Cleaning Up Foreclosed Homes After the Mortgage Crisis
Victor Correa approached the abandoned house with caution.
The lawn was overgrown, and various pieces of junk — a broken charcoal grill and rusted push lawnmower included — littered the backyard.
A mortgage lender hired Correa, 25, to clean the foreclosed home. Other than the address, Correa had little information.
He opened the back door, and the smell of rotting food and garbage pushed up his nostrils and down his throat. Correa rushed outside and vomited.
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Garbage covered the floor, inches deep in some areas. The bathrooms, with a thin layer of crust on the toilets and sink, looked as if they hadn't been cleaned in months. Furniture remained in each room.
"That's the kind of job you want to turn around and leave," Correa says. "But I didn't."
Correa drove to a hardware store and bought boxes of garbage bags, bottles of disinfectant, latex gloves, face masks and anything he could find to protect his body.
He returned to the house, suiting up in a makeshift hazmat uniform. He walked through the rooms, taking pictures with his digital camera. Eventually he brought over a couple more guys to help with the job.
Neighbors told him the story of the house. The owners had been an older man and his wife. Their two children had lived there a few years earlier. After his wife died, the man hadn't been seen much.
The neighbors weren't exactly sure when he left, but, they said, the property had been vacant for some time.
Correa told the neighbors the house had been foreclosed, and he was a foreclosure cleaner. The house, Correa says, was the worst he has seen.
The crew worked for nearly three days to get the house empty, hauling load after load of garbage and junk to the dump. When the house was "broom swept" clean, Correa spread some disinfectant on the carpets and linoleum floors. He snapped another series of pictures to send to the bank, and later collected about $2,000 for the job.
"The thing about foreclosures is that there is so much work out there," Correa says. "It's a loss for a lot of people, but it all depends on how you look at the situation."
Correa is one of the many local laborers cashing in on the growing number of foreclosed properties in the area. Some homes are left in good condition. Others are full of whatever the owners couldn't take with them.
Larger and more established "field asset" firms are overworked in areas of the country with booming foreclosure rates. Houston lenders — desperate to get the properties ready for resale — are turning to small-time junk haulers to clean the messes left behind.
The foreclosure surge hit Houston in 2006, as it did most areas of the country. Nationwide, home buyers defaulted on their mortgages at a rapid pace. The blame has been placed largely on subprime mortgages available for borrowers who wouldn't qualify for traditional home loans.
Those exotic loan products — mortgages with interest-only payments or adjustable rates — were available from a number of lenders in Houston, but never drove the housing market as they did in the nation's foreclosure hotspots. In California, Michigan and Nevada, neighborhoods that once thrived with new home development have turned vacant.
Houston doesn't match the hardest-hit areas of the country, but in the last few months it has seen more and more deserted properties.
"Most companies that do what we do have more [business] than they want," says Cheryl Lang. Lang owns Houston-based Integrated Mortgage Solutions, a national company specializing in reconditioning foreclosed properties.
Lang took over the business in 2001, when the firm's niche was filing insurance claims for government foreclosures. The company soon started handling the cleaning, repairs and other upkeep necessary to prepare properties for resale.
"This is all helping us," Lang says. "I never thought I'd be a bottom feeder, but here I am."
Before, Lang could predict the amount of work the company would handle from month to month. She had a short client list of lenders dealing with a minimal number of foreclosures. That pace has changed.
"I get calls from investors, I get calls from realtors, I get calls from lenders. People I never would have thought were my target market are now coming out of the woodwork," Lang says. "It's just nuts all over."
Work in Houston has been minimal for Lang's firm, mainly because the company has focused on areas outside of Texas. But Houston foreclosures are on the rise. In fact, April was the worst month the area has seen in recent years, with 1,096 foreclosures. That's almost 200 more than the same month last year.
Houston's 77449 ZIP code, on the northwest side, made the top 100 in the nation for 2007. The area saw rapid growth in the early part of the decade, with retail strip centers and a sea of new homes popping up almost overnight.
"They started developing that area really aggressively," says Erion Shehaj, a Houston realtor who specializes in foreclosed homes. "Like clockwork...[foreclosures] have been popping up one after another, because they were pushing them to people that couldn't really afford them in the first place."
