupt builders.

‘IT’S LIKE TREASURE HUNTING’

“Wherever there is money to be made, there are people who are going to do almost anything to make it,” said Lisa Drury, head of recording in the Pierce County Auditor’s Office, where each day people crowd in to scan the latest crop of foreclosure notices.

Hours after Drury’s office posts an online “Notice of Trustee’s Sale” – a document that includes names and addresses – the homeowner is likely to see the first speculators cruising past his or her house with cell phones pressed to their ears.

Some are professionals. And some are part of an army of relatively unsophisticated investors that has risen up, looking for bargains they can buy at auction for rock-bottom prices and resell for big profits.

“It’s like treasure hunting,” said Dave Swadberg of Bonney Lake, who’s been buying foreclosed homes since the 1970s. “You just never know.”

Swadberg is quick to add that, contrary to all the hype and interest, buying foreclosed homes is no way to get rich quick, at least in the current market.

As in most gold rushes, experienced buyers say, the ones getting rich aren’t the prospectors but the ones selling them beans and shovels.

The prospectors themselves are in for a lot of hard digging with uncertain results.

“You can make a lot of money,” Swadberg said, “but there’s a tremendous amount of effort.”

Service providers in the new industry include “distressed property specialists,” in just about every real estate office, who offer seminars, up-to-the-minute data and encouragement.

So-called “hard-money guys,” a variety of lenders operating outside the traditional marketplace, are happy to offer short-term loans at high interest rates in exchange for being first in line in case of default.

Hundreds of data providers on the Internet charge fees for foreclosure information, most of which is public record and readily available from government offices without charge.

At the Auditor’s Office, the source of that data in Pierce County, Drury shakes her head.

“Anyone can get it for free,” she said. “Some don’t know how to do it or realize that information is available to the public.”

Entrepreneurs have come up with creative ways to profit. At a foreclosure seminar for investors last month at a Windermere office in Puyallup, a representative of a junk-removal company called ZippyDump handed out glossy advertisements, offering to remove possessions left in auctioned-off homes. ZippyDump’s motto: “Let us take the clutter away.”

Others hire themselves out as “interfacers,” willing to be the bad guys. Their service ($50 is the going rate) includes knocking on doors and telling foreclosed families they have 20 days to leave, saving buyers from doing that unpleasant task themselves.

‘YOU'RE BUYING A PIG IN A POKE’

Those who buy foreclosed homes often find the dream of quick profit elusive. Reselling any house is difficult now because the market is so unsettled.

Residential real estate listings in Pierce County are down more than 11 percent from last year, according to the Northwest Multiple Listing Service.

Getting loans is harder and, adding to the uncertainty, Congress appears poised to pass some sort of legislation to assist homeowners threatened by foreclosure.

“That could absolutely kill the foreclosure market,” said David Bruder of Foreclosure Solutions, a Bellevue-based company that helps investors buy foreclosed homes. Bruder works at a Foreclosure Solutions branch office in University Place. The company motto, printed on Bruder’s jacket, is “Great Investments for Wise Investors.”

Another problem: It’s tough for buyers to know exactly what they’re getting when they buy a foreclosed home. They can drive by the houses before the auction, but they usually can’t get inside.

“You’re buying a pig in a poke,” Bruder said.

When new owners take possession, they sometimes find hidden structural damage, undiscovered liens, second and third mortgages and pending lawsuits. Water leaks cause floors to sag. Sometimes they find toxic mold, wet basements or rats.

“It’s definitely a high-risk investment venture,” said Kyle White, a Port Orchard man who’s bought three foreclosed houses at auction in the past year and half. He fixes them up, doing most of the work himself, then rents them out.

“The biggest thing that can go wrong is to get a house that has meth in it,” White said. “It costs thousands to get the place cleaned up and from then on, the fact that it was a meth house is always on the title.”

Another often unforeseen problem: getting rid of the people who are living in the house.

Buyers of foreclosed homes tell horror stories of angry owners who bashed walls with axes; removed appliances, bathtubs and light fixtures; or smashed toilets with hammers on their way out.

“People are in denial. They don’t want to leave,” Swadberg said.

Swadberg’s solution is to offer them money.

“I say, ‘Look, it’s going to cost me $1,000 for a lawyer to evict you. I’ll give that to you if you’re out next week. Who do you want me to give the money to? You, or the lawyer?’”

The way to make money, experienced buyers say, is the same as in most businesses: Do the research, work hard and keep expectations reasonable.

‘THE PROPERTY GOES SOMEWHERE’

Some foreclosed houses are vacant by the time they go to auction; more often, they have families still in them.

“Oh, they have kids,” said Vestus agent Cindy Hornbuckle, cruising by a Spanaway home with orange construction-paper pumpkins taped to windows and bicycles parked in the driveway. “That’s not good.”

