Foreclosures Hit Rich and Famous
Houses with loans of $5 million or more will likely see a sharp rise in foreclosures this year, according to a RealtyTrac study for The Wall Street Journal.
In February alone, 352 homes nationwide in this category were scheduled for foreclosure auction, the final step before a bank acquisition. That is the largest monthly number of these so-called notices of sale since the financial crisis began. By comparison, in all of 2009, there were 1,312 such notices.
Economists say the super-wealthy are among the last to lose their homes in a mortgage crisis because they usually have high savings, better access to credit and other means for staving off foreclosure. But many of them work in financial services and other industries hit especially hard by the crisis, and have seen their wealth shrink in the market crash.
While the numbers are modest compared with foreclosures at other income levels, they suggest the possibility of a sudden spike in bank takeovers of the wealthiest Americans' property. Typically half the notices of sale result in homes being turned over to creditors, though the figure could be slightly lower for the richest Americans who have more financial options, according to Daren Blomquist at RealtyTrac.
Mr. Fuscone, Merrill Lynch's one-time head of Latin America, put his mansion up for sale in November, asking $13.9 million. But he couldn't find a buyer.
The court had scheduled a foreclosure auction for Thursday for the 18,471-square-foot mansion—with two swimming pools, two elevators, six fireplaces, 11 bathrooms and a seven-car garage. The personal bankruptcy filed in U.S. Bankruptcy Court Wednesday temporarily freezes the foreclosure process.
The phenomenon is not limited to the New York area. Banks have taken over homes with loans of $5 million or more in Georgia, North Carolina and Colorado, RealtyTrac says.
Mr. Cage had tried to sell his 11,817-square-foot Bel-Air property for $35 million but failed to get any offers, said James Chalke, a real-estate agent who had the listing. At a foreclosure sale Wednesday, the property attracted no bids from investors and so was acquired by the foreclosing lender. Annett Wolf, a spokeswoman for Mr. Cage, said he had no comment.
A representative of Mr. Cecchi Gori, producer of more than 200 films including "Il Postino" and "Life is Beautiful," said his financial situation is improving.
In Florida's Miami-Dade County, the three largest foreclosure filings initiated against homes in the past six months involved a 4,655-square-foot home in Sunset Islands; a 8,443-square-foot house in Coral Gables; and a condo in Miami Beach, according to Peter Zalewski, a principal of Condo Vultures. All three had mortgages of $3.5 million to $4 million.
Mortgage defaults began to surge in late 2006, mostly among borrowers with subprime mortgages, those for people with weak credit records or high ratios of debt to income.
Over the next few years defaults spread rapidly to better-heeled borrowers, especially those who got loans without documenting their income. At the end of 2009, nearly eight million households, or 15% of those with mortgages, were behind on mortgage payments or in the foreclosure process.
Wealthy people have the means to stretch out the distress process, sometimes for years.
"It's very, very difficult for these people to believe they've had such a severe reversal of fortune," says Maggie Navarro, a real-estate agent in Pasadena, Calif.
Marc Carpenter, a San Diego-based foreclosure specialist, adds that while it's much harder for potential buyers to get loans, there are also fewer buyers who can pay for top-dollar properties. "The upper end is definitely a lagging indicator," he says.
"My background is in the financial-services industry and I have been personally devastated by the financial crisis which came to a head in March 2008," Mr. Fuscone said in his bankruptcy declaration. "I have been sued by Patriot National Bank" as part of a foreclosure action. "I currently have no income for the 30-day period" following his bankruptcy petition.
C.W. Kelsey, owner of Greenwich Hardware, was among the local merchants owed money by Mr. Fuscone, though he wouldn't say how much.
"Traditionally, the majority of our credit problems were contractors," he said. "Now there are people you'd never expect two or three years ago to have problems, who live in multimillion dollar homes."