Swamped mortgage holders prolong metro Atlanta’s real estate slump

Last March, investor John Clark approached a lender with a $110,000 offer for a potential rental property in Stone Mountain.

“They said ‘we are working on it, we are working on it,’” Clark said. “For whatever reason they could never get it together.”

The mortgage holder eventually foreclosed.

A few months later, Clark swooped in and bought the same property from the lender — for just $56,000.

“It was really good for me,” Clark said.

While Clark celebrated his own good fortune, he recognized the consequences: A homeowner suffered a needless foreclosure, the home sat empty for months, the lower sales price put another rock-bottom sale on the books for Stone Mountain, and the lender lost more money.

Agents, investors, buyers and real-estate experts say that scene is playing out daily across metro Atlanta as mortgage companies are inundated with record numbers of homeowners either behind on their payments or saddled with more debt than the property has value.

That means a flood of requests for mortgage modifications, short sales and foreclosures.

Mortgage holders, they say, are unable to dispose of distressed properties quickly — needlessly prolonging the real-estate slump.

“The right hand doesn’t know what the left hand is doing,” said John Adams of Decatur, who doles out real-estate expertise to print, online and radio outlets nationally, including The Atlanta Journal-Constitution.

Banks, he said, are overwhelmed with paperwork from the real estate crisis.

“For the last 20 years, all the pressure in the business was in the loan application process,” Adams said. “Now, it’s dealing with foreclosures. That is foreign to a lot of these people.”

So, who’s to blame?

While investors routinely use the term “banks” when describing the problems, in many cases they’re really talking about loan servicing companies.

That’s because most lenders don’t hold on to mortgages but instead sell them on the secondary market, where they’re bundled and sold as securities. Loan servicers — including some that are arms of big banks — have cropped up to handle these mortgages.

The problems Atlanta investors cite often involve efforts to strike deals on “short sales,” where the sale price is less than the balance owed on the home. Short sales can be difficult to pull off, experts say, particularly in such a troubled and volatile real-estate market.

Industry experts say that early on in the crisis, many lenders didn’t grasp the extent of the economic downturn and opted against short sales, hoping for a rally in the real estate market.

“I don’t think anybody realized it was going to be this bad,” said Marty Griffin, director of bank-owned property for Coldwell Banker in Atlanta.

“Now banks are saying, ‘You know, maybe we should have taken that short sale.’ But it’s too late,” she said.

The sheer volume of troubled mortgages has strained lenders and loan servicers. Many have added staff to shoulder the workload, but investors who want to buy property complain they often never get a response.

“I’ve heard that in the industry — ‘I can’t get through, I can’t get through,’” said Jason Spooner, a vice president at SunTrust Mortgage in Richmond, Va., who oversees the company’s “loss mitigation” office. “Sometimes these people just don’t get the answers they like.”

At SunTrust, Spooner said, the bank has tripled the staff dealing with troubled mortgages and defaults.

The banks are dealing with more than just bad home mortgages. They’re also reeling from widespread defaults on loans to real-estate developers and home builders, leaving huge quantities of undeveloped lots and half-built homes that are proving difficult to unload.

It’s difficult for lenders, who suddenly find themselves in the real-estate business having to maintain vacant homes, appraise property and wade through stacks of offers.

In some cases, banks have had to foreclose on entire subdivisions of lots and unbuilt houses, said banking attorney Jerry Blanchard, of Bryan Cave Powell Goldstein.

“It’s become quite a daunting task of how to dispose of it,” he said.

Hap Richardson knows how challenging it can be to buy a house before foreclosure. Last year he approached a bank about buying a house whose owner was behind on payments.

Richardson, a real estate investor, offered $50,000 for the small, two-bedroom, one-bath brick bungalow built in 1952.

First he waited. Then he waited some more.

Eventually, the bank rejected his short sale offer and foreclosed.

The house came back on the market a few months later listed by an agent for $49,000.

Richardson eventually bought the property at 783 Dennis Drive for $42,000 — $8,000 less than his original offer.

“The best deals,” Richardson said, “are all after the house gets foreclosed on. The banks don’t want to short sale. They are always hopeful someone is going to catch up. A lot of times that is just not possible.”