After thedefault

In an auction that lasted less than 10 minutes on the steps of the Carson City Courthouse, Judy and Ray Barrett's last tie to Carson City was swept away from them.

The couple's foreclosed Empire Ranch Estates home sold to real estate speculators for less than what the Barretts bought the house for in 2003. Judy Barrett said they'd had $100,000 equity in the $358,000 home and invested another $40,000 into improvements. They loved Carson City, but the real estate market, and the job market that left Ray out of work, drove them to Alabama.

"I'm numb right now," Barrett said after hearing the news of the sale. "We didn't want to lose it. It's been such a nightmare, so it's a relief that we don't have to worry about it anymore. But we did love that house."

A glut of overpriced properties and falling home values marked Carson City's housing market through 2006, housing experts say. Methods used to finance the boom in the past three years could prompt higher foreclosure rates in coming years, which the city has started to see a hint of, according to data from the city recorder's office.

The number of foreclosures sold in 2005 and 2006 is less than past years, but increased activity in 2006 indicates buyers were willing to wait for an auction to get an overpriced home at a below-market price. Buyers such as Jack and Paula Flower, of Sparks, who purchased the Barretts' former home on Dogleg Road. They said this home is their 10th foreclosure purchase made on the steps of a courthouse since they started speculating about three years ago.

Still referred to as "Call the Sale," a caller appointed by the trustee, stands before the courthouse and starts the bidding. The same well-heeled group often shows up. Most know each other by name. Often there are well-meaning handshakes at the end of a particularly tough bid war.

On a cold day in January, Jack Flower kept bidding steadily up to $343,000, until his ball-cap clad competitor walked off. These sales are done in cash. Business was concluded in about 20 minutes inside the courthouse's coffee shop.

"These days you buy well below the market," Flower said. "Two years ago you were buying at the market price. That's not true now."

Right after the auction, Flower said two people told him they were interested in buying the home from him.

If buyers want it so badly - why couldn't the Barretts sell it?

"It was listed way too high," Flower said. "But they had to. They had a huge loan on it."

Barrett said they put the two-year-old home on the market in April 2005 for $599,000 after her husband was laid off from his job at Mr. Gasket. Gradually their asking price went down to $510,000, but there were still no buyers willing to go that high in Carson City's slowing market.

In the meantime, the Barretts had followed a job lead to Alabama, purchased a home, expecting their Carson home to sell quickly and then found themselves paying two mortgages for a year-and-a-half. Then Ray Barrett lost his job again.

"We got caught in a mess," she said. Barrett said they have lots of regrets, but life goes on even with a foreclosure on your record.

Home ownership is entwined in American political, social and economic values, said Tom Cargill, economics professor at the University of Nevada, Reno. It may be one of the largest examples of the greater economic forces at work in a person's life.

For example, the number of mortgage defaults in Carson City from 2002 to 2006 reflect economic conditions. Defaults were higher in 2002 and 2003 then flattened by nearly 50 percent in 2004 and 2005.

"What we're seeing there is the effects following 9/11 and the recession in 2001 and 2002," Cargill said. "The Nevada economy slowed. Then the drop (of defaults) of almost 50 percent shows the Nevada economy rebounding, especially in Carson City because there was a lot of construction and manufacturing coming in there."

Home owners sold, reaping in rewards that far exceeded what they'd invested into the property. Cargill said neighbors watched neighbors get rich, which led to more sales and inflated prices.

He said what happened in 2006 was the aftermath of a "rapid escalation in housing prices" that could not be supported by supply and demand. Speculators hoped a "bigger fool" would come along to purchase. Soon they ran out of fools. Defaults soared in 2006, when the economy was solid.

Home sales in 2006, tracked up to Dec. 17, the most recent data available from the city assessor's office, declined 34 percent from 2005.

The median price of a Carson City home in November, the most recent data available, was $270,750, down 19 percent from the first quarter, according to the Multiple Listing Service, which tracks Realtor sales.

"It was a good ride, but it's over," said Cathie Jackson, branch manager with Mortgage Options Inc., of Carson City. "Every so often the world takes a step back and regroups. And we're regrouping."

She said the news isn't all bad. Jackson is taking loan applications from people who couldn't get into the market in the last few years.

"The bubble has burst," said Cargill, who studies the housing and construction markets. "Property values have fallen 10 to 20 percent, therefore, people who bought houses are now unable to sell them without experiencing very large capital loss. On the other hand, short-term interest rates are going up, which drives up the cost of creative financing and makes it more difficult to service the debt. Then they are forced to sell the house and they can't sell it. That's why there's foreclosures."

Carson City is removed from the problems of large urban centers, such as big layoffs, said Bret Duster, broker manager at Re/Max Realty Affiliates of Carson City, which could be one reason why the default and foreclosure rates have not been extreme.

"It may still be on down the road that we see problems coming about," he said about foreclosures on adjustable rate mortgages and other creative loans.

Amy Garland, 30, fell behind on payments on her Carson City home and went on default on her adjustable-rate mortgage. She kept calling her mortgage company, made the payment and was able to save her house from the court steps this month.

"I have a daughter with cerebral palsy and sometimes her medical bills get high," she said. "Plus I'm a single parent, and there's daily living. So I fell behind."

She refinanced to an adjustable rate mortgage in 2005.

"I should've never done the refinance, but they made it sound good," said the mother of three.

The Barretts had a fixed-rate loan, but they still couldn't keep up with two mortgage payments during a crisis.

The Flowers said they feel compassion for former home owners like the Barretts. The Flowers remember each home owner whose properties they acquire on the court steps. They've helped a few of these families pack and move out of their homes.

"Sometimes they have a hard-luck story. Others make their own luck and you don't feel too badly for them," said Flower, 52.

"Who you really feel badly for is the kids," said Paula Flower, 53.

They have no children, which Paula Flower said is one reason why they're able to take such risks. The risks can run high. The property could be trashed on the inside, most investors can't see the inside until after the sale, and the investor can't recoup the capital. There could be litigation with the previous owner.

The Flowers research the property liens and Multiple Listing Service data before bidding. They say that they haven't lost any money yet, but they still have three other properties to turn over.

After hearing plenty of horror stories and watching many sales, Flower has this bit of wisdom on speculative house buying: You have to be in the right place, at the right time at the right cost with a buyer who wants it more than you do.

They will flip the Dogleg Road as soon as possible, then it's on to the next sale, which is Wednesday on the steps of the Reno courthouse, Flower said.

• Contact reporter Becky Bosshart at bbosshart@nevadaappeal.com or 881-1212.