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A tale of two houses

New neighbors beneficiaries of foreclosure misfortunes

March 24, 2013|By ARNOLD S. PLATOU | arnoldp@herald-mail.com
  • Heather Kurtz and Jesse McAllister, left, and Steven Mazur stand in front of their neighboring townhomes in Hager's Crossing west of Hagerstown.
By Colleen McGrath/Staff Photographer

New homeowner Steven Mazur and his new neighbors, Jesse McAllister and fiancé Heather Kurtz, are full of hope about their lives in the housing development on Hagerstown’s western edge.

So, too, presumably, was the woman who in summer 2006 bought the new town house in Hager’s Crossing that McAllister now owns and the woman who in the fall of 2006 moved in next door, buying the new town house that Mazur now owns.

By 2010, each of the women had defaulted on the mortgage on her quarter-million-dollar home and had lost it to her lender through foreclosure.

Now, Mazur and McAllister, like many of today’s home buyers, are the unintended beneficiaries of the recent time in America’s history when lending was loose, prices were high and then, the bottom fell out.

“It’s tough. I feel bad for people” who lost much in late 2006 and early 2007 when the home-price bubble burst, McAllister said.

He paid $150,000 in November 2012 for the 17651 Potter Bell Way town house that in July 2006 sold for $254,900.

But, McAllister said, “You see the chance and you got to take it. It’s a dog-eat-dog world.”

His neighbor Mazur also is a realist, but has compassion for the stranger who first purchased the 17645 Potter Bell Way town house he now owns. She paid $246,900 in September 2006 and he paid $150,000 in January.

“There’s no way I would have been in a position to get this (in 2006), so for me, it’s great for me,” Mazur said. “But I also understand a lot of people took big hits. I have friends who went through the bubble. They’re struggling right now. They’ve got double the mortgage I have.”


Building and buying

This is the tale of two houses, but it also is the story of the many that were built, sold, financed, refinanced and lost throughout America from the heady days of the economic boom through the terrible times of recession to now.

Until at least 2002, the 164 acres where Hager’s Crossing was to be built mostly were empty fields on the city’s western edge. By 2005, about 300 homes had been built and up to 600 more were planned.

In those three years, the median price of houses sold in Washington County shot up from $126,450 in 2002 to $225,000 as the economic boom fueled by subprime mortgage lending sent home sales and prices soaring, according to data from Metropolitan Regional Information Systems Inc. (MRIS).

By 2005, the demand here was so strong that 2,237 homes were sold countywide after an average time on the market of just 48 days.

Amid increasing warnings from economic experts that the price bubble nationwide eventually would burst, the year 2006 was a strong one overall here.

Home sales slowed to 1,599 countywide with an average time on market lengthening to 93 days. The MRIS data shows the median price rose to $231,750.

In 2006, the developer at Hager’s Crossing built many of the two-story townhomes along Potter Bell Way, according to records from the Maryland Department of Assessments and Taxation.

The street name Potter Bell likely was a tribute to noted 19th-century area potter John Bell, just as the development name Hager’s Crossing is historically significant as that of the city’s founder, Jonathan Hager.


A matter of interest

The riskiness of adjustable rate loans, let alone words such as “foreclosure” and “bankruptcy,” weren’t familiar to most consumers in 2006 when the women decided to buy neighboring houses along Potter Bell Way.

Each of the women, who aren’t being identified because they couldn’t be reached for comment for this story, bought an end unit on a short line of townhomes. The two end units are, essentially, side by side except for the lawn separating them.

One of the houses contains 1,772 square feet and the other 1,764 square feet, and in those spaces, both have a basement, four bedrooms and three and-a-half baths. And each of the houses is on a 3,400-square-foot lot.

The woman who paid $254,900 in July 2006 for the town house that McAllister now owns borrowed $252,902 in a 30-year mortgage, according to deed records. The interest rate and terms couldn’t be found.

By November 2007, however, the woman had gotten the loan refinanced. This time, records show, she secured an initial interest rate of 6.25 percent that was to remain fixed until December 2012, when it could begin adjusting every 12 months up to a maximum of 11.25 percent.

Meantime, the woman who paid $246,900 in September 2006 for the town house that Mazur now owns borrowed an amount equal to all of the purchase price in a first loan and a second loan, according to the records.

Nearly $200,000 of the debt was in a 30-year mortgage, with an initial interest rate of 8.94 percent, requiring a payment of about $1,471 per month. The rate could change starting in October 2008 and every six months afterward, up to a maximum of 15.94 percent, the records show.

Six months after buying the house, the woman refinanced. This time, she got a 30-year mortgage for $279,900 with adjustable rate and balloon riders, according to the records.

Her new interest rate was to begin at 8.40 percent, but it could begin adjusting in May 2009 and every six months afterward. From then on, it would never go below 8.40 percent, but could rise as high as 14.40 percent, according to the records.


A sea of debt

Across the nation in 2007 and 2008, Americans who recently had bought new homes were finding that their mortgage rates were adjusting ever higher.

Then, behind many front doors, began the financial struggle to make the higher monthly payments. Refinancing was the first answer, but in 2007, the demand for housing and thus, its value, began falling.

In Washington County, the median price fell in 2007 to $220,000 — nearly $12,000 below 2006’s peak. And the price dropped again in 2008 to $195,000.

Refinancing became more and more out of the question.

Homeowners were learning another term — being “underwater” on your debt. They owed more money than their houses were now worth, so they didn’t have enough assets to refinance the debt.