Large signs are now planted along the roadside, advertising housing deals such as "Inventory Clearance!" and "Closeout Specials."
One subdivision in the area that was hit particularly hard is Bear Creek Meadows. The neighborhood was developed about five years ago, with houses priced in the $120,000 range and marketed to first-time buyers.
There's little variation in the construction, apart from the color of the brick. Most homes are lined with khaki-colored siding. On almost every street, with names such as River Bottom Road and Cannon Fire Drive, properties are now vacant.
Bear Creek Meadows has also suffered because developers sold packages of homes to buyers who planned to rent out the properties.
"The builders that don't care about the integrity of the neighborhood, they were selling to pseudo-investors," Shehaj says. "They hit hard times, and this is what happens."
Last year, there were 11,766 foreclosures in Harris County, up from 9,429 in 2006. (The numbers still fall far behind the 30,000 foreclosures the county faced in 1987, following the oil crash and savings and loan collapse.)
Ralph Murdock, who collects data for the Woodlands-based Foreclosures Information & Listing Service, believes the number of area foreclosures will continue to rise.
"Many of those adjustable rate mortgages were set to reset early in this year," Murdock says. "I fully expect 2008 will be bigger than 2007."
Another problem is that foreclosed properties are becoming harder to sell. Mortgage companies have drawn back on lending, especially for investors who were rushing to the city to find good deals on foreclosed homes.
A year ago, Shehaj says, people as far away as Australia were contacting him looking for foreclosed properties. Only the most experienced investors are calling him now.
"The good foreclosures still don't stay on the market but two or three days," Shehaj says, "but 90 percent of the properties that come onto the market are not good deals."
Banks are also spending more money on homes to make them more attractive to buyers. Some of the largest lenders, including Fannie Mae, have started repairing, repainting and recarpeting foreclosed properties.
"It used to be 'cut your losses, and sell it as it is,'" Lang says. "But there's so much on the market now...you're going to have to make the pig look nicer."
Steven Zapata thought his company could make some quick cash cleaning foreclosed homes.
His company, Nexus Disposal, was already in the trash business, renting out large trash bins for construction sites and placing smaller bins at businesses throughout the city.
Zapata had bought a foreclosed home himself, and the property was in good shape. He thought cleaning foreclosures would be a breeze.
He accepted about 25 jobs in a couple months, charging his normal rate for the trash bin plus $100 per hour for the labor.
None of the homes were in terrible condition, Zapata says. A pile of dirty underwear was about the worst he came across. Most properties took less than three hours to finish.
Trouble was, the banks wouldn't pay. When the lenders were late on his invoices, Zapata was told that payment was being held until the properties were resold.
"These are banks...and it's tough getting paid," Zapata says. "It's opened my eyes. I guess everyone is hurting."
Zapata still receives calls to clean foreclosed homes, but his new policy is not to accept the work unless he's paid in advance. Few banks have been willing to accept that deal.
Most mortgage lenders are ill-equipped to be in the business of reselling foreclosed homes. Rob Macioce, a banker with the Houston branch of SWBC Mortgage, says most firms, especially the smaller lenders, want nothing to do with it.
"We don't have the staff to do that, and it's not our expertise," Macioce says.
Macioce's previous company — Home Loan Corp. — sold its area branches to SWBC in February after some of the shakier mortgages the company had on its books became unattractive to Wall Street investors. When the mortgages couldn't be resold, the company couldn't survive.
"For a small company, if you got one or two loans back a year, and all of sudden you're getting ten or 20 or 40, you're either out of business or you're just trying to get the [servicing firm] to handle that for you," Macioce says.
But a mortgage is commonly sold to several different servicing firms in a short time, and details on cleaning and reconditioning a foreclosed property are often not included in the contract.
Macioce says those details can sometimes be negotiated after the fact. If not, the lender will then pass the job to a realtor. And there are plenty of realtors in the area who deal solely in foreclosures.
Kim Clay, who works for Signature Real Estate, is one, and she sometimes is the first on site after the bank files the foreclosure.
"If the home is clean, that's the anomaly," Clay says. "Most of the time, it's in complete disrepair."
Apart from the garbage and junk left in the house, Clay says that animal feces on carpets and holes in the walls are common. The plumbing and light fixtures, along with the dishwasher and refrigerator, have often been removed.
