- PHOTO BY STEVE E. MILLER
- SILVER LINING: Although the foreclosure frenzy saw thousands of locals slide from homeowner to renter, affordable-housing developers picked up lower-cost land to build rentals, such as the Las Lomas apartments in Atascadero.
"Going once, going twice … .” You could hear those words thousands of times in San Luis Obispo in the last five years, intoned on the courthouse steps or behind the county government center. But with the next utterance in the sequence, what’s gone for hundreds of local families is the American Dream of owning a home.
In SLO County and across the United States, cash-strapped homeowners hit by the economic recession and rising mortgage charges had little choice but to default on their loans. County records show that more than 11,000 notices of default have been issued since 2008, with nearly 6,000 properties sold by the banks.
The flood of foreclosures and accompanying auctions is starting to ebb now, as the economy slowly strengthens and new rules require banks to try harder to keep people in their homes. But as the flood recedes, in the aftermath is a worsening economic divide, with a few winners, plenty of losers, and a shortage of available housing for the rest of us.
Lynn Cooper, owner of Pacific Oak Foreclosure Services in SLO, has posted hundreds of notices of default on the front doors of homes around the county. He can’t help thinking of the homeowners who were forced to walk away from their investment—and their dream.
“It’s sad. You see kids’ shoes on the front porch when you walk up to post the notice. There are a lot of sad stories. That goes with the territory,” he told New Times.
Some victims of the foreclosure frenzy were first-time homebuyers. Others were longtime homeowners who cashed in on their home’s equity with a line of credit, then found themselves owing more than it was worth. Others just wanted to buy a home while they could.
Take, for example, the story of one local family who bought a spacious home in Los Osos at the height of the real estate boom a few years back. “Tony and Tina Thomas” (they requested their real names not be used for this story) made a $100,000 down payment—the proceeds from selling their first house—and with both of them working and teaser low-interest charges on a variable-rate loan, they were able to afford their mortgage payment.
Along with their three teenage sons, the Thomases settled into a comfortable life, becoming involved with their kids’ schools and sports teams, volunteering for various local nonprofits, and taking pride in their home.
But then, as happened with millions of homeowners around the country, their mortgage payment went up along with interest rates, and the value of their house declined—by about $200,000, in their case. Tony’s contract work all but dried up due to the recession, and Tina’s salary couldn’t cover their house payment and their other expenses. Tony devoted countless hours every week to concerted efforts to working something out with their lender, Countrywide, but got nowhere.
In the end, disheartened and embittered, their savings exhausted, the Thomases stopped making their payments, packed up their possessions, and moved into a large tent in the Southern California backyard of Tony’s mother. (The spare rooms in the house were already occupied by Tony’s brother and his family, who had also fallen on hard times.)
Eventually, Tony landed some more contract work and Tina found a job—working for a national investment company that specializes in buying up foreclosed homes around the United States and turning them into rentals.
“It just seems hopeless to me to work a normal job and expect to buy a house like our parents did. So many people are just struggling, and the wealth is siphoning up. The whole thing stinks,” Tony said in a phone interview from a two-bedroom apartment the family recently rented in the Los Angeles area. He and Tina had just finished a volunteer stint barbecuing burgers for their youngest son’s sports team and the visiting athletes from Arroyo Grande.
“It’s hard to be renting. They can throw you out. They can raise the rent. There’s less pride of ownership. But it’s all right,” he said.
His voice tinged with sadness, he added, “We really miss our friends up there.”
Investors are snapping up foreclosed homes in SLO County, according to Don Vaughn, owner of All American Foreclosure Service. Although some out-of-town investment groups are getting in on the action, Vaughn said most of the purchasers are local investors who are “flipping” the property—that is, reselling it on the retail real estate market for more than they paid for it. That’s what happened to the Thomases’ house.
At 11 a.m. on a recent sunny morning, Vaughn stood in the breezeway behind the County Government Center, a clipboard in his hand. Surrounded by a small circle of cash buyers armed with smartphones or electronic tablets, he read out, “I’m authorized by the beneficiary to open up the bidding at $300,000.”
These well-dressed investors aren’t carrying briefcases or grocery sacks stuffed with bills; instead, in a pocket or purse they have a cashier’s check for up to a million dollars, made out to themselves. If they buy the house, they sign over the check.
“There’s a lot of homework involved. It’s a risky business,” Vaughn said in an interview after the auction.
Not only does a purchaser need to have cash, he or she can’t get inside to inspect the property beforehand—and sometimes gets burned.
- PHOTO BY STEVE E. MILLER
- THEY CALL HIM FLIPPER: Cash-laden investors from near and far have been buying up foreclosed local homes and “flipping” them for a profit. Here, auctioneer Don Vaughn (center right) takes their bids.
The investors didn’t want to talk to a reporter (“Investors don’t like to be known. Why advertise it? That’s part of the game,” Vaughn explained), but Vaughn pointed to one man walking past.
“He bought his first house at an auction I did in 1992, a big white house in Arroyo Grande. The owner was so angry about the foreclosure that he had poured concrete down the toilets. He’d clipped the electrical wires behind the drywall, then put the drywall back up so it was impossible to fix.
“The investor probably lost 100 grand on that one. He’s made up for it, I know he has. Buy low, sell high, that’s their business.”
Another longtime “flipper” has been teaching his son the ropes, Vaughn said.
Even once they hit the multiple listing service of the retail real estate market, many of the flipped houses in SLO County weren’t bought by people who wanted to live in them. Although it’s difficult to track exactly what’s happening to the local housing stock, one indication of owner-occupied homes is the number of homeowner’s exemptions filed with the county assessor’s office; people whose homes are their primary residence get a break on their property tax.