In essence, they were trapped. They couldn’t refinance their debt to lower the payments, they couldn’t obtain a home equity loan and they couldn’t sell without taking a significant loss. The only way out was forward, to try to keep paying down the debt until prices came back up.

The woman in the town house that is now Mazur’s apparently was the first of the two neighbors to fall significantly behind on her payments. According to the records, at least one of her lenders filed a notice of default and intention to foreclose by March 2009.

She wasn’t the only Hager’s Crossing homeowner whose financial problems were being posted at the county courthouse, according to a spot-check of the deed records.

At another town house down the street, for example, two owners, one after the other, faced foreclosure action, the deed records show. One escaped foreclosure in 2007 by selling the house to another person, who then defaulted by spring 2009, according to the records.

By spring 2010, the woman who bought the town house that is now McAllister’s was facing foreclosure action and, by that summer, had lost her house to a lender, records show.


Closing the deal

By November 2012, McAllister, who is 26 and grew up in Maugansville, and his fiancé, Kurtz, who is 25 and from Hagerstown, had been looking for a house for more than a year.

The young couple — he a water and waste treatment worker and she an elementary school teacher — were aware that, economically, the time was right for buying a house.

They knew that loan interest rates were near historic lows and that because of the foreclosures, the prices were much lower, McAllister said.

“It’s house after house,” he said. “If they sold in 2006, they were almost half the price.”

But the jagged remains of the economic bust-up frustrated their search.

“It was a rough time. We spent six months (trying to buy) one short-sale,” McAllister said of a house where the lender seemed willing to cut losses on a bad loan by accepting a reduced price. Nonetheless, “the bank never got back to us,” he said, so they gave up on buying that house.

Another frustration was that the lower end of the market — houses in the $200,000-and-under price range — had started heating up. More first-time buyers were out looking for bargains. Competition was raising prices a bit.

“We had nine different offers on nine different houses,” McAllister said. “We really didn’t want to go to a town house. (But) we were kind of desperate to get out of our apartment.”

The town houses at Hager’s Crossing seemed prime, having fallen far from their pre-recessionary price range of $250,000 to $350,000.

McAllister and Kurtz went for the house on Potter Bell Way, buying it for $150,000 from a friend. The friend bought it early in 2011 for $120,000 from a lender involved in the foreclosure on the original buyer.


Another story

Mazur, who is from Virginia Beach, Va., moved north after getting a job in medical research at Fort Detrick in Frederick, Md.

Now 30 and single, he decided last fall that it was time to buy a house. He focused on Washington County rather than Frederick County because “here, I could get the house cheaper.”

But as McAllister and Kurtz were discovering, there was competition.

“I had put in a couple of offers, but I was outbid,” Mazur said.

In Hager’s Crossing, he made an offer on a town house on Perlite Way, but he said he was told there were for that property “three offers within a day and a half.” Mazur’s bid lost out to an all-cash offer.

So when Mazur next saw the Potter Bell town house, he quickly offered $165,000 — which was higher than the $159,900 asking price. The strategy seemed to pay off. Although he heard later there had been other offers, his was accepted within hours.

But then, the economy created a new obstacle.

“The appraisal came in lower than it should have,” Mazur said. “I got an FHA loan, made a $165,000 offer, but the appraisal said $145,000.”

The problem was somewhat common last year. While price offers were inching up, home appraisals for lenders were hanging back.

So, Mazur said, he and the sellers struck a different deal.

The sellers had bought the house for $145,000 in 2009 from the lender involved in the earlier foreclosure.

Now, they agreed to accept $150,000. In light of Mazur’s loan limit, Mazur said, he had to pay the $5,000 difference and the closing costs himself.

The good news was the interest rate on his FHA loan was fixed and, Mazur said, it is just 3.25 percent.

McAllister figures he did well in that category, too.

An Army veteran who did two tours of duty in Iraq, McAllister said he got his mortgage through the Veterans Administration. His interest rate also is 3.25 percent, he said.


Making plans

Both men are looking to the future with optimism.

McAllister and Kurtz, who have picked a May 3, 2014, wedding date, anticipate having time this spring to beautify their property.

“I’m going to do my house up real nice,” McAllister said. “I’ll have a big old flower bed out there.”

Agewise and economically, Mazur is happy he waited to buy his first house.

“As I get older, you figure out what you need and what you don’t need,” Mazur said. “When I was 26, I needed to have fun. I didn’t need a house. Now, it’s much more important for me to be financially stable and to have a house.”

But even now, amid what seems idyllic, there still are economic troubles.

On March 19, a town house a few hundred yards across Potter Bell Way from the Mazur and McAllister homes was sold at a foreclosure auction in front of the Washington County Courthouse in downtown Hagerstown.

At 12:45 p.m. on that cold, windy Tuesday, the auctioneer began reading the lengthy public sale advertisement aloud, as fast as the words could be uttered. Three minutes later, no other bidders being present, an attorney representing the lending agency bought back the property for $132,300 — much less than the $264,565 paid in 2007 by the man who since has defaulted, according to court records.

Told of the impending foreclosure, Mazur and McAllister said it was sad to think there probably are other people in their neighborhood who still are struggling to pay much higher mortgages than either of them has for the same size house.

“It’s got to be mentally hard to deal with,” McAllister said.

Mazur pictures times ahead, meeting other neighbors and maybe talking about finances.

“If it ever came up in conversation, I’d feel, yeah, guilty that I’m maybe paying half of what they’re paying,” Mazur said. “Yeah, I think about it.”

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