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A town right on the default line

Foreclosure notices are painfully common in Perris, where sub-prime loans built a suburb.

March 16, 2007|David Streitfeld | Times Staff Writer

Oscar De Leon was washing his car a few weeks ago when he noticed a piece of paper stuck to the front door of the house across the street. He strolled over to check it out.

"You are in default," the paper proclaimed. "Unless you take action to protect your property, it may be sold at a public sale."

De Leon, who lives in the Riverside County town of Perris, knew this official notice of foreclosure was bad news. Not just for the home's owners, who tried to sell for months, failed and quit town for parts unknown.

It was bad for De Leon too, a 28-year-old employee of a food service distribution company. He and his wife, Sandra, pay their mortgage every month, happy they can raise their three children far from the urban problems of Los Angeles.

Two years ago, this neighborhood didn't exist. De Leon, who bought in June 2005 for $324,000, got the first home on the street, the first house he had bought anywhere.

"I like it here," he says, "They could offer me a house for free in L.A. I'd take it and sell it, but I'd never live there."

It's the age-old dream of the suburbs. Now, it's at risk in communities throughout the country, thanks to lenders too eager to lend and borrowers who thought houses would dispense money forever, like magical ATMs.

In California, Perris is at the epicenter of mortgage problems. From November to January, 177 homes in Perris' central ZIP Code have received notices of default, the first step toward foreclosure.

That's about 1 of 53 houses, the highest level of any ZIP Code in California, according to a Times analysis of statistics provided by DataQuick Information Systems. The neighboring towns of Lake Elsinore and Moreno Valley came in second and third.

A few doors away from De Leon's house sits a second empty property foreclosed on by its lender. "A divorce," he explains. "The husband couldn't afford it alone. He was paying $2,500 a month. Ridiculous."

A few blocks away is a third foreclosure, this one only a frame skeleton abandoned by its builder. A young woman who answers the bell at a fourth house says through the screen door that she doesn't know anything about the place's being in default. She pays rent to someone who pays the owner, she says; please go away.

Risky loans

The trouble stems partly from a proliferation in recent years of so-called sub-prime loans to borrowers with shaky credit or erratic income, borrowers who are more likely to miss payments and not catch up. Such defaults are typically in communities like this one -- a long way from the high-priced and built-out coast. The Inland Empire is full of new and almost-new homes and commuters who often travel great distances to jobs to pay for them.

The default rate in Perris compares with 1 in 105 homes in Palmdale, 1 in 150 in Van Nuys, 1 in 189 in Northridge and 1 in 283 in Altadena. Many coastal communities have so few default notices they don't even place in the top 400 ZIP Codes.

There are other signs of distress. De Leon's development, called the Villages of Avalon, has an unusual number of homes for sale, considering it's so new that the Google Earth satellite scan still shows much of it as dirt.

At the top of his street, next to the charred shell of a house that mysteriously burned a few months ago, is a house for sale. The house immediately next door is on the market too. A few doors away from De Leon's home in the other direction is a third house looking for a buyer. Some owners are trying to rent their places out, advertising with little signs on the front lawn.

De Leon fears what will become of his neighborhood if it becomes dominated by renters.

"You get people who don't care about the neighborhood and don't take pride in it," he says.

He's hardly alone in that view.

"If people start to rent, that's when you start to worry," says De Leon's next-door neighbor, Jose Serrano.

Serrano, 34, grew up in Long Beach. He saw friends die in Long Beach. He still commutes there every day to work on the docks for Toyota Motor Corp. It's an hour in the morning and two hours coming home, a grind he suffers for the sake of his three young kids.

Like De Leon, this is Serrano's first house. Like his friend, he is bracing for the future, hoping that even if things get worse now, they'll get better later.

"A lot of people got in over their heads. They are going to lose their homes," Serrano says. "The market goes up and down. You have to look at it for the long term, ride it out."

Good advice, but Perris could be in for a rough trip. Named after a railroad engineer, it began in the late 19th century as a stop on the Barstow-San Diego line. For most of the next century, it was a farming town -- sugar beets, potatoes, alfalfa.

Hustle and gloom

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