The up side of a down market
Contractors, brokers and lawyers make good money in bad times for real estate.
The Orange County Register
Tough times in the real estate industry mean booming business for Michael S. Buescher, a Trabuco construction contractor who specializes in cleaning and fixing up repossessed homes.
As more property owners fail to refinance or repay their subprime loans, Buescher’s pay days are getting bigger and bigger.
In Orange County, the number of foreclosures through May hit 1,031 – seven-fold the number a year ago. Default notices soared 121 percent, to 4,520 homes, during the first five months of the year.
“We get more every day,” Buescher said. “We’ve been waiting eight years for this to start happening again.”
Buescher, 49, was building a $1.5 million spec home in San Clemente in February when a call came from a Realtor friend offering a job at a foreclosed home in Mission Viejo. As more rehab offers trickled in, Buescher felt almost like he was back in the good old days of the ’90s, the last time Southern California’s real estate market tanked. During that era, he employed five crews to spiff up an average 30 repossessed homes a month.
So far this year, business has taken Buescher to dozens of trash-outs and fix-ups in Orange, Riverside and San Bernardino counties, to gated communities and rat-infested crack dens, all united under the title “real estate owned” or “bank repo.”
“This is more fun than building houses,” he said as he admired his crew’s handiwork at a foreclosed four-bedroom, three-bath split-level home in an unincorporated area near Tustin. “I can make more doing this than on homebuilding. This is quick turnover. You don’t have to wait eight months to get a permit. The cash flow keeps coming.”
Buescher is far from the only person profiting from a real estate market troubled by slack sales, sagging prices and soaring defaults.
Data services like Irvine-based RealtyTrac charge for shoppers to see listings of distressed properties. As the number of listings jumped to 1.1 million in June – up from 700,000 a year ago – the Web site’s traffic for its nationwide listings soared to surpass an average 2.5 million monthly visitors, double its numbers in 2005.
“We believe services like ours streamline the (distressed sale) process and take out the leg work,” said Rick Sharga, RealtyTrac’s vice president of sales.
The Tri-Star Group, a Fullerton development company, hired Joseph Baleto as a “foreclosure adviser” in January. It was a new line of work for Baleto, a Realtor since 2004, a period when the market has known only good times. His assignment: Buy properties at auction to renovate, “bring out the original luster” and resell.
“Inventory is up, which is great on the one hand because there’s a lot of property to pick from,” Baleto said. “On the other hand … you really have to have a product that stands out, and you have to have it priced correctly in order for it to sell.”
Mike Roberts, a real estate agent and radio host, has revived his Laguna Niguel company Trust Solutions Inc., which offers homeowners who are upside-down on their loans a legal method for selling their property without having to go through lender approval. The process, Roberts said, has the advantage of getting the seller out of an unaffordable loan without the penalties of a foreclosure or short sale. For buyers, it can mean acquiring homes at a lower property tax rate.
So far this year, Roberts said Trust Solutions has negotiated one or two deals a month. But he expects business to pick up as more homeowners find themselves underwater.
“I suspect by late summer we’ll be doing one a day,” he said. “That’s what we were doing the last time the market was in trouble in ‘94, ‘95, ‘96 and early ‘97.”
Patti Donovan, president of Stearns Asset Services, a Santa Ana firm that manages and markets real-estate owned properties, said she got back in the business last year after a four-year hiatus when the market was hot and she “pretty much played a lot of golf.” Donovan, who started in the foreclosure business in 1984, said she expects the down market to last three to five years.
“The difference this cycle is it’s not the economy that’s causing this to go upside down,” she said. “It’s more the types of loans – 100 percent financing, adjustable rate mortgages. Before, it was people losing jobs. Now it’s just people borrowing too much.”
Robert Rosenthal is a San Fernando Valley attorney who specializes in evicting tenants from foreclosed homes. He expects a lot of jobs over the next three or four years as more people lose their homes.
“With this market now, my guess is we’re in the first or second inning of a nine-inning baseball game,” he said.
As banks accumulate more property, they hire managers to coordinate contractors, maintenance crews and payment schemes for insurers and tax bills. They also seek out home sellers who specialize in distressed property, like Staci Treloggen, who heads the real-estate owned group at Prudential California Realty in Laguna Niguel.
“Banks outsource to people like me,” Treloggen said. “I need people like Mike (Buescher) to staff up.”
Treloggen assigned Buescher and his five-man crew to an abandoned home at 17571 Rainier Drive in an unincorporated triangle between Orange, Tustin and Santa Ana. Public records show Wachovia Bank foreclosed on the property in May. The asking price is $762,500.
When Buescher and his crew arrived, the swimming pool was a mosquito breeding ground; bird cages and bales of hay littered the yard; the garage closeted a mountain of papers, clothing, toys and other trash.
After two days’ work, the four-bedroom, three-bath 1959 split-level home looked neatly trimmed and vacuumed.
Buescher typically proposes a cleanup plan in several stages. He charges $500 for a barebones job to rekey locks, install smoke detectors and secure a house from intruders. He can tell if a house has been broken into if there’s a rush of air when he opens the front door, because it means there’s an opening somewhere else.
After securing a property, his job escalates to the “trash out” – filling dumpsters with yard waste, clothing, toys, appliances and furniture abandoned by tenants. Items worth more than $300 – cars, boats, fur coats – must be stored for 19 days for the owners to claim. Few people come back, Buescher said.
“It’s amazing what people leave behind,” he said. “I see wedding albums. That usually means a divorce.”
For some reason, he said, tenants almost always walk off with shower heads. Many rip out counters, air compressors and other fixtures that belong to the bank. Sometimes neighbors join the looting.
“If the air compressor is gone, the first place I look is over the fence,” he said.
It’s not Buescher’s business to understand why people lost their home. To encourage renters to leave, he’ll offer a few hundred dollars. If he finds a squatter, he’ll ask the cops to arrest them for trespassing.
If the bank agrees to pay for it, Buescher will repaint the walls and replace the carpets. He recommends neutral, vanilla colors to avoid turning off potential buyers.
As the repairs get more complex, Buescher’s fees escalate. Granite counters, a reshingled roof, new wiring – they all make his cash register ring.
“My job is to convince the client to spend more money to sell the house,” he said. “But at this point, the banks aren’t willing, because the market hasn’t hit bottom.”
By JOHN GITTELSOHN
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