Does it bother distressed property specialists that they’re profiting from others’ misfortune?

Most say no.

“These folks are going to lose their house either way,” White said. “They’ll lose it to a bank or to a private person. They’re in the same predicament either way: They lose the house and will have to move out.”

Bruder agrees.

“The property goes somewhere,” he said. “If a private person doesn’t buy it, it’s going to go back to the bank.”

Also, Bruder said, it’s wrong to assume that all the people being foreclosed on are innocent victims. At least a quarter of them, he estimates, were speculators themselves, using their houses as piggy banks and borrowing far more from them in equity loans than it was reasonable to expect they were worth.

The real villains, he said, are the brokers who suckered people into subprime loans they couldn’t afford in the first place.

“We’re not here to put people on the street,” said Kevin Gazay, Bruder’s partner at Foreclosure Solutions. “That’s not what we’re doing.

“It’s not because of us that people are going into foreclosure,” Gazay said. “We’re just here. The investors who are buying these properties are going to make them productive again.”

Rob Carson: 253-597-8693

blogs.thenewstribune.com/business

Helpful advice from Teresa Seeley, housing coordinator and counselor at the nonprofit agency Consumer Counseling Northwest in University Place (www.ccnw.org, 253-588-1858).

 • Swallow your pride. Don’t be afraid to ask for help. There’s help out there for people who look.

 • Make sure you know what kind of loan you have. If you haven’t read your loan agreement, do it.

 • Look for help as soon as you think you might have to miss a payment. Call your lender. Sooner is always better than later. Don’t wait until you miss a payment.

 • Find a reputable housing counselor. Beware, though. Scammers sometimes pretend to be counselors. If they charge up front to do anything for you, it’s probably a scam.

 • Check out foreclosure information on Web sites of the Washington attorney general at www.atg.wa.gov and the state Department of Financial Institutions at www.dfi.wa.gov.

 • If you’re close to being able to make your mortgage payments, reduce expenses:

1. Figure out where your money is going. Save receipts and collect them in an envelope. At end of the month categorize them: How much did you spend on food. How much on gas? Did you really need $100 worth of clothes?

2. Get rid of your cell phone, cable TV and Internet service.

3. Increase your income:

Get a part-time job.

Rent out a room in your house.

4. Change your withholding option with the IRS to get more of your paycheck up front.

 • If you face a choice between paying your mortgage or paying your credit card company, pay your mortgage first. The credit card company won’t take your home away.

 • If you have children in school, check into special programs for those in need. Most schools offer breaks on supplies or fees for extracurricular activities.

 • If it becomes clear that there’s no way to keep your home, list it with a real estate agent. Ask the agent about “short sales.”

 • Look for free legal advice. Some attorneys offer free half-hour consultations. Call more than one and ask the same questions. Beware of unethical attorneys who suggest bankruptcy for one and all. Contact the state Bar Association to check for complaints.

 • If you know before your first late payment that there’s no way you’re going to be able to keep your house, get out immediately and rent an apartment. As soon as you miss payments, your credit rating will drop and landlords won’t want you.

 • Beware of scammers who want to “rescue” you, particularly those who want to buy your home and lease it back to you and those who want to charge to negotiate with your lender. Nonprofit counselors negotiate for free.

 • If you get offers in the mail that you didn’t ask for, recycle them.

 • If you think you’re being scammed, call the state Attorney General’s Office (1-877-211-9274) or the state Department of Financial Institutions (1-877-746-4334). Officials might not find out about the scams unless you tell them.

Rob Carson, The News Tribune

Foreclosure is what happens when you get behind on your home mortgage payments and your lender wants his money. If you don’t figure out some way to pay, your ownership will be terminated and your house sold at public auction.

In most cases, lenders don’t start the foreclosure process until you’ve missed at least two monthly payments. Three is more common.

In Washington, foreclosure usually starts with a “Notice of Trustee’s Sale,” a document your lender files with the county auditor. That document instructs the trustee who holds your deed to sell the property in order to satisfy the debt. You have 90 days to make good before the sale.

You can stop the foreclosure by bringing your mortgage payments up to date (plus penalties, fees and expenses), by selling the property yourself, or by negotiating new terms with the lender.

Rob Carson, The News Tribune

1
Pierce County’s rank among Washington counties in percentage of homes in foreclosure

1.2 MILLION
Number of mortgages in Washington

3.4 PERCENT
Percentage of mortgages in Washington with overdue payments

1 PERCENT
Percentage of mortgages in Washington in foreclosure

1
Number of federally accredited counseling offices in Pierce County with foreclosure specialists
Sources: Mortgage Bankers Association, RealtyTrac

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