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COLUMN ONE

It's their default position

Selling houses was easy money when the market was hot. Now, some agents in the Inland Empire are trying to cash in on foreclosures.

February 13, 2007|David Streitfeld | Times Staff Writer

HERE'S what Dave Hennigan knows about the four-bedroom house tucked away on a tranquil Corona street: The owner is a woman, and she's $8,155 behind on her mortgage payments.

Maybe she had a messy divorce or expensive illness. Maybe she has been spending too much and saving too little. Hennigan, a 45-year-old Riverside County real estate agent, doesn't plan to ask.

As he navigates the suburban streets, map in hand, he rehearses his pitch. "Your name came up on a list of people who might be interested in selling their house."

That sounds neutral, even sympathetic. If it works, he'll have his first distressed seller.

There's a lot of speculation about where the housing market is headed. Some analysts contend the shakeout is already over. Others maintain it hasn't even begun.

Hennigan and the company he works for, Home Center Realty, don't have the luxury of waiting to see how the story will play out. They need to make a living now, and they're betting that things are going to get worse. Maybe much worse.

During the four-year boom that ended last summer, Home Center expanded from 15 agents to 80 in three offices. The roster of agents has since sunk to 52, only about half of whom are active.

"The rest are looking for side jobs at McDonald's," said Home Center President Jason Bosch. "It happened overnight."

Hennigan works in the Norco office, a small building set on a hill off Interstate 15. He's been full-time since August 2005, when he quit his job as a route salesman for Peet's coffee. He gets a salary to help run the place, but to pay his own mortgage he still needs to earn commissions buying and selling houses.

In this queasy market, sales are slumping. Sellers remember the boom and want more money than they can get, while buyers feel they have unlimited time to make a decision. An agent's best prospect for a sale is someone who must act now -- a homeowner told by a lender to pay up or get out.

These owners are in crisis. They need to refinance if they can or sell and move into something affordable. If they had an easier option, they wouldn't be behind in their payments in the first place.

Home Center Chief Executive Ron Barnard says that personally, he finds foreclosure sad, even tragic. "But as a business owner, I think it's great."

The new issue of the company's 22-page listings magazine, distributed outside supermarkets and drugstores, will tout nothing but distressed and foreclosed properties: 95 of them, many nearly new, each priced at around $250,000.

"When you throw out the words 'foreclosure,' 'short sale,' 'repo,' the buyer thinks it's a deal," said president Bosch. "It's still very early, but I'm convinced that's where the market is going."

FOR Hennigan, the search for a deal restarts every 10 days, when he gets a packet from United Title Co.

Drawn from public data, it has the names, addresses and loan information for people in Riverside County who are in default, which usually means about three months behind. They generally have another three months before the bank seizes the house.

"They get sold these houses on the idea that they can handle the mortgage, and then they can't," Hennigan said in his cubicle early one afternoon. He glanced at the sheets and reeled off some of the amounts due: $13,708 ... $5,209 ... $12,776 ... $15,149.

When he combs through the listings, Hennigan ignores anyone who owes more on a home than it is worth. These folks are in too much trouble to be saved. What he's looking for are owners who, after closing costs and a 6% agent's commission (half to Hennigan, half to the buyer's agent), will walk away with their credit rating intact and some cash to start anew. This will give them an incentive to deal.

He likes to pay his unannounced visits late in the afternoon, betting that the wife will be home and the husband not. "I can't remember the last time a man said, 'Let's sit down and talk,' " Hennigan said.

Coming along on this afternoon's prospecting trip is Jerald Becerra, a former body-shop estimator for insurance companies who became a full-time agent in August. "I'll stay in the car, keep the engine running," he says. "Just in case someone comes out with a shotgun."

When they reach their target house, they don't approach it immediately. Instead, they warm up with the neighbors. Maybe they're also broke. "It's Dave from Home Center Realty," Hennigan shouts at a woman he glimpses behind the drapes. She instantly retreats into the recesses of the house.

He leaves a flier he developed when prices were zooming upward. "Are you a first time buyer?" it asks. "Are you looking to refinance? Are you looking for that 2nd or 3rd home?"

In October, he added a fourth line: "Maybe you are in notice of default or foreclosure!"

The target home was built in 1988. The owner refinanced two years ago, bringing the mortgage up to $327,000. Based on comparable recent sales, even in this lousy market the house could go for as much as $500,000.

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