Matt Paxton parks his logo-wrapped Saturn Vue in front of a vinyl-sided home in Hanover County. No one lives here any more. All that’s left is a backyard play gym and an overturned Fisher-Price basketball hoop. As the founder and owner of Clutter Cleaners, Paxton has found a niche inspecting and cleaning homes as they slide into foreclosure. He has a front-seat view of the foreclosure crisis with inside knowledge of what might be coming.
Paxton served the owner of the four-bedroom house with a foreclosure notice 60 days ago. Upon inspection last week, Paxton finds the house empty. He expects the bank will send him back in two weeks to change the locks and winterize the home.
This house with its nice lawn isn’t the only distressed property in the neighborhood. Two of the five houses on this cul-de-sac alone are facing foreclosure, and there is one empty lot. A similar scene is playing out here and in subdivisions across the metro area. And Paxton says foreclosures in Richmond will likely increase.
In the beginning of December, Paxton’s list was 60 addresses long, 40 of which were in the upscale Wyndham neighborhood in Western Henrico. Now the list is down to the last 12 homes that haven’t patched things up with their lender. The others either caught up with payments or sold their home to another buyer.
“To go from 60 to 12 is really amazing,” Paxton said. “That means people are taking care of their business.”
But many others haven’t been able to save their homes.
Banks have 350 houses for sale in the Richmond area. That’s about 6 percent of homes on the market, according to the Multiple Listing Service, which does not list all bank-owned homes. The City of Richmond has the most, followed by Chesterfield and Henrico. And although Paxton is seeing notices from upscale West End neighborhoods, the majority of bank-owned homes are priced at less than $100,000.
The number of foreclosures is temporarily falling in Richmond, down 6 percent in February compared with the previous month. And on Thursday, the Obama administration announced a $75 billion plan to motivate lenders to reduce mortgage payments for as many as 4 million homeowners.
But it won’t help people who can’t afford the payments at all. Under the plan, if a lender is willing to reduce the mortgage holder’s monthly payment to 38 percent of his or her monthly income, the Treasury Department will provide a subsidy to reduce the total payment to 31 percent of the household income. The New York Times reported that the plan will “do little to help families whose income has evaporated because one or more breadwinners have lost their jobs, nor will it save those swamped by big debts beyond their mortgages.”
While driving around late last week, Paxton said that he will get a new list of 100 addresses soon and that although President Obama’s plan is still being interpreted, it might not stanch the job-related foreclosures coming to upscale neighborhoods. And most of the foreclosures that will hit Richmond have yet to come, Paxton said.
“It’s going to start in April and last through Christmas,” he said. “That’s from people losing their jobs.”
Paxton didn’t intend to get into a foreclosure-related business. He started Clutter Cleaners about two years ago and aimed at helping senior citizens move and clean their homes.
But an entrepreneur has to be flexible. Paxton got a call from a bank 18 months ago to clean a foreclosed doublewide trailer in Caroline County. The following week, the bank had two jobs for Paxton. The week after that, the bank asked him whether he could do 100 winterizations on foreclosed properties, mostly in Northern Virginia.
“Since last Christmas to October last year, this is all we did,” Paxton said. “It was too much money to turn away.”
At first Paxton was traveling from Richmond every day to capitalize on Northern Virginia’s growing foreclosure problem. He didn’t know a housing crisis was afoot. But the foreclosures kept coming, about 100 a week. Now he has crews based in Richmond, Washington and Virginia Beach.
When he started the company, he had two employees. He’s up to 15, and he expects to add 10 more this year and establish two more crews in Raleigh.
“We have used this as our expansion device,” he said. “It gives us a nice $250,000 income for each location each year.”
Each spot inspection gets him only $20, but when the property is finally repossessed, Paxton said, the company is paid about $800 to clean up, change locks and winterize the home.
Paxton said the foreclosure work in Northern Virginia is slowing down, and he is seeing a southward shift – and it is heading straight for Richmond.
“You are seeing it hit now. It’s Hampton Park, and it’s Wyndham. It is all these new suburbs where they put up $400,000 to $500,000 houses.”
Paxton stops at the next house, in Wyndham.
A peek through the window confirms that the house is still occupied. Like everyone else on the list, the homeowners have been on notice for 60 days. In 30 more days, Paxton said, the lender will send him back to change the locks and post notes that the bank has seized the property and everything left inside.
At that point, people usually get the hint that it is time to leave. But if not, the bank will give 30 more days before forcing an eviction, Paxton said. Many hold on until the very end, hoping a buyer will come to the rescue.
“You still got people trying to sell these houses here for what they bought them for, or they are trying to rent them for $3000 to cover their mortgage,” Paxton said. “It’s not going to happen.”
Paxton said the price correction has taken place in Northern Virginia, but only recently have banks started lowering prices locally. He expects prices to drop another 20 percent before bottoming out.
“These houses are going to re-price,” Paxton said. “In two years, they can buy the same house they got kicked out of for a hundred grand less.”
He snaps a few photos for the bank and programs the next address into his GPS device.
“Seventy to 100 of these houses will be empty by August,” Paxton said as he drove away.
Realtor Deb Orth, who works for Keller Williams Realty, started specializing in short sales in the middle of last year. Short sales are a way for homeowners to sell their homes for less than they owe the lender to avoid foreclosure. She confirms more foreclosures are on the way.
People “who did a conventional mortgage with a 6 or 7 percent interest rate are losing their job and that income is gone,” Orth said.
She said three of her clients trying to sell homes were recently laid off from Qimonda.
There’s another disheartening aspect to foreclosures – they drive down values of the other properties in a neighborhood.
“As these people are in foreclosure, they are dropping their price drastically, just so they can sell it and get out of trouble,” Paxton said. “Someone who just bought their home, their value is plummeting.”
When foreclosures come to a neighborhood, it can reduce the value of nearby homes as much 9 percent, according to recent national statistics from the Treasury Department.
A sign advertising one Glen Allen neighborhood that is besieged by distressed properties confirms that prices are falling. It reads: “New Homes – Prices starting in Upper $200’s.” But behind the letters and numbers, it is easy to see the faded imprint indicating they used to start above $300,000.
“I guarantee you: In six months, it’s going to say lower $200’s,” Paxton said as he drove out of the subdivision and on to the next house on his list.
Check back Monday to read about how one Realtor is trying to develop a business helping investors find foreclosed properties to buy and rent.
Al Harris covers real estate for RBS. Please send story tips or insights on the foreclosure situation to Al@Richmondbizsense.com.