Foreclosures in Gila County declined sharply this year, but still account for 27 percent of property sales.
Forced sales peaked in 2010 at 459, then dropped to 395 out of 1,120 property sales in 2011.
That’s encouraging, except the share of foreclosures pursued to the bitter end — a forced sale — has actually increased. In 2010, 64 percent of foreclosures filed ended in the forced sale of the property. In 2011, that percentage increased to 78 percent.
That means a record number of Gila County homeowners have suffered foreclosure in the past two years.
“Almost all people going through foreclosure have financial problems,” said Cliff Potts, a broker for Prudential Realty.
Potts told the story of a family who lost their home because of job loss.
The father worked in construction, but couldn’t find work in Payson after the housing market collapsed. Desperate for work, he found a job in Prescott.
As he commuted between Payson and Prescott, the couple struggled in vain to find the money to make payments. Since they owed more than their house was worth, they initiated a short sale in which the bank agrees to a sales price that’s less than the outstanding loan.
But the lender took too long to process the paperwork and the home went into foreclosure.
Gila County homeowners suffered a jump in foreclosures during the past two years compared to historic averages, according to county records. Between 1999 and 2005, foreclosures remained relatively steady — ranging from 115 to 167 annually countywide. That rate dropped to 65 in 2006 and 86 in 2007. Foreclosures then returned to the long-term average in 2008, which proved the edge of the cliff.
The number of foreclosures skyrocketed the next year to 372, then rose again in 2010 to 459 before finally starting down last year.
Potts said many people who suffer a life-changing event such as job loss, divorce, death or illness find themselves unable to make their house payments.
Once a homeowner stops making payments, a foreclosure gathers speed quickly.
Lenders start the foreclosure process one to six months after the first missed mortgage payment, according to the Housing and Urban Development agency (HUD).
Arizona offers two types of foreclosure methods.
In a judicial foreclosure, the lender files a lawsuit against the borrower. The borrower receives a payment demand through the mail. To fend off foreclosure, the borrower has 30 days to pay. If the borrower fails to pay, the court has the sheriff sell the property at auction.
In the second type of foreclosure, if a power of sale is written into the mortgage agreement, a lender may simply send out a payment demand notice after a homeowner misses a payment. After a waiting period, the mortgage company can hold a public auction without ever going to court. This process results in a much quicker foreclosure, but a judge may still review the legality of the sale.
Throughout Gila County neighborhoods, foreclosure signs go up each week.
Potts said that in a small town such as Payson, the damage to a homeowner’s reputation often causes long-term consequences, including the embarrassment of seeing their names published in the newspaper as required by the foreclosure process.
The public nature of foreclosure alerts investors looking for a good deal.
“It invites bargain hunters that go out to preview the property at all times,” said Potts.
One of Potts’ clients had a potential buyer wake her up in the middle of the night prowling around the living room researching the property.
The loss of respect by their neighbors and friends can create shame for many homeowners.
Often trustee sales get delayed week after week, causing great uncertainty for the homeowner — when should they move? How long can they stay? Could their short sale go through?
Most painful of all, a foreclosure affects the homeowner’s credit rating for at least seven years.
According to FICO, credit scores average the following loss of points as a result of non-payment and foreclosure:
30 days late payment: 40 to 110 points
90 days late: 70 to 135 points
Foreclosure, short sale or deed-in-lieu: 85 to 160 points
Bankruptcy: 130 to 240 points.
The Rim Country housing market reflects real estate in the rest of the state.
Figures on foreclosure numbers released from the W.P. Carey School of Business at Arizona State University (ASU) show that despite a slow down in the rate of foreclosures in the Phoenix area from 2010, 2011 still has a high percentage of foreclosures.
In Phoenix, around 34 percent of overall home sales resulted from foreclosure in 2011, compared to 39 percent in 2010. In contrast, foreclosures in the past averaged about 5 percent of sales, according to past ASU reports.