A Real Estate Niche Profits From Rise in Foreclosures

Longtime real estate agents Barbara and James Newcomb decided three years ago to focus on selling homes that had been repossessed by lenders, certain that the housing market would falter and they could cash in.

The decision paid off. Today, the couple is handling the sale of 50 foreclosed houses in Maryland -- up from about 15 a year ago, said Barbara Newcomb of Don Gurney GMAC Real Estate in Glen Burnie. "We've hired three people to work for us since September."

As the number of foreclosures rises, the niche industry devoted to helping lenders quickly offload these properties is flourishing, fueled by an influx of traditional real estate agents looking to supplement their income during a protracted housing slump.

The homes, known as REOs for "real estate owned," are those that lenders failed to auction at the courthouse after borrowers defaulted. Subprime borrowers in Virginia, Maryland and the District lost 8,000 of these homes to lenders in the year ended September, up from 842 the previous year, according to estimates by First American LoanPerformance.

The more of these houses lenders dump on the market, the more lucrative the REO industry gets and the more players it attracts, including title lawyers, cleaning specialists, appraisers and information technology firms that help lenders track their properties.

"Everybody right now is trying to get into REOs or they're trying to make a buck off of someone trying to get into REOs," said Michael P. Krein, president of the National REO Brokers Association, a 10-year-old trade group. "It's a cycle we've seen before."

When the market is thriving and foreclosures are few, the REO industry shrinks. When the market sours and foreclosures soar, the industry expands because of a lender-driven hiring spree.

The hiring starts in-house. When foreclosures rise, lenders beef up their teams of asset managers. Those managers hire people to handle the logistics of selling those homes.

"The lenders need people on the ground to do the grunt work, to make sure that no one took all the toilets out of a house," said Guy Cecala, publisher of the trade publication Inside Mortgage Finance.

That demand inspired Ronnie Ory to get out of the home building business and concentrate on cleaning and preserving foreclosures back in the 1990s, when Florida's housing market tanked.

Today, Cyprexx Services, based in Tampa, taps into a network of subcontractors nationally, including in the District, Maryland and Virginia. In this region, the firm has about six times the number of foreclosures as last year, Ory said.

"We stuck with this business because there will always be some foreclosures," Ory said. "We make it work just by basic business planning. We stay light on our feet and use subcontractors all over."