Crashing home prices have sent dozens of units in a Scottsdale luxury loft development tumbling into foreclosure over the past year and a half.
AZ foreclosure rate up to 4th highest in nation
Since early 2007, lenders have foreclosed on 33 of the 84 units in downtown's Third Avenue Lofts, data compiled by Glendale-based firm Information Market shows.
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That's the highest number of foreclosures reported in an East Valley condo project during that period, according to an analysis by the company.
The project's troubles mirror a Valleywide epidemic.
Tens of thousands of properties have entered the foreclosure process this year with more than 3,000 actually being foreclosed on so far in June.
"People were over their heads," Scottsdale real estate agent John Wake said.
Industry watchers say Third Avenue - despite its central location near restaurants and shopping - has faced significant foreclosure troubles partly because of timing.
Valleywide, the vast number of foreclosures stemmed from homes that were bought or refinanced from mid-2005 to early 2007 when prices were overinflated, said Tom Ruff with Information Market.
When prices plunged, homeowners lost tens of thousands of dollars in equity - leaving many owing more to lenders than their properties were worth.
Third Avenue opened when prices were hurtling upward and was one of the first in a wave of high-end condo projects in the Valley, Wake said.
Many of the other developments "didn't get finished until after the peak," he said.
Price drops at the lofts have been severe.
In one case, a 905-square-foot unit was purchased for $369,277 in 2005, then resold a year later for $950,000, according to data from the Arizona Regional Multiple Listing Service.
The property was eventually foreclosed on and sold in April for $289,900.
Mortgage fraud also likely played a role in the foreclosures of at least one unit.
Last week, federal officials announced felony charges against 36 people allegedly responsible for more than $100 million in fraudulently obtained loans in Arizona.
One real estate investor and seven other individuals allegedly inflated home prices and lied on loans for several properties, including at least one unit in the Third Avenue project.
The charges came as part of a nationwide crackdown on so-called "cash back" schemes, which involved 406 indictments. In a "cash back" scheme, an investor often works with an appraiser to overinflate the value of a home. The seller then receives an agreed-upon price that is less than the loan amount with the investor pocketing the difference.
Two companies received more than $140,000 for the sale of a Third Avenue unit, according to court documents.
The rash of foreclosures created a heavier burden for the rest of the owners in the building - spreading homeowner association fees among fewer people, said agent Jay Martinez, who represents a buyer in the building. Fees were boosted to nearly $1,200, Martinez said. And the vacant units weren't being kept up, he said.
Agent Ryan Reely recently showed five units in the building - some bank-owned - and found most were dirty and messy.
Still, Reely said, sales at the Third Avenue property are starting to rebound.
People who have the money are seeing opportunities in foreclosures and short sales, Reely said.
Several months ago, Third Avenue had nearly 30 units up for sale, Martinez said.
Now, that number is closer to 15.
"That's a significant swing," he said. "I think that's a really positive sign."
