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Nye Lavalle
July 30, 1990
After Heady 1980's, Homeowners Face a Hangover of Foreclosure

LEAD: Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Just months after the giddy boom years of the 1980's, with their rising home values, generous bank lending policies and firm optimism about the regional economy, banks have started declaring defaults on thousands of delinquent mortgages and forcing owners to scramble for new financing or face property losses.

Officials in the region say they are stunned by the depth and suddenness of the increase in foreclosures.

Worst Market in 50 Years

In many cases, officials attribute it to declining real-estate values, people including well-paid professionals carrying too much debt and the slumping construction industry.

''There's no precedence for the numbers were getting now,'' said Myron C. Weinstein, chief of the foreclosure office of New Jersey Superior Court. ''We're getting 1,400 new filings a month and I don't think anybody knows the upside anymore. No one really knows the cause of the magnitude of the jump, except that this is the worst real-estate market in 50 years.''

''I'm seeing the most dramatic surge in the last 25 years,'' said Roger Sirlin, a Westchester County lawyer who represents mortgage lenders in southern New York. ''The foreclosures are bridging the entire socioeconomic spectrum. Right now, I'm foreclosing on doctors, lawyers, architects, dentists, stock brokers and real-estate people. I'm foreclosing on loans as high as $1.6 million. The average is around $200,000.'' In Connecticut in the last two fiscal years, bank foreclosure filings have almost tripled, to 9,248 for the year ending on June 30, from 3,482 for the year ending on June 30, 1988, said Larry Moore, a spokesman for the Connecticut Judicial Department.

Across New Jersey, similar filings rose to 11,816 in 1989, from 8,182 in 1988, Mr. Weinstein said. As of June, there were 8,478 filings, an increase of nearly 50 percent over the same six-month period last year, he said.

New York State's court system does not keep statewide figures. But county officials report sharp increases. Between January and June, judges in Westchester issued 166 judgments of foreclosure, the last step before sale of a property at auction. For all of 1989, there were 112 such judgments. Suffolk County has had 655 similar judgments through June, well ahead of the pace that produced 853 in 1989. In 1988, Suffolk had 439 judgments. In Rockland County, banks filed 251 foreclosures between January and June. There were 193 for the first six months of 1989.

In all three states, foreclosures for single-family homes have increased since 1988 while decreasing nationally, said Thomas Holloway, senior economist at the Mortgage Bankers Association of America in Washington.

Regional court officials say their figures represent all commercial and residential properties. They include hundreds of single-family houses in the cities and suburbs; an unfinished town house project, Knickerbocker Village, in Old Tappan, N.J., that was sold at a sheriff's auction for $100; condominiums in North Salem, N.Y., Monmouth Beach, N.J., and near Atlantic City; a shopping center in Aberdeen, N.J., and a nursing home in Spring Lake Heights.

Beneath the figures are stories of deep debt and personal hardship and, for some, despair and tragedy. Last month in New York, a Vietnam veteran whose foreclosed home is up for auction on Aug. 3 committed suicide. #3 Months Behind on the Mortgage The man, a self-employed house framer, built his home three years ago and was unable to make his $3,000-a-month mortgage payments when his $200,000-a-year business soured, said his widow, who spoke on the condition of anonymity. She attributed his suicide to his war experience and his mounting debt.

She said she is three months behind on the mortgage payment and on an $800-a-month loan for two trucks. The banks refused to restructure the debt, she said.

''The banks didn't want any partial payment,'' she said. ''They wanted the whole thing.''

A banker in his mid-50's in Westchester County said he lost his condominium when he became overwhelemed by debt, particularly college loans for his five children. At one point, their education costs were $38,000 a year, against his annual salary of $47,500. Garnishees have cut his net weekly income from $583 to $192 and he is 10 months behind in his $1,202 mortgage payment. ''It all came down too heavy on me,'' he said. ''I just ran out of money. I've always made good on every penny of my debt and I'll pay this off if they just give me a chance.''

Banks 'Feeling the Pressure'

In Monmouth County, N.J., where 113 foreclosed properties have been sold at sheriff's auction between January and July 23 - as opposed to 120 for all of 1989 - a young woman returned to her foreclosed home in Hazlet after giving birth only to find that a bank that had bought her house at auction had begun eviction proceedings. A judge eventually blocked the eviction.

Experts closest to the spurt in foreclosures offer several explanations.

''In Connecticut several banks have experienced losses and Federal regulators are looking at loan portfolios,'' said Judge Aaron Ment, Chief Court Administrator for the state. ''My sense is the banks are feeling the pressure: Federal regulatory pressure and shareholder pressure and management pressure.''

Experts also say a decline in property values after their dizzying appreciation of the mid-1980's has left some owners, particularly those who bought at peak prices, watching their property values slide toward - or even below - their mortgage amount. In those cases, some willingly abandon their properties.

Too Much Debt, Too Little Value

''That was the real story in Texas and Oklahoma; real property lost value and people walked away,'' said George Sternlieb, founding director of the Center for Urban Policy Research at Rutgers University. ''We're just seeing the beginning of this and no one has a handle on how long it will last.''

Another reason cited is that property owners are overextended.

Mr. Sirlin, the bankers' lawyer in Westchester County, said nearly all his foreclosures are on adjustable-rate mortgages issued in 1987 and 1988 that carried first-year interest rates of 7 percent and subsequent annual increases of two percentage points, with a maximum of 14.9 percent.

Banks, he said, were eager to lend in the late '80's and, because of a lack of Federal requirements, assessed a borrowers ability to repay only on the initial 7 percent rate.

''People can't afford the second interest bump and they're falling behind two or three months' payments,'' he said. ''That's the typical scenario.''

Banking authorities say all three elements are at work now.

''Banks are scrutinizing portfolios more closely because of pressure from regulators,'' said E. Robert Levy, executive director of the New Jersey Mortgage Bankers Association. ''I would emphasize that financial institutions and mortgage companies do not desire to foreclose. They make every effort to work things out. Foreclosure is expensive, time consuming and requires a lot of reserves to be set up.''
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