Many a house in foreclosure never gets to auction on courthouse steps

But then auctioneer Nikki Francis reads off a long list of foreclosed properties scheduled to be auctioned on Wednesday.

Almost all are canceled. Some are canceled because of bankruptcy. Some are canceled by the trustee, presumably because the borrower has made other arrangements. In some cases, no reason is given.

In the end, only one house goes up for auction that day: a 1,100-square-foot home built in 1970 just east of Davis-Monthan Air Force Base.

The situation is typical. Although the number of properties entering foreclosure proceedings is on the rise, fewer houses are making their way to the courthouse steps for the daily auction.

The reasons for the reduction are simple, said Ali Jiha, president of G&G Financial Inc., who attended the Wednesday auction. Since 2004, when the Tucson area's housing market started to sizzle, more people have seen the potential profit in buying distressed and foreclosed properties to fix up and sell.

In Pima County, 2,978 properties have been at some stage of foreclosure proceedings in the first eight months of the year, according to RealtyTrac, a private data company. That's a 9.2 percent increase over the 2,726 homes entering foreclosure in the first eight months of 2005.

But the number that actually reaches foreclosure is going down, according to Foreclosure.com.

That data company, counting only the properties that are actually auctioned, reports that 483 properties made their way to the courthouse steps in the first eight months of this year, a 45 percent decrease from 886 properties auctioned during the same time in 2005.

Wave may be building

Mortgage experts and real estate watchers are concerned that a wave of foreclosure proceedings is building as consumers battle rising energy costs and interest rates. Some may need to refinance as adjustable-rate mortgages and other forms of creative financing mature.

In Arizona, 2.4 percent of the approximately 1.1 million mortgages were in some stage of delinquency during the second quarter of this year. Less than half of 1 percent of all loans had actually entered foreclosure proceedings.

For the moment, actual foreclosure sales are historically low. According to Foreclo-sure.com, there were at least 1,000 foreclosed properties in the first eight months of 2002, 2003 and 2004.

Doug Duncan, the Mortgage Bankers Association chief economist, predicts "modest increases in delinquency and foreclosure rates" in the coming months.

Only about 75 percent of reported delinquencies make it to auction, said Rick Sharga, RealtyTrac's vice president of marketing, citing figures from the Mortgage Bankers Association.

More people are watching the foreclosure notices and trying to make a profit.

"As the information has become more readily available, you see more people getting involved in the buying process," Sharga said.

As part of that awareness, some try to reach the homeowner before the auction to buy the home. Although some so-called "foreclosure rescue" businesses have been criticized for sucking away equity from a homeowner, such sales can prevent a big scar from forming on an individual's credit report.

Owners on financial tightrope

Barbara Sherrick and her husband, Bruce, live in the house east of D-M that was auctioned off Wednesday.

She said she and her husband had found themselves in financial trouble more than a year ago when Bruce, an employee at an America Online call center, felt obligated to quit his job because of an ethical concern.

"My husband had to leave his job and take a job with less pay. I had lost my job. In between everything, we got behind," Sherrick said.

Sherrick and her lender, Countrywide Home Loans, worked out a repayment plan to get caught up on payments. The plan didn't hold.

"It was just too hard to keep," Sherrick said. Perhaps too late, Sherrick said she and her husband considered selling the house and pocketing the equity, but that seemed too difficult.

The house needs some repairs and Sherrick said she didn't think it would sell in today's slower housing market.

She said she did get some offers from "vultures" who wanted to buy her house at a reduced price. She turned them away.

She didn't know her house was going to be auctioned on Wednesday. She heard about it only the day before because a private lender came to her front door and informed her of the pending auction.

"They don't tell you. They just let it happen," Sherrick said. "That's really sad."

Bidding starts slowly

Auctioneer Francis opens the bidding at $70,289.16, and it starts out slow enough. There's no yelling or holding up signs. Some bidders hold up a hand and seem to grunt. Bidders sort of step in and out of the bidding.

Helen Meadors, an associate broker with Century 21 1st American, bids $73,500. Bidders bump up the price by just $100 or $200.

The pace picks up as Jeff Katz, a lawyer with a private practice and co-owner of the restaurant Chopped in Tucson, bids $76,000.

There's more volley back and forth, and Meadors ups the price to $79,000. Katz ups the price to $81,000. There are pauses in the bidding, and a couple of "last calls," when it appears the sale will be finalized, then the bidding catches fire again.

About 30 minutes in, Jiha of G&G Financial bids $117,600.

Sold.

Soon after, Jiha says he paid too much for the property.

More bidders and fewer auctioned properties mean higher selling prices, said Meadors, who has been attending the auctions for about six months.

Says Jiha: "Sometimes we get emotional. We get into the bidding thing."

Wins auction, loses property

Jiha needn't worry — after winning the auction, he lost the property after all.

The private lender who came to Sherrick's door offered to buy the house. Sherrick will now pay rent on her home for a year, when she will have the option of buying it back.

Jiha said the auction was scuttled because the trustee gave the wrong instructions to the auctioneer. All that bidding resulted in an invalid sale.

Now, with both her and her husband working, Barbara Sherrick hopes to become financially stable enough to buy back the home. Worried about her already-damaged credit, Sherrick wanted to stay in the home where she's lived since 1996.

"If we lost the house, where would we go?" Sherrick said.

l Once a homeowner's mortgage payment is late, the lender may assess a late fee, depending on the conditions of the loan. The company that processes the homeowner's payments may try to contact the homeowner for an explanation.

l The servicer may send a "demand" letter to the homeowner pointing out that the terms of the mortgage have been violated. The homeowner may be given some length of time to pay the delinquent amount.

l The servicer hires an attorney, title company or foreclosure service to initiate a foreclosure proceeding. A notice of trustee's sale is filed at the Recorder's Office. At least 90 days must pass before an auction is held. A notice must be published in a newspaper published in the county in which the property is located.

l After the recording of the delinquency, investors may contact the homeowner offering to take over the mortgage and ownership of the house.

l If no deal is made for the house in the interim, the house is sold at a public auction.

l The auction may be postponed if the homeowner files for bankruptcy.

Sources: Bankrate.com and Jeff Katz