Running out of Cash
A Wave of Foreclosures is Leaving Abandoned Properties

July 1st, 2011
by Thomas Tomczyk

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A remains of a bank foreclosed home near Plan Grande

A remains of a bank foreclosed home near Plan Grande

As the global financial and foreclosure crisis continues, Roatan also is feeling its repercussions. In the US an estimated 2.5 million homes are in foreclosure and waiting for new buyers. While Roatan has escaped the faith of mass foreclosures there are a few dozen properties with defaulting owners that have been taken over by banks. One of the reasons that there are relatively few defaults in the Bay Islands was that Honduran banks required routinely a 30% to 50% down payment on a property before a purchase.

Before the world financial crisis, Honduran banks had sufficient collateral and hadn’t gotten themselves into trouble as many American and European banks did. Still, with a large number of Hondurans working and sending money from abroad, the financial problems of people paying off loans in Hondurans have increased. In the last three years the “moras” or delayed monthly payments increased from 1% of all accounts to 5%. “That is a real problem,” admits Christinne Arias, regional president of AHIBA, Honduran Association of Banks and Banking Institutions.

Just like in the US, Honduran banks were eager to loan to individuals, but overall only around 20% of island properties are not fully owned by individuals or corporations. “They give a lot of opportunities for struggling owners to get back into making payment,” says Steve Hasz, owner of Roatan Life Real Estate. In the last three years the number of foreclosures on Roatan had risen, and number of properties amassed by banks had also risen in number.

Hasz complains