About half of the homes Clay visits are still occupied, and she says lenders have authorized payments of $700 to $1,500 for the occupants to vacate the houses and leave them in good condition.
"A lot of times they're in denial. They don't believe that they have to leave, or they just don't have a place to go," Clay says. "The hope is that [offering the money] can be something positive."
Lang says that her firm has offered "cash for keys" as well. Lenders have been so desperate to get the properties back in decent condition that Lang's workers can write checks on site. A woman in Michigan, Lang says, was paid $8,000 to clean her house and leave.
"Some people leave and the doors are wide open, and that just allows squatters and vagrants and vandals to go in and finish the job," Lang says.
John, who asked that his last name not be used, was offered $900 to leave a house he rented in Bear Creek Meadows after his landlord stopped paying the mortgage.
The foreclosure notice came in January, about two years after John moved in. His landlord said the bank made a mistake. Then a constable served an eviction notice, and John scrambled to find a new place to live.
When a realtor offered him the check to leave the house, John accepted the deal. He took the money and moved to a smaller rent house about a block away, across the street from a vacant property with a foreclosure sign in the yard.
"It's a bum deal, but I didn't want to be left out in the cold," John says. "I think these people here are a whole lot better."
Paying cash for keys, Lang says, can also hopefully reduce the chance of a violent encounter. In October, Harris County constables experienced the extreme side of foreclosures.
When a constable approached a home in Spring to post an eviction notice, the owner came outside with a pistol. The constable retreated, and the man went back inside. The encounter turned into a standoff — with police and SWAT surrounding the house — which lasted nearly 12 hours.
The man started chucking out Molotov cocktails, and police fired tear gas into the house. Still the owner didn't come out. Eventually, police stormed the house and the man shot himself. A gas mask and chemical suit were found inside.
Junk haulers stay away from most of the trouble, but the job isn't risk-free.
Gordon Jefferson has run a small trash-hauling operation for about the last seven years. On one occasion, he was hired to clean a foreclosed property and was told to trash everything.
Jefferson started throwing away clothing, shoes, furniture and a collection of flashlights. The former owner showed up at the property while Jefferson was working and started screaming at Jefferson to leave.
"He's not really angry at you, but he'll take it out on you," Jefferson says. "Sometimes situations like that can be kind of hostile."
Jefferson backed off and called the realtor who hired him. Police came out to the property, Jefferson says, and told the man to leave. Jefferson finished the job and hauled the load to the dump.
Avoiding danger is often a concern for Correa, and when he gets a work order, his first trip to the home is for inspection.
Neighbors have become a resource. Correa tries to find out how long the property has been vacant and whether the previous residents are likely to return. He often learns more.
"[The neighbors] usually get curious and come over," Correa says. "They want to know what we're doing; they've never seen us before. Then they want to tell us what's been going on."
But Correa's main objective is speed. Sometimes, all the junk is piled in the garage and there's little garbage inside the house itself. On a good house, he can be in and out in a couple hours.
Loose trash is what slows him down the most. Paper and food wrappers spread across the floor, bottles and cans left on cabinet tops, dishes in the cupboards or a refrigerator full of food mean a job of tedious work.
Correa has also expanded his services. He'll suggest a mop job topped off with a disinfecting if the house is especially dirty. Sometimes, he'll rip out the carpet.
When the bank is willing to pay, Correa has started hiring laborers to replace cracked drywall or broken tile. But junk hauling has been his mainstay, and after dump fees and supplies, Correa usually pockets between $300 and $1,000 per job.
"Most banks just want a quick sell, and want us for a one-shot deal," Correa says. "I can do that. So far, it's been working out pretty good."
Vicky Fealy, a Houston attorney, says new laws need to address how vacant properties are handled.
A state legislator in Colorado has already proposed a bill that would deal somewhat with the aftermath of foreclosures. The law would give local authorities the power to board up windows and change the locks at vacant homes. Furthermore, mortgage companies could be fined for not keeping up with basic landscaping and trash removal.
In Texas, property laws cover some areas. They apply mainly to fixtures and appliances that have been installed in the home, anything that could change the character of the house if removed. But even those guidelines are vague.
