Boom, Bust in Area Beset by Foreclosures

Greg Giniel sits out in front of his home which is in foreclosure in the Villages of Queen Creek housing development Thursday, Sept. 27, 2007 in Queen Creek, Ariz. Giniel says he will try to buy his home back at the foreclosure auction in November. (AP Photo/Ross D. Franklin) (Ross D. Franklin - AP)

In the Villages, already half completed, remaining lots looked too good to pass up. One Southern California investor, Alan Jullien, bought three homes. A flight attendant, Angela Nazario, bought a two-story house even though she lived by herself and was frequently on the road. A local real estate agent, Sean Bacon, bought two.

Homeowners who bought earlier were feeling good. The market spike turned the Gustafsons' $235,000 home into one worth $380,000.

Across the Valley, homeowners watching their home values shoot up, borrowed against those gains.

"Talking to a lot of co-workers, everyone was doing the same thing _ taking out lines of credit, milking it for all it's worth," says Matthew Berends, a homeowner in Surprise, another Phoenix suburb where prices soared. His home is now in foreclosure. "In one year for a house to go up $80,000, it's like too easy."

But some relatively modest purchases would prove to be risky gambles.

Greg Giniel and his wife moved into a home on East Sanoque Drive bought by a friend, with Giniel as a silent partner. What Giniel hadn't counted on was that the friend had also bought three other homes around the Valley, all financed with adjustable rate loans that were bound to rise.

One street over, the Kesslers paid $279,000 for a house in the fall of 2005.

With $25,000 down and an interest-only loan, it seemed like a wiser deal than their old rental.

There was a problem, though, obvious only in hindsight. A market that had skyrocketed was about to take a plunge.

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It takes time for a homeowner to get into trouble, but sometimes not all that long.

In the summer of 2006, the Gustafsons fell behind on their mortgage payments. Their interest rate was set to jump. In August, their lender started foreclosure.

Meanwhile, problems began to snowball. High gas prices prompted people to rethink the idea of owning a home on the outskirts. Investors rushed to sell.

In 2005 _ a record-best year for Phoenix real estate _ just five homes in the ZIP code containing the Villages were lost to foreclosure, according to Information Market, a Phoenix real estate research firm.

Last year, lenders claimed 15, nearly all in the final two months of the year.

So far this year, 75 homes have been claimed by banks. But with the market so soft and more adjustable rate mortgages about to reset, that could be just the beginning.

In the Villages, many of the homes where foreclosure is pending are already empty, a sign owners have given up.

In a big subdivision _ about 1,400 homes _ the problems aren't always obvious. The golf course remains carefully watered, the playgrounds neatly swept. Many streets, particularly in areas built before prices spiked, are filled with families who take walks with strollers in the evening or grill burgers in backyards overlooking the greens.

But on other streets, the presence of homes without curtains in the windows, with dirt and cobwebs collecting in doorways, is almost eerie.

Even when the market was good, some Villagers were troubled by the large number of investor-owned homes, empty or filled with renters.

Then late last year, moving vans began to pull up to some homes at odd hours. Auction notices were posted on front doors. The oleander and mesquite trees that do so well here in the desert sun turned brown in yards left without water.

In May, the house to the left of the Pickerings' on Calle de Flores went to foreclosure. Two weeks later, the house on the right followed. Both had been empty for months. It made David Pickering vaguely uneasy. He couldn't help wondering whether empty houses might attract vandals.

"The weeds in the back are getting so tall now that they are growing over the separating wall into my yard," he e-mailed, alerting the homeowners association to one of the vacancies. "Something must be done about this. ... The property must be under financial responsibility of someone."

For a couple of months, landscaper Nick Bourque _ who lives next door to three foreclosed homes in a row on Via del Palo _ made a point of keeping the abandoned yard bordering his free of nutsage and old newspapers.

"I just figured after a while, the heck with it," he says. A real estate agent scheduled an auction of the home, but found no takers.

On Via del Rancho, Christelle Palmire watched as the home next door was abandoned to foreclosure. It stayed empty, too.

This Halloween, Palmire plans to take her son trick or treating in a friend's subdivision where she knows most doors will be answered.

"You drive around this subdivision and there are 'For Sale' signs everywhere," she says.

The problems become self-perpetuating. Researchers say that each foreclosure chips away at neighbors' property values. But foreclosures here compound a larger problem.

Builders continue adding homes to the market at reduced prices. Investors are trying to sell. Lenders are seeking buyers for foreclosures. Homeowners whose financial troubles might be solved by selling can't compete, real estate agents say.

"Sometimes the neighbors don't like you so much because you're one of the reasons the values are declining," says Kim Gordon, a real estate agent specializing in foreclosures who is listing two homes in the neighborhood. "But everyone has got their part in it. The homeowners overextended themselves."

In many ways, the Villages is lucky because so much was built before the market soared, says Amanda Shaw, president of Associated Asset Management, which administers it and 300 other Arizona subdivisions. The company, which once saw two foreclosure notices a month in its communities, now fields three to five each day, and some of its subdivisions have been hit much worse.

But it can be difficult to know when homeowners are in trouble.

"There are people who think they don't have an alternative ... other than to turn the lights off at 1 in the morning, hop in the U-Haul and just leave," Shaw says.

Now, says Ed Stutz, who lives in the subdivision and pastors the nearby Family of Faith Fellowship church, at least three Queen Creek homeowners call each week asking for help paying their bills. That never used to happen. In September, the church decided to offer budgeting advice.

"They saw a lot of home for a pretty decent price and I don't think they saw the handwriting on the wall," Stutz says of his neighbors. "People took a gamble and now it's hurting."

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It's worth much less than it used to be, but it's home, Dave and Maryann Gustafson decided.

In May, their lender agreed.

The company modified their loan, temporarily trimming the $1,000 a month increase in their payment to $400. It's a stretch, but will keep the Gustafsons in their home at least until the modified terms expire in two years.

Greg Giniel is not so sure. His home, owned by his investment partner, is scheduled for a foreclosure auction in November.

"I've got to figure out how to buy my own home back," Giniel says. "If God doesn't pull me out of this one, I don't know where else I'm going to go."

Things looked just as uncertain to Joy and Paul Kessler, until they did the math.

They could fight to save their house. But what was the point? It's worth at least $40,000 less than they paid. They can rent in this depressed market for a fraction of their monthly payment.

"It's sad to say but honestly, we don't feel like there's anything worth saving in this house," Joy says. "Financially, we've got nothing to show for it."

So the couple decided to let the place go. Everyone said it was the right thing to do.

Still, it doesn't sit right with her husband, a painter and construction worker. When times were good they made a commitment, Paul tells Joy. Somehow, it doesn't feel right to just walk away.