Lien and Mean

labpam liebman 4v Lien and MeanA great tragedy of the subprime mortgage meltdown of 2007 and 2008 is the abundance of property owners who lost their homes or apartments to foreclosure. So there was some mild cause for hope when first-time foreclosures in New York City fell to 170 in December, a 12-month low.

Could it be that the worst of the whole sordid mess had finally passed by?

According to a study of preliminary January foreclosure numbers provided by PropertyShark.com, the answer is no.

This January there have been an estimated 278 first-time foreclosures in the city, a 63.5 percent month-over-month increase, indicating that the subprime monster lives on into the New Year. Rather than some sort of permanent (and positive!) new trend, the sharp reduction in foreclosures was a one-off anomaly, a red herring, if you will, likely caused by a statewide, three-month-long foreclosure moratorium that expired at the end of November.

In New York, the locality of foreclosures has followed fairly consistent patterns since they started picking up in the second half of 2007: a heavy concentration of foreclosures in central and southern Queens, parts of Staten Island and east Brooklyn, and considerably fewer foreclosures in other parts of the city, particularly Manhattan, where there have been almost no foreclosures to speak of.

The foreclosure-rich neighborhoods tend to be the sorts of places attractive to subprime lenders; like a moth to a flame, the ultimately destructive creative financial packages were drawn to places like Jamaica, Queens, by the cheaper property values and less-qualified mortgage applicants. The question now: What is going to happen to borrowers in 2009?

Is all of New York going to morph into Jamaica, with a seemingly endless supply of foreclosed homes? Probably not, but the ongoing financial crisis and the pitiful job market might affect the foreclosure market in different ways. The city’s unemployment rate jumped to 7.4 percent in December.

“There is going to be a definite correlation between the job market and home foreclosures,” Bill Staniford, the chief executive of PropertyShark.com, said. “There is going to be more standard ‘I’ve lost my job and can’t afford to pay the mortgages’ sort of thing.”

 

THUS FAR, Manhattan has avoided the foreclosure plague. In the second and third quarters of 2008, there were 57 home foreclosures in Manhattan; Queens had 254 in the month of August alone.

Even with massive layoffs on Wall Street and a worsening economic climate, it’s unlikely that mortgage defaults will increase in Manhattan. Because of stringent co-op regulations and the exclusive nature of Manhattan property, few buyers will have the sorts of dramatic equity problems that led so many outer-borough borrowers to default. But there will still be people looking to downsize, cut down on costs and scale back on their living expenses.

With that in mind, real estate executives are closely monitoring the number of distressed sales in Manhattan. “I don’t think you will see transparent distress, but I think you are going to see properties in Manhattan trade down,” Mr. Staniford said. “People may not go into liens pendants or foreclosure, but some people may have to sell.”

Much as home foreclosures have helped diagnose some ailing outer-borough neighborhoods, the distressed seller could become the weather vane of Manhattan’s residential market in 2009.

“What’s troubling is that there’s already a trickle coming in,” Pam Liebman, CEO and president of the Corcoran Group, said. “We’ve seen a couple of short sells, but nothing like a big trend.”

Ms. Liebman explained there are buyers waiting for cut-rate apartment prices, and, in that parlance particular to real estate execs, said there has been a steady stream of foot traffic at open houses around Manhattan.

Michael Goldenberg, an executive sales director at Halstead Property, was working in Manhattan the last time there was a foreclosure crisis there, in the late 1980s and early 1990s. Back then, he was running Halstead’s real estate owned division, helping banks offload their foreclosed properties to the nearest buyer. He remains optimistic that today’s market is in better shape.

“Back in those days, there was a real estate problem in Manhattan,” Mr. Goldenberg said. “Today, it’s a case-by-case basis where some people are just going to overextend themselves, but based on what we are seeing in terms of foreclosure notices and the indications from the government, I am led to believe that we should avoid having a similar problem.”

Meanwhile, the pace of foreclosures in the outer boroughs remains brisk. Brian Tracz, a real estate attorney, spoke to The Observer after attending a short sale of a home in Jamaica, Queens. About two years into a major foreclosure crisis, Mr. Tracz notices that banks and mortgage lenders are starting to reverse their strategies when it comes to resolving mortgage defaults.

“They’re more willing to listen now than they used to be,” Mr. Tracz, a native of Forest Hills, Queens, said. “They are much more likely to agree to a short sale now than they were a year ago, and they definitely don’t want to carry the costs of having the properties just sit around.”

Don’t expect home foreclosures to disappear anytime soon. Like something out of Shelley’s Frankenstein, the subprime mortgage crisis is a lot harder to kill than it is to create.

“We created this monster, and now we are going to have to learn how to deal with it,” Mr. Tracz said.

ohaydock@observer.com