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VOL. 124 | NO. 10 | Thursday, January 15, 2009

’08 Foreclosures Set Stage for Rough ’09

By Andy Meek

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BACK ATCHA: The foreclosure problem has reached a point in Memphis where local elected officials such as the Memphis City Council voted only a few weeks ago to authorize a lawsuit against national mortgage lenders. The companies are believed to have contributed to the foreclosure problem in Memphis and Shelby County. -- PHOTO BY BILL DRIES

The most revealing metric for gauging the extent of the foreclosure problem in Shelby County over the course of 2008 isn’t a number at all – though the numbers point to what arguably is a disturbing trend.

The number of foreclosed properties sold to new owners in 2008 was 6,347, up about 7 percent from the 5,927 foreclosures in 2007, according to year-end data compiled by real estate information company Chandler Reports, www.chandlerreports.com.

“We’re obviously facing record numbers of foreclosures, most of which I think were caused by irresponsible subprime lending,” said Webb Brewer, director of advocacy for Memphis Area Legal Services. “What we’re seeing now is off the charts.”

The appraised value of the properties foreclosed in 2008 was a little more than $637 million. But all those properties were collectively unloaded to new owners for a little less than $400 million, according to Chandler Reports.

That means the foreclosed properties were sold for roughly $237 million less than their combined appraised values. Appraised value is the price tag put on each piece of property by the Shelby County Assessor of Property, and it is supposed to measure what the property could fetch from a buyer at that moment in time.

Taxes are paid on a percentage of appraised value, and that percentage is known as assessed value.

The impact that $237 million difference in value will have on the 2009 tax rolls, if much at all, remains to be seen. 2009 is a reappraisal year for Shelby County, and Assessor Cheyenne Johnson has until April 20 to certify the new tax rolls reflecting updated values for each parcel of land in the county.

Part of the difficulty of this year’s countywide reappraisal stems from the poor real estate market Shelby County is facing at the moment. For the assessor, the difficulty comes into play because, by law, the assessor is not supposed to measure foreclosure sales in determining a property’s appraised value.

But here’s a more immediate gauge of the extent of the foreclosure problem. Elected officials on both sides of the government plaza Downtown have signed on to an effort to drag several national lending companies to court over their local lending practices.

It’s not yet clear who they’ll be suing, but members of the Memphis City Council and the Shelby County Board of Commissioners already have an idea why they’ll be suing.

On the down-low

The elected leaders have been shown data that suggest a disproportionate number of foreclosures occurring in Memphis’ predominantly black communities are the result of lenders improperly targeting them for high-cost loan products. That practice, which is illegal, is known as reverse redlining.

“This is an issue that has broad implications,” city of Memphis attorney Elbert Jefferson told City Council members this month.

The goal of a lawsuit on behalf of the city and county, which is apparently only a few weeks away from being filed, would be twofold: obtain some sort of financial award from national lending companies and also win an injunction that puts an immediate stop to local foreclosures.

No companies have been named publicly as possible defendants, even though elected leaders in both local bodies have asked for the names and expressed skittishness with authorizing a suit without knowing who will be sued. But attorneys such as Brewer, who are putting the lawsuit together, say that’s a strategic move meant not to tip their hand too soon.

“We’ve been talking for several months about the possibility of bringing a lawsuit against some of the national large mortgage lenders who have made large numbers of loans in this community that have resulted in foreclosures that bring blight to a number of our most vulnerable neighborhoods,” Brewer said.

Instruments of doom … er … debt

2008 saw about 2.2 percent of the more than 287,000 residential parcels in Shelby County go into foreclosure, according to figures from Chandler Reports. That’s up slightly from 2007, when 2.06 percent of the county’s residential parcels went into foreclosure.

All the properties foreclosed and then sold to new owners sometime in 2008 collectively lost about 38 percent of their appraised value, according to Chandler.

The number of residential foreclosures was up 6.6 percent in 2008 compared to 2007, going from 5,797 in 2007 to 6,181 in 2008.

The number of commercial foreclosures was up about 50 percent in ’08 compared to ’07, going from 96 (2007) to 145 (2008).

Several suburban communities saw significant percentage jumps in their number of foreclosures for the year. The ZIP codes that encompass Bartlett as well as the Arlington/Lakeland area both saw roughly 20 percent jumps in their foreclosure totals from 2007 to 2008.

The 38134 ZIP code for Bartlett posted almost 160 foreclosures for 2007. That number climbed to 191 in 2008. The 38002 ZIP code shared by Arlington and Lakeland saw almost 120 foreclosures in 2007, compared with 144 in 2008.

The 38138 ZIP code for Germantown saw a 63 percent jump in foreclosures from 2007 (19 foreclosures) to 2008 (31 foreclosures).

As for mortgage types, 1,344 conventional adjustable-rate mortgages, commonly known as ARMs, were foreclosed in 2008, down from 1,519 in 2007, according to Chandler Reports. And 1,274 conventional fixed-rate mortgages were foreclosed in 2007, compared with 1,114 in 2007.

The number of foreclosures for instances in which borrowers took out two mortgages at the time they bought their homes jumped from 762 in 2007 to 873 in 2008. That practice typically is a way for buyers to finance 100 percent of the purchase price, allowing them to buy homes with no down payment.

Sometimes, the loans slightly exceed 100 percent of the purchase price, allowing the buyers’ closing costs to be financed over the period of the loans.

Chandler Reports is a division of The Daily News Publishing Co.

PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047