The number of claims for homeowner’s exemptions has fallen each year since 2008, decreasing by more than 1,650 in the last five years, according to Kirk Kidwell, the assistant county assessor, who compiled the figures at New Times’ request. That means at least 1,650 houses in the county are no longer occupied by homeowners—and that has an effect on the community.
Still, SLO County has fared better than some areas, according to Dana Lilley, a county supervising planner who specializes in housing.
“We were spared some of the worst consequences, mainly because our housing supply didn’t increase as fast here, compared to some cities with a lot of housing built during the bubble and a bigger crash,” Lilley said.
Now, he said, housing prices locally are on the rise: “I log on to Zillow and see my house go up every day.”
Rents, too, are going up, according to Jerry Rioux, executive director of the SLO County Housing Trust Fund. The local “fair market rent,” an official calculation used by the federal government, has increased seven percent in the last year, Rioux said.
“Our county has a severe shortage of rental housing, and as a result local rents are extremely high when compared to local incomes,” he wrote in a letter of support for an affordable housing development. More than 60 percent of local renters pay in excess of 30 percent of their gross income for rent and utilities. More than 35 percent have “a severe housing cost burden,” paying more than half their income for rent and utilities.
All the former homeowners who lost their homes are now renters, leading to an increased demand for rentals—which creates a potential for rent increases, Rioux said.
Not only are prices going up, there’s also a shortage of local homes available to purchase or to rent these days, in the aftermath of all the foreclosures. In San Luis Obispo, for instance, there are just 75 houses and 28 condos available to buy in the entire city, according to real estate agent Steve Delmartini.
“Today in San Luis, the least expensive house is $429,000, for a 1,380-square-foot 4-bedroom on Oceanaire, built in 1961. You can’t go buy a house for $350,000 anymore in SLO—there just aren’t any. We have very poor housing stock in SLO; our housing stock is just getting old,” Delmartini said.
Investors may be holding on to houses until prices rise higher, or fixing them up for resale.
“We just don’t know how many houses are being held off the market,” county planner Lilley pointed out.
But there is a “silver lining” to the foreclosure crisis, according to Rioux: “Affordable housing is easier to develop when the economy is bad. When we had the crash, a lot of affordable developers were able to pick up land and get financing, and are now starting to build.”
Atascadero apartment developer Mike Zappas got a good deal on five acres in south Atascadero, once owned by bankrupt developer R.W. Hertel. The site, overlooking Paloma Creek Park, was already graded, with utilities installed.
He and a partner designed and built Hidden Oaks Village apartments in Atascadero 12 years ago, and he knows there’s been a need for more affordable rentals in the town, especially for young families. But for years, “it didn’t pencil,” and many out-of-town developers focused on building condos, “making money, and hitting the road,” he noted.
Demand is high for apartments at Las Lomas Village, Zappas said. “The first 40 units are all full. They pretty much moved in as soon as the units were finished.” The apartments are one-, two-, and three-bedroom units, and all are considered affordable for people with moderate, low, or very low incomes. The complex will eventually have 100 apartments.
His renters include people in the local workforce, employees at Atascadero State Hospital, young families, retirees, a Cal Poly professor who’s new to California—and families who lost their homes to foreclosure.
“I get a lot of satisfaction from providing rental housing, especially three-bedroom apartments for young families. I know a lot of people in the community, and people thank us. They’re really happy. We live in the community, and we want to make a difference,” Zappas said.
Another affordable-housing developer, the nonprofit People’s Self-Help Housing, benefitted when the housing bubble burst.
“The downturn in property values did help us secure some lots. We were able to seize the opportunity in Oceano, Atascadero, San Miguel, and Los Alamos,” said the organization’s chief financial officer and executive vice president, John Fowler.
For the first time in years, People’s Self-Help Housing is now involved in “sweat equity” home building at these locations, where families with low incomes—plus jobs and good credit—provide 2,000 hours of labor to build their own single-family home.
“We’re very happy about that,” Fowler said. “We’re trying to do all we can to create opportunities for people to get into housing that’s affordable for them.”
The group has also been able to build some multi-family housing for people on low or very low incomes, where rents will be restricted to 30 to 40 percent of the annual median income in the county.
“The economic gap is certainly growing, and that’s certainly troubling,” Fowler noted. “We have a lot of people in the workforce who can’t afford housing.”
Not everyone in the workforce wants to live in multi-family, high-density housing, though. At a recent meeting of the Workforce Housing Coalition of SLO County (an informal group described as a “YIMBY” organization to lobby in favor of affordable workforce housing: “Yes, In My Back Yard”), speakers from the Economic Vitality Corporation presented the results of their survey of SLO’s workforce.
“Everybody knows housing is a huge problem here. We have a hard time recruiting and retaining employees because of the cost of housing,” said Lenny Grant, co-chair of the EVC’s Building Design and Construction cluster.
Survey results from 467 local employees show that—if affordability were not a factor—97 percent want to live in single-family detached homes, preferably with three bedrooms and a two-car garage.
With all seven cities and the county required to update the housing element of their general plans before next summer, state officials are expecting each place to provide a certain percentage of housing for a growing population.
“We need to incentivize 1,300- or 1,400-square foot houses for developers, with a second unit above the garage,” Grant said.
“Homebuilders can’t just go with 5,000 square feet. The county is expecting solutions,” he added.
For Fowler of People’s Self-Help Housing, building affordable housing now is key, especially as the economic gap widens between rich and poor.
“We’ve got a lot of projects in the pipeline. For now, we’re optimistic,” Fowler said. “The bubble is forming. But we know a downturn will come again.”
Contributing writer Kathy Johnston can be reached at firstname.lastname@example.org.