Days of Default : Company Keeps Track of Local Foreclosures for Savvy Buyers

HUNTINGTON BEACH —  The apartment complex in Brea, the house in Laguna Beach and the two condos in Irvine all have something in common: The owners are way behind on their mortgage payments.

Some of these properties will be lost by the owners when the lenders sell them to get their money back. These properties and lots of others appear on a list put together by Kurt DeMeire’s company, which sells the list to people who buy property in foreclosure--homes and offices that can sometimes be bought cheap by savvy buyers.

Foreclosure sales were way up in Orange County last year. Lenders sold nearly 600 properties, contrasted with 365 in 1989, according to TRW Real Estate Information Services. That’s not counting the 11,000 notices of default recorded by lenders last year on property where the mortgage was more than three months delinquent. One out of 10 properties now on the market is in default, DeMeire estimates.

DeMeire tracks all these filings through his company, County Records Research. He says foreclosures show no signs of slowing. In fact, they started to mount ominously near the end of 1990 as the recession deepened. By the end of the year, they had doubled from a year earlier.

That might seem like good news for DeMeire’s company. But the troubles haven’t brought an appreciable increase in subscribers to his foreclosure lists. Even the vultures, it seems, aren’t buying much property these days.

Digging up all that information at county recorders’ offices takes a two- or three-person crew all day, DeMeire says. And that is eating into his firm’s already-thin profits.

“I’ve made far more money buying property than I ever have making lists,” says DeMeire, 35, a former grocery store manager.

In fact, DeMeire owns 18 condos, houses and small apartment buildings, all bought through the foreclosure process.

The company’s cash flow certainly isn’t going into overhead at its small storefront office in a nondescript Huntington Beach neighborhood. The wooden desks are chipped, and someone has scrawled what are evidently important phone numbers on a blackboard.

Still, this is one place you go if you want to find out what’s being foreclosed on. And that’s plenty of buildings lately.

“There are everything from total wrecks to million-dollar mansions,” DeMeire says.

Foreclosures tend to be proportionately higher in affluent neighborhoods. “On a per-capita basis, foreclosures are higher in places like Newport Beach, where people tend to stretch themselves to the limit (in borrowing), than in poorer neighborhoods,” DeMeire says.

Most foreclosed properties are homes; only about 5% are commercial buildings, DeMeire estimates from his listings.

The basic idea of buying property in the process of foreclosure is simple: You’ve got somebody over a barrel. But the process is a little more complicated.

Some people try to buy property after the lender has recorded a notice of default, which typically happens when a borrower is three months or more behind on his mortgage. If the borrower doesn’t get current or sell the house, foreclosure usually follows, says Alan S. Zall, the company’s lawyer.

Some owners manage to stave off foreclosure by coming up with enough money to get current on their loan; others manage to sell their property before foreclosure. It’s usually to their advantage to sell if they can before foreclosure because the lender will ask only the minimum to repay the balance of the loan and his fees and costs. That might mean the owner will have nothing to show for the sale.

Knowing which properties have had a notice of default can help a buyer swing a better deal. If you know a homeowner wants to sell before foreclosure, you can sometimes pressure him into a better price. Not pretty, but effective if you’ve got a take-no-prisoners approach to buying property. “And no distressed seller is going to volunteer this kind of information,” DeMeire says.

At least four months after the notice of default is recorded, the property goes to a trustee sale. There are 10 to 15 of these a day all over Orange County, from the county courthouse in Santa Ana to title company offices and city halls. But if you bid on a property here, bring cash because these are usually cash deals.

At many of these sales there is no bidder, DeMeire says. The bank now owns the property, which means it has to hire a broker to sell it and fix the place up if needed. Meanwhile, the bank is losing money by holding the building until it sells.

That’s when it’s time to low-ball the lender, DeMeire says. He says investors sometimes bid below the lender’s minimum when they know there are no other bidders, but before the lender turns the building over to a broker. Sometimes the lender will accept the bid rather than go through the hassle of hiring a broker and perhaps needing to repair the property.

Sometimes the lender will even finance the deal. The least cash DeMeire says he has put into a purchase is $3,500 for an $85,000 condo that he bought for $64,000.

But there are risks. Sometimes you may not be able to inspect the building you are bidding on, so you can’t tell if there’s something wrong with it. Still, there are enough people serious about this kind of investing to keep County Records Research afloat. “Several hundred” subscribers is as specific as DeMeire gets about such numbers.

That isn’t a whole lot. And the company hasn’t raised its $76-a-month subscription rate in four years for fear of losing some subscribers.

DeMeire hopes to diversify into related businesses. By the end of the month County Records plans to start holding the trustee sales at which foreclosed properties are sold.

DeMeire got into the business 10 years ago while doing his own research on foreclosed properties he wanted to buy.

He was a year out of Cal Poly Pomona with a degree in agricultural business and managing a grocery store. Now he has 17 employees.

“I realized there was a demand for this information,” he says. “Nobody wants to sit and look at microfilm all day. It’s the most tedious work imaginable.”

FORECLOSURE FACTS

One out of 10 properties now on the market is in default.

Foreclosures tend to be proportionately higher in affluent neighborhoods.

Most foreclosed properties are homes; about 5% are commercial buildings.

Before a lender forecloses on a property, it must record a notice of default, which typically happens when a borrower is three months or more behind on his mortgage.

It’s usually to an owner’s advantage to sell before foreclosure because the lender will ask only the minimum to repay the balance of the loan, plus fees and other costs.

At least four months after the notice of default is recorded, the property goes to a trustee sale.

There are 10 to 15 trustee sales a day held in Orange County.

Source: County Records Research