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Florida community feels ripple effects as paperwork issues stall foreclosures

By Brady Dennis
Washington Post Staff Writer
Monday, October 18, 2010; 12:20 AM

IN FORT MYERS, FLA. The yellow stucco house at 1813 Oakley Ave. has blooming bougainvillea out front, a spacious yard out back and a buyer named Emilio Mamuyac who's smitten with the place and ready to move in. But he can't.

Since early last month, the sale has been postponed three times as the mortgage finance giant Fannie Mae, which seized the home from a delinquent borrower, has faced concerns about whether the foreclosure was properly carried out.

And as this deal and others like it languish, the effects are rippling across this community on Florida's west coast. Mamuyac has to continue paying rent for an apartment six miles down the road. Mamuyac's real estate agent hasn't been able to pocket his commission, nor has the seller's agent. Another home inspector loses out on work.

This transaction is one of thousands in this area abruptly put on hold as lenders and state officials have sought to freeze foreclosures, a reaction to mounting reports of flawed and fraudulent paperwork and improper practices used to seize homes in foreclosure. Contractors who depend on home repairs in Fort Myers sit idle. Appliances and paint that go into fixing up foreclosed homes remain unsold at the nearby Home Depot.

Across the country, major financial companies such as Bank of America, J.P. Morgan Chase and Ally Financial have placed a moratorium on foreclosures in many states and slowed the process in others, saying time is needed to review court documents used in the cases.

(FULL COVERAGE: The foreclosure system in chaos)

While some judges in the Washington region have begun reviewing foreclosure cases for irregularities, there has yet to be the kind of broad moratorium that is starting to upend the real estate market elsewhere.

Few places are feeling the impact more than Florida, where foreclosures and short sales account for more than one out of every three home sales.

Many of these foreclosed properties are vanishing from the real estate listings, rocking the state's housing market. This development is still too recent to be accurately reflected in housing statistics, but Wendell Davis, president of the Florida Association of Realtors, said his members are already feeling the effect and worrying about the toll that a prolonged or stricter moratorium could take.

While Florida remains at the center of the crisis, the state's experience could portend difficulties elsewhere the country, including the Washington region, if the nation's foreclosure process continues to stall.

Home buyer in limbo

The house on Oakley Avenue has two bedrooms with Berber carpet, one bath, a kitchen with white cabinets and a cozy breakfast room. There are built-in bookshelves, an alarm system and a one-car garage with a workbench.

"I just fell in love with it," said Mamuyac, 40. "It's a beautiful home. It's quaint. It's a nice, mellow neighborhood."

The 900-square-foot house, which last sold in 2001 for $83,000, recently went on the market as a foreclosure for $39,900. Mamuyac beat out other prospective buyers by offering $42,000. He planned to pay cash.

Now, unsure when or if the deal will go ahead, Mamuyac keeps waiting.

"I don't really have a choice," he said. "I used to get really mad about it, but there's nothing I can do."

Mamuyac's real estate agent, George Messeha, said he's been pressing to ensure that the contract goes through but realizes it's beyond his control. His optimism wears thinner with each delay.

"My feeling is that we could wait another six months," he said. "What can we do?"

Messeha worked with Mamuyac for eight months, showing him dozens of homes. If the sale on Oakley Avenue works out, he said, he stands to make a meager $1,200 commission. Twenty percent of that goes to the agency he works for. About the same will go for taxes. Take away the cost of the gas he used visiting homes, his cellphone bill, the paperwork he printed on his home computer, and not much is left.

"I am working for free," Messeha said. "I could work at McDonald's and make more money."

In recent weeks, Messeha has seen two other deals fall apart. Many buyers are pulling out when their contracts get put on hold or canceled, preferring to steer clear of the foreclosure market or wait until the dust settles, he said.

"All the buyers right now are scared to buy," he said. "When I lose these transactions, I lose money."

Too quiet for comfort

What most scares Marc Joseph, the seller's agent trying to unload the house on Oakley Avenue, is the quiet.

