1216 Augusta Street in Charlottesville is scheduled to be sold at foreclosure auction on January 6, and 332 Minor Ridge Road, in Albemarle County, is scheduled for foreclosure auction December 11.
The owner of both properties is Doug McGowan, a real estate agent at RE/MAX here in Charlottesville. One of his tenants is a staffer at C-ville--whom he did not bother to notify that the property was in peril. (Hey, guy was busy. Happens.)
Both houses, as well as a $962K primary residence the article describes as a "McMansion," were bought in 2005-2006 with little or no money out of pocket, with interest rates from 7% - 13+% using Adjustable Rate Mortgages or Option ARMs. He also re-fi'd the two rentals in order to pull money out--a practice common during the housing bubble, where owners used their properties as ATMs.
At one point the article states "It’s unclear what McGowan was thinking...."
We're going to suggest that among other things, McGowan was thinking:
1. Charlottesville is a protected market - that is, due to its unique geography and proximity to UVa, it will outperform anywhere else in the Commonwealth (or the USA, for that matter).
2. Real estate values always go up.
Toward the end of the article, the potential impact of the foreclosures on others is made explicit:
The foreclosures are not only bad for McGowan. Likely, they will drop home assessments in the Rose Hill and Wynridge neighborhoods where his properties are located. That means less money for local government. If the neighborhoods are seen as distressed, it could make it harder to get loans to buy in those neighborhoods, creating a vicious cycle of declining value.
Additionally, a foreclosure sale can lower the price of houses currently offered for sale. Not that this is a bad thing in a bubble market: it's inevitable as part of the nationwide "correction."
In the Rose Hill neighborhood, there's already at least one foreclosure on the market a half mile away: 1404 Westwood Road, which we viewed in late September.
MLS #442361, 4br/1.5 bath, 2600 sq. feet brick rancher on the market for about a year. The listing explicity states this is a foreclosure, and hollers in caps "PRICE REDUCTION!" Asking: $315K, then $278.9K, and NOW $244,900. The Bank paid $315K for this house and has resigned itself to a loss--er,writedown.
Now add in the foreclosure of 1216 Augusta to the area.
What will happen to the price of the house for sale directly across the street from 1216 Augusta?
Yes, directly across the street.
1213 Augusta Street
4 Beds, 2 baths, 2,406 sq ft. Acreage: 0.25, 1957.
Last sale: $141K, 1996.
Additionally, there are two houses just behind 1216 Augusta for sale, on Westwood Road. You can see 1216 Augusta from their yards. Both came on the market within the past two months, and are next door to each other:
MLS# 459232, 1516 Westwood Road, $399,500. 2 beds, 2 baths, 1700 sq. feet, ca. 1952. Last sale: 1997, $145.5K.
MLS# 458407, 1514 Westwood Road, $489,900. 5 beds, 3 baths, which includes an "in-law" apartment. 3,500 square feet, ca. 1956. Last sale/re-fi 1996, $121K.
Across the street:
MLS# 454843, 1505 Westwood Road, $375,000. The price started +/- six months ago north of $400K.) 3 beds, 2 baths, sq. feet: 1,524, ca. 1953. Last sold in 2006 for $196K, before major renovations.
On the other side of Augusta Street:
MLS# 457574, 1610 Amherst Street, $359,000. 4 beds, 2 baths, 2200 sq. feet, ca. 1960. Last sold in 2005 for $293K.
There are also a number of other houses for sale in this area whose price and "value" may be affected by this foreclosure.
Additionally, Mr. McGowan may face a "deficiency judgment." In Virginia, a bank has the right to sue the owner for the difference in what is owed and what is brought at auction (suit may be for other monies as well). A judgment lasts 20 years in Virginia.
Don't miss the Comments when you read the article in C-ville. There's a debate on whether or not Doug McGowan should have been named. Judy Savage, President of the Charlottesville Area Association of Realtors, weighs in and takes time to spank the writer and editors, though as one commenter points out, she doesn't identify her job or association position.
According to Savage, Realtors in this area are in dire straits. Among the information she imparts are these direct quotes:
- "Many of us have seen our incomes fall 75% from just a few years ago."
- "The Realtor in question is only one of many facing foreclosure and bankruptcy..."
- "I know of several Realtors and Lenders who have now been foreclosed on because they relied on this bad loan product."
- "Just about every restaurant and big box store in town has a Realtor working there part time just to keep their head above water."
We can't help but notice that this is all a lot less sunnier than what we've heard recently from CAAR CEO Dave Phillips.
With property sales declining since 2006, and the fact that there is currently 18+ months of inventory on the market, it's no wonder.