"That's kind of a case-by-case, fact basis. I really haven't seen lenders going after people for that," Fealy says. "There's not anything that says, 'An air conditioner is a fixture, but a refrigerator is not.'"
For items such as clothing and furniture, there is less definition in the law. Fealy says if the homeowner wanted to sue to recover damages from items that were thrown away, it would be possible.
"Most of the mortgage companies work with [the homeowners] to get their stuff out, because they don't want to face a lawsuit," Fealy says. "If they've abandoned it, well, they've abandoned it. That's kind of a gray area."
If the home is still occupied past the court-ordered vacate date, the lender must file for a Writ of Possession, and the constable's office will handle the removal of property from the house. According to Captain Harry Cunningham, a constable with Precinct 1, the writ gives the constable, and the junk hauler that's hired, a wide range of authority. If no one is home, officers can break a window to enter the property.
When the junk hauler is working with the constable, only items that are deemed valuable are removed. If the owners do not reclaim the items after 30 days, the junk hauler is allowed to sell whatever he can to recoup expenses for labor and storage fees.
"When we go out there...they're going to determine whether we're talking about junk," says Cunningham. "If it is junk, there's a good possibility that the storage company won't take it because there is no resale value. Leave that up to the landlord who he wants to dispose of it."
Lang set a $300 standard for her firm, meaning that if the combined value of items inside the house could be worth more than $300, Lang will file for her own Writ of Possession before the property is removed.
When pets are found in a foreclosed home (see "Foreclosure Pets"), the animals are considered personal property. Even workers with agencies such as the Humane Society usually require a release form to remove an animal from a house.
"That's real difficult for me," Lang says.
On most jobs, however, the work is done without the constable or a Writ of Possession. Smaller companies and independent junk haulers are under more pressure to get the job done and collect the paycheck.
And Jefferson says that even if he finds something of value, it is probably headed for the dump.
"You run across so much of it, and you just get to the place where you have to throw it away," Jefferson says. "Sometimes I know someone that needs a mattress or a bed, or a television or dinette, and I'll try to locate them if I can. But I can't hold onto it forever. You see some good stuff that goes into the trash."
Correa never intended to be in the foreclosure business. He's worked as a maintenance man at a cardiovascular clinic for seven years.
He bought a new pickup a couple years ago and decided he needed to make some extra money. He invested in a flatbed trailer and had signs and business cards printed for his new company, V&M Services.
His plan was to target office buildings, which he would clean and from which he would take out the trash and, if needed, remove any old furniture. A majority of his work came from hauling off trash from abandoned storage buildings.
When he took out a small advertisement for his trash service, it didn't take long for the banks to call. Since he accepted his first foreclosure job a year and a half ago, Correa has been cleaning about 20 properties a month.
After enough time, he realized there weren't many jobs he couldn't stomach.
Sometimes Correa will hire laborers to clean the property and load his trailer while Correa works his day job. Or he'll take off from the clinic in early afternoon to finish the foreclosure before dark.
Still, there are times when the job can be stressful. Trashing a collection of family photos left in an abandoned house can be hard for Correa.
"I kind of feel bad sometimes," he says. "You start thinking about the people, seeing their things; you almost feel like you know them."
Once, Correa had a job to clean a property near Tidwell Road and Interstate 45. The house was unlocked and seemed fairly clean. He walked into the master bedroom and found a homeless man sleeping on a mattress.
Correa asked the man to leave, and he did so without incident. Correa spent a couple hours pulling the junk out of the house and then drove it to the dump.
In recent months, Correa says his business has been booming, and he's started advertising as a specialist in foreclosure cleaning. Correa was offered a piece of a contract to clean 200 homes in March. He declined, unable to commit to the large amount of work.
"I've been so busy doing foreclosures, I've felt like quitting [the clinic], and doing it full time," Correa says. "Somebody's got to do it."
In the last year and a half, Correa says he's learned a lot about the foreclosure market. He has even thought about getting his real estate license and selling the foreclosed homes after he clears them out.
But for now, Correa says, he'll stick with his moneymaker — cleaning out a foreclosed home and leaving it behind, quick to move on to the next.
"Foreclosures have been around forever, but it's such a big business now," Correa says. "This is the time."
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