The phones have stopped ringing. The e-mails have tapered off. Over the past two years he has run highly publicized bus tours of foreclosed properties for prospective buyers, but he canceled them because of the lack of interest. His bright-green bus sits idle out front as cars whiz by on Cape Coral Parkway.

"Everything," he said, "is dead silent."

The gregarious Joseph is that rare breed, a native Floridian, and he has carved out a niche as a listing agent for the flood of foreclosed homes on the market in this recession-ravaged corner of the state. For more than two years, it has provided steady and profitable work.

But in recent days, Joseph and his team of 15 agents have sat by helplessly as Fannie Mae, Freddie Mac and others have pulled homes from the market, concerned that the properties might not have clear titles. Joseph and other agents still have to check on the properties, pay the utilities and keep the homes presentable.

"We're just going deeper and deeper into the hole," he said. "It's getting ugly. It's a time of uncertainty for a lot of people."

Joseph said he understands the public anger over revelations of fraudulent and mishandled foreclosure filings. But he doesn't see the wisdom in halting sales of long-foreclosed homes, which are piling up in this county of 600,000 faster than almost anywhere else in the country.

"We surely don't want to stop the healing process, which is selling the house next door that's vacant. But that's all we're doing right now," Joseph said. "The longer we hold off on the problem, the bigger the problem gets."

Indirect effects

Next door to Joseph's office is Flagler Insurance, where Ron Scalzo works as director of marketing and sales. More than half the business consists of home insurance on newly purchased foreclosures, most of them referrals from Joseph.

Until last month, the firm was writing 25 to 30 new policies a month. Scalzo would have had a shot at writing insurance for the house on Oakley Avenue, as well as for others coming down the pike.

But since the start of this month, the company has written only three new policies on foreclosure sales.

"I've been shocked this past week over the falloff. We were expecting closings. I was expecting checks," Scalzo said, his festive Hawaiian shirt clashing with his worried look. "We were expecting closings. I was expecting checks."

He said he's not sure he will be able to keep the two staffers he hired six months ago to help with the processing work when the foreclosure business was galloping along. In the meantime, he's bought advertising on place mats at local restaurants to drum up more business, paid a contractor $1,000 to try to get more Web traffic, even created a Facebook page.

"Right now, I'm scrambling," he said. "I'm very nervous. . . . I've got to fill the void."

Steve Rhea also used to thrive off foreclosure sales like the one on Oakley Avenue. The 60-year-old, gravelly-voiced owner of A-Max Home Inspection used to conduct as many as seven inspections a week. These days, he's lucky to get one.

"I would say 90 percent of my business, if not 95 percent of my business, is foreclosures and short sales," Rhea said. "We're dead in the water."

Rhea has been in business 11 years. He runs the operation out of his home in nearby Port Charlotte and traverses the area in his 2008 Ford truck, scouting for new business.

"The last two months have been the worst months I've had in years," said Rhea, who hasn't found a way to fill all the unwanted downtime. "I'm practicing for retirement."

Waiting, cash in hand

Mamuyac had big plans for the house on Oakley. He hoped to fix up the garage and make the driveway bigger - more space for his Nissan 350Z sports car, his pickup truck and two motorcycles. There would be a nice kitchen for cooking and room for his electric guitars and his cat, Rocket.

It was going to be a place to start over.

Once a mortgage broker himself, Mamuyac saw that career go bust with Florida's housing boom. Now, he's relegated to managing rental properties owned by his mother, designing Web sites and picking up other work where he can get it.

He said he cashed in some stocks and tapped money left behind when his father died to come up with the funds to buy the Oakley Avenue house.

"For me, it's affordable," he said. "This is where I planned to stay."

He hopes he'll still get the chance, but his doubts are growing.

"It's just waiting for me to move in," Mamuyac said. "I've got the cash. It's sitting there in the bank. My money is ready to go."

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SEE PHOTOS: Florida community feels ripple effects of foreclosure chaos

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