Page 3


f kV ,::\\ ”N:\\ ,,,, , , 4\\.N, , , VIC HINTERLANG Warehousing Disaster When the Feds Sell their Austin Foreclosures, Real Estate Prices Will Tumble BY ERWIN MCGEE Austin ONCE the boomtown of developers’ dreams, Austin is on yet another collision course with economic reality. Thousands of condos, commercial buildings, and family residences have been foreclosed on during the last two years. Despite the word on the street that the market has bottomed, 1989 could be another year of steep decline in real estate values. The numbers themselves are startling. According to Foreclosure Reports, Inc., between January of 1987 and July of 1989, 8,813 single family residences, 1,903 condos, 694 commercial buildings, and over 1,000 raw land parcels have been absorbed through foreclosure into Real Estate Owned foreclosed properties held by lending institutions. Almost all of this property had been acquired through earlyto mid-1980s leveraged purchases, in which buyers invested little of their own money and loans were based on boom-market, inflated appraisals. Lack of readily available information makes it difficult to prove that these properties have been intentionally kept off the market, but a bit of extrapolation suggests that this is the case. Some 13,000 of the 110,000 single-family, detached residences in Austin are vacant, according to the city planning department. The July Multiple Listing Service included just over 6,000 single-family residences for sale almost all occupied by owners trying to sell through real-estate agents. Housing & properties for sale by owners are not included in MLS listings. Properties owned by the Federal Deposit and Insurance are about 90 percent vacant. Only a small percentage of these institutionally-owned, largely vacant properties can be assumed to be included in the MLS books, since 4,000 to 4,500 \(of the When, if ever, the 9,000 residences and 2,000 condos in REO portfolios hit the multiple listing market, listings will jump from 6,000 to 15,000 properties overnight. Of course, the multiple listing system is Erwin McGee is an Austin attorney. Vacant and in foreclosure in Austin not the only way to market real estate. HUD properties are listed in newspaper classified ads, and properties are also sold at auctions or by posting signs with names and phone numbers to contact. However, throughout 1988 and 1989, there has been a larger inventory of FDIC and FSLIC properties not visibly “on the market.” Once they are placed on the market a dramatic drop in prices can be expected. There is an individual tale of woe behind each of these 12,000 foreclosures. When a bank forecloses, it can bid the loan amount and simply take the property back, absolving the debtor of all liability on the note. Or it can bid only a percentage of the loan and take a deficiency on the debtor \(and any the property in the foreclosure. Untold hundreds of foreclosures have been made and home owners have been left facing deficiencies the difference between the amount owed on the note and what was paid for the property at foreclosure. Many who lost their homes don’t know if a foreclosure completed 18 months or two years ago resulted in a deficiency. Some simply wait, uncomfortably, for the constable to serve a citation informing them that the bank is seeking the difference between the amount the bank bid on the property and the loan amount plus interest, attorney’s fees, and foreclosure costs. Interest on a deficiency can accumulate at a rate as high as 18 percent, the maximum allowable in Texas. \(Information on deficiencies can be obtained by checking the high-bid price on the substitute trustee’s deed filed at the county courthouse or by The statute of limitations for filing a deficiency suit is four years. So for many, this uncomfortable period of waiting will persist. Of course, hundreds of the bigger players, the developers and leveraged realestate speculators who were riding the crest of the boom, were hopelessly insolvent early and have already filed bankruptcy. So many contractors, sub-contractors, and building suppliers had no choice but to file bankruptcy when they couldn’t collect on the accounts receivable left by the big players like Nash Phillips Copus. MANY in Austin who borrowed to buy real estate in the earlyand mid-1980s, have been so far spared foreclosure. These uncomfortable sleepers are the small developers and professional class \(lawyers, engineers, and THE TEXAS OBSERVER 11