Cement in Your Toilet? Foreclosure Market Flush with Damaged Inventory

This bathroom was trashed by the previous owner

Three years into the national real estate swoon, increasing numbers of real estate agents are collecting more scary tales about what they discover when they step inside a foreclosure:

….Baseboards, appliances and a brick pathway completely removed.

….Cement poured down toilets.

….Walls covered in spray paint and punched full of holes.

….Black mold so toxic that the only remedy is to tear down the entire home.

Then, there’s the one about a slew of dead fish left to rot in an attic.

These may sound like scenes out of a horror flick, but this is reality in the post-bubble age of real estate foreclosure. And while not all distressed homeowners inflict damage, the problem has become more rampant and real estate agents have almost come to expect these nightmares on Main Street.

“Nothing shocks me anymore,” said Detroit agent Jim Shaffer. “Nothing shocks Realtors anymore.”

Damaged homes don’t qualify for loans

According to data from a survey by Campbell Communications, 13.9 percent of all real estate owned by a bank or agency in 2010 was so damaged by deliberate vandalism or harrowing neglect that the property would not qualify for a standard home loan. That has pushed the market for damaged properties toward investors, who often obtain the house at a more significant discount than undamaged foreclosures or short sales, according to the Campbell survey’s analysis.

“It’s been quite severe and drastic because so many homes don’t qualify for FHA (loans), which is the loan most people have,” explained Shaffer.

In an effort to encourage homeowners to leave their foreclosed homes without damage, many banks employ national programs like Cash for Keys, which gives a cash incentive. However, Nevada real estate agent Joanna Piette believes the program has only been a Band-Aid over a serious epidemic.

Shaffer agrees, calling the trend “a significant problem.”

Nevada has the highest foreclosure rate in the country and along with it, a high rate of foreclosure property crime.  According to the Las Vegas Review and Journal, over 25 percent of bank-foreclosed homes are intentionally damaged.

Recently, Nevada state legislature passed a law making foreclosure property damage a crime. Beginning October 1, Nevada’s law “prohibits the destruction of real property that is subject to foreclosure with the intent to defraud.”

Under this law, any person that damages property, causing the lender to suffer a financial loss, is guilty of the misdemeanor crime that carries a penalties of up to six months in jail and a $1,000 fine.

To Piette’s knowledge, no one has been charged yet. She calls the law another incentive for people to leave their homes in a livable state.

“I have seen abandoned animals that are near death in a home. I have seen houses that are completely stripped of every interior item including cover switches; they’re just a shell of a house,” she said, adding that as “Realtors and plain old consumers, we’re very happy about this law. This is a very big deal for us.”

Selling fixtures on Craigslist

In Detroit, where the real estate market has also taken a significant hit, Shaffer hasn’t heard of banks or the government charging people with property crime, despite the fact that some people brazenly advertise their intent to damage foreclosed homes.

“You can go on Craigslist and some people are quite blatant that they’re in foreclosure. “They’re inviting people to come and buy things,” Shaffer said.

Although some people in foreclosure may be selling home fixtures in an attempt to recoup some of their equity, Shaffer believes many of them are acting in retaliation for being ousted from their property.

Realistically, Shaffer said, used baseboards stripped from walls won’t add up to much of a net gain. He estimated that a homeowner might get $4,000, but that’s a generous estimate. The real reason is usually vengeance.

“They don’t realize that they’re not hurting the bank. In reality, they’re hurting their neighbors and new buyers,” Shaffer said.

What’s astounding is the kind of time and energy homeowners will take to damage a house. In one case, a foreclosed homeowner wielded a saw and cut the Sheetrock wall in half.

“The Sheetrock was gone from about four feet up,” Piette said. “They cut the entire ceiling and removed all the duct work.”

In another case, a Seattle house was made to look as if it had been booby-trapped, with wires, propane tanks and fire extinguishers rigged to doors and windows and apparently set to go off, according to a report by ABC News.

Kirkland, WA.-based real estate agent Jennifer Reyer said one homeowner was very thorough in his destruction methodology, bashing in the walls inch-by-inch, scratching every window and breaking every mirror.

Each of the walls have been bashed in by a hammer

The previous owner of this foreclosed home removed every appliance and cut all the wiring

Others have used water torture on foreclosed homes, turning on all the faucets, then leaving. It’s no harmless prank.

“The future of real estate and bank-owned properties will be mold houses,” said Reyer. “It’s more common than you think. I went to a house and every surface of the house was [covered in] the blackest mold you’ve ever seen. They’ll have to bulldoze that house.”

Reyer says she now carries a face mask when visiting foreclosed properties.

As damaged foreclosures glut the market, real estate agents are finding them harder to sell. The only solution, says Shaffer, is what he’s tried to do in the Detroit area. He works with traditional buyers to get a 203K loan — a mortgage that allows homeowners to borrow money to update the home.

This solution can turn out to be a boon for buyers of a damaged, foreclosed property, Shaffer said:  “They can go in and put the kitchen of their dreams in and roll that in the cost of their mortgage.”