Foreclosure auctions surge on LI, attracting flippers

Long Island home flippers are coming out in force, as a sharply rising number of foreclosed homes — including more luxury residences — get put on the auction block.

The surge of auctions is likely to loosen Long Island’s notoriously tight housing supply, as investors repair long-neglected properties and put them up for sale or rent.

More than 4,000 homes were scheduled to be sold at foreclosure auctions this year, double last year’s number, according to data from LI Profiles, a Nesconset-based real estate information company.

“Because there’s so much inventory available, investors are coming back into the market,” said Susan Vincennie, president of LI Profiles, who said she has seen an influx of new and returning customers seeking data on foreclosed homes. “You also have a lot of new people coming in.”

As on Long Island, the number of scheduled foreclosure sales in New York State has doubled this year — from 4,623 last year to 9,873 this year, California-based data company RealtyTrac reported.

The Island and the state are bucking a national decline in foreclosure sales. Across the United States, nearly 530,000 homes went up for auction in the 12 months ended in September, down less than 1 percent from a year earlier, RealtyTrac statistics show. Nationwide, foreclosure sales peaked five years ago, according to the company.

In New York and other states where banks need a judge’s approval to foreclose, many homes are only now starting to emerge from the foreclosure process after years of delays. It took 995 days to foreclose on a home in New York in the July-to-September period, up 93 days from a year earlier, according to the most recent report from RealtyTrac.

“New York took a very proactive position towards trying to prevent foreclosures as early as 2008 and 2009, so there were laws passed to try to give homeowners more time,” said Daren Blomquist, vice president of RealtyTrac. Now, he said, “the pig is moving through the python.”

Plus, said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication in Bethesda, Maryland, with home prices rising “if the banks know that they can foreclose and sell the property and not take a loss, they’ll rush to do it. They’re much more reluctant to do it if they know they’ll take a hit on it.”

Fixing up long-vacant, foreclosed homes — known by some as “zombie houses” — could be a boon to some communities, repairing local eyesores and providing affordable places to live.

The Island’s auctioned properties, Blomquist said, “should help ease the zombie foreclosure problem on Long Island,” since the new owners will rehabilitate the homes and put them back on the market. That, he said, could provide “a modicum of relief in a tight inventory market, particularly for first-time buyers and investors looking for deals.”

But the auctions — which include homes on the block due to failures to pay mortgages, tax liens and homeowners’ association common charges — come with pitfalls. Bidders cannot inspect the interior of the homes, instead relying on exterior inspections, municipal building records and searches for liens and judgments. They must put down a 10 percent deposit at the auction, which they forfeit if they cannot close the sale quickly, generally within 30 days. And they must contend with sharp-elbowed competitors.

Bethany Marten, founder of Home Buyers’ Resource Center, a Babylon brokerage representing buyers, has only bought one home at a foreclosure auction, more than 20 years ago — a Colonial in Medford. Squatters had clawed a hole in the back of the house, scrawled bizarre markings all over the walls and stolen copper pipes, Marten recalled.

After making extensive repairs, coping with a “bad” tenant and finally reselling the house, “I think I was lucky to make maybe $15,000,” she said. “If I had to do it all over again, I wouldn’t do it.”

She also was put off by the bidders who gathered before auctions, chatting about the homes to be sold. “Like, ‘if you back off on that property, which I really, really want, I’ll back off on this other property,’” she recalled. “It’s very dangerous . . . I’m willing to do quite a bit of due diligence, but there’s a lot of risk involved.” Now more bidders are turning out for auctions — experienced home flippers who expect to make profits of about 15 percent, as well as newbies who stand to lose everything, said David De Rosa, owner of Island Properties & Associates LLC in Farmingdale, who said he has purchased more than 3,000 properties since the 1980s, mostly distressed homes on Long Island.

Many banks still hold out for too-high prices, De Rosa said. At one recent auction, De Rosa said, a buyer purchased a Huntington home for more than $300,000 — not realizing that the home was saddled with a hefty first mortgage as well as about $65,000 in judgments, De Rosa said.

“Fifty percent of the purchases at the sales are probably bad buys,” he said. And while most “flipped” homes are fixed up properly, since they will need to pass rigorous inspections, some investors do “very quick, cut-corner work,” he said.

Even in-the-know buyers can run into trouble. De Rosa purchased a Hampton Bays home at a 2009 auction that appeared to be in good condition. But when he entered it after the purchase, he found its walls were not supported by studs, its toilet and sink were not hooked up to pipes, and its electrical outlets led to no wires.

“It was a complete, complete disaster,” he recalled.

Such war stories, though, are counterbalanced by victories such as the Mount Sinai home De Rosa purchased last year whose badly overgrown backyard deterred other buyers. De Rosa saw evidence of an in-ground pool, deck and patio in municipal records and old aerial photos. He took a chance, bought the home for $283,000, fixed it up, cleared the brush — and ended up selling it for $470,000.

What’s more, higher-priced homes are being auctioned this year. A mansion on exclusive Further Lane in East Hampton went up for auction in April and was bought by its lender, ES Ventures One LLC, for nearly $12.4 million. A Whaler’s Row home in Sag Harbor with a $1.86 million foreclosure judgment was set to be sold on the steps of Southampton Town Hall, but the sale got canceled at the last minute.

Later this month, a Lloyd Harbor home with a foreclosure judgment of $1.6 million is scheduled to be put on the block, LI Profiles reported.

“You’re seeing a lot more high-end houses coming to foreclosure now,” De Rosa said. “That’s primarily because the people who own higher-end houses, even though they may have found it difficult to pay their mortgage, they usually still have access to legal help to delay their foreclosure longer.”

The majority of foreclosed homes are modest. If they get fixed up, they could provide some relief for Long Island homebuyers and renters.

The Island had 16,493 homes for sale in October, down almost 5 percent from a year earlier and a seven-month supply at the current pace of sales, according to Multiple Listing Service of Long Island data. A balanced real estate market has a six- to eight-month supply, brokers said. But many listed homes need repairs, brokers say, and the supply of more desirable houses is not as robust.

Long Island also suffers from a shortage of rentals, with 20.3 percent of housing units occupied by renters — compared with 38 percent in Westchester and 35 percent in Bergen County, New Jersey, according to newly released 2010-2014 census estimates.

“The foreclosure auctions will just speed up getting rid of properties that need work,” said Marten, of Home Buyers’ Resource Center. “They’ll get fixed up really fast, probably by professional investors, and it will overall help to improve the market.”

By Maura McDermott

maura.mcdermott@newsday.commauramcdermott

Maura McDermott covers education. Since joining Newsday in 2012, she also has worked on the investigations team and covered real estate and the business of health care.