High-end pain and suffering

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A Colorado Springs defense contractor whose firm lost a government job lost his million-dollar North End home to foreclosure last year.

A real estate developer who borrowed on his Broadmoor home to finance new projects ended up in the same boat.

And the owner of a Penhurst Park Estates home lost his income and his home in the gated community to the bank.

All are among the latest casualties of the foreclosure crisis that has swept the country in the last couple of years.

What’s different about them is the value of the homes they’ve lost.

Million-dollar home owners have joined their less-affluent counterparts on the El Paso County foreclosure firing line.

Their numbers are small but nonetheless dramatic, if only because of the rarity in which high-end homes ever fall into foreclosure.

Homes priced at $500,000 and up in foreclosure account for 3.3 percent of the 5,450 foreclosure filings of 2009, said El Paso County Public Trustee Tom Mowle.

Since January 2008, at least 100 homes with a loan balance of $700,000 or more have fallen into foreclosure.

Startling effect

Colorado Springs’ high-end home owners are not alone. Multimillion-dollar foreclosures are a fact of life in every market.

“Foreclosures Hit the Rich and Famous” was the headline on a Wall Street Journal story last month that focused on those in the nation’s top real estate echelon.

Names like Hollywood’s Nicolas Cage, Italian “Life is Beautiful” film producer Vittorio Cecchi Gori and fallen former Merrill Lynch executive Richard Fuscone suddenly have appeared on foreclosure rolls.

Almost 15 percent of the nation’s 1,700 loans with balances of $4 million or more were overdue by the end of January.

The wealthy, in short, have officially joined the ranks of 2.82 million Americans who were caught in the 2008-2009 foreclosure undertow.

Seeing $1 million and $2 million luxury residences taken over by lenders has had a startling effect on the local market.

“There are the few that have drawn plenty of cocktail conversation, some tragic situations. It was all about timing,” said The Patterson Group’s Kevin Patterson.

The unfortunate were often sophisticated entrepreneurs who had pledged their homes as collateral to obtain financing for their businesses and had suddenly faced business losses in the down economy.

“This isn’t about high fliers who lived way beyond their means. Some people simply got caught at in the wrong spot at the wrong time,” Patterson said.

There are plenty of examples in the foreclosure rolls to illustrate his point, said Ken Westfall of The Westfall Co., who has represented lenders deal with foreclosures for 25 years.

The longtime asset manager moved to the Pikes Peak region two years ago. Today he is representing lenders with 250 foreclosed properties in El Paso and Douglas counties — up from 150 listings in 2009, including several million-dollar foreclosures.

He says each owner’s story is different.

The Old North End property owner who lost his home, for example, used his home to finance his business; he was just doing what entrepreneurs do.

The Penhurst Park property on the city’s southwest side was purchased for $840,000 in 2001 and refinanced for a total of about $1.8 million in 2007. After the owners left town, the home’s first and second lien-holders both foreclosed. The house finally sold last year for $785,000.

Bad judgment by borrowers and lenders isn’t news to Westfall, but he was especially puzzled by a $1.7 million loan on a home built by Tara Custom Homes in Flying Horse’s exclusive Toscano development.

The 10,000-square-foot mansion was built by a group of investors who expected to turn the property quickly, but that didn’t happen.

“They bought the lot — one that backs up to the front gate — for $539,000 in February 2008 and got a construction loan. I’m surprised the bank was willing to finance so much for a home built at that location,” he said.

Tara originally listed the house for $3.9 million, but in a tough market Westfall believes in order to sell quickly, the price must be “suppressed” to somewhere between $1.7 million and $2.5 million.

Priced to sell

Dramatic price cuts are often the only practical way to move homes in a market where there’s already five to seven years worth of $1 million-plus available inventory.

Westfall’s strategy is to get the homes off a lender’s books in 75 to 90 days, necessitating “aggressive price discounts.”

Prudential Professional Realtor Trish Ingels, who specializes in the upscale Broadmoor market, said several of the neighborhood’s million-dollar foreclosures were caused by builders who moved ahead on pricey speculative homes, despite a fragile economy.

In order to avoid foreclosure, several builders negotiated short sales with deeply discounted sales prices, she said.

Sterling Homes, for example, built a new Broadmoor Resort home, originally listed for $2.7 million. It finally sold in December for $1.5 million. Another of the company’s new homes in gated Stratton Forest was priced at $2.9 million. It also sold last year for $1.5 million.

Like Patterson, she discounts notions that most upper-end sellers who are now in foreclosure were irresponsible.

“Most are just cases where people have lost their jobs or borrowed on their home to finance a business. It’s not like California, where most buyers got jumbo loans, and the state doesn’t require personal liability. If you can’t make a payment there, you can just walk away. That doesn’t happen here.”

Despite foreclosure trends, the local luxury home market is chugging along.

Between January 2008 and December 2009, 43 homes priced at $1 million or more sold in El Paso County. That’s still far fewer than during the height of the market but signs of better times are here. So far this year, nine such homes have sold and another half-dozen are pending.

5 Responses to High-end pain and suffering

  1. Before you paint a sob story of the “rich and famous” losing homes your article doesn’t address two important issues:

    1)Is this the only “home” they are losing? Chances are these people own multiple properties. So unlike the aveage American they are not facing foreclosure and then having to become renters.

    2)Are other properties owned in a spouses name? Again many times these business people are savy enough to have a property in a spouse’s or family members name that can’t be touched legally.

    Annie
    May 10, 2010 at 5:30 am

  2. The house in the picture is on Orchard Path in the Peregrine neighborhood, not Flying Horse.

    Jenny
    May 10, 2010 at 7:58 pm

  3. The Good Book says, “As ye sow, so shall ye reap.” Colorado Springs spurned the homeless in closing down “Obamaville” because it hurt our wealthy image. Now those who closed the door of charity on the least among us find themselves homeless. Jesus tells us this is what happens to those who have hardened their hearst to the weak and friendless.

    Xian
    May 11, 2010 at 10:00 pm

  4. No one cares to read about a rich person becoming less-so. Boo-hoo? No way.

    ComeOn
    May 12, 2010 at 8:08 am

  5. The point of the article was NOT to make you sympathetic to the rich. The point was to show you how large the housing bubble was and how much more correction is necessary. Some people will say that only low-income, high risk, subprime borrowers were causing the financial collapse. This article shows that even the ultra-rich, low risk, prime-rib borrowers are contributing. Hence the bubble and it’s collapse is much worse.

    Dave
    May 13, 2010 at 2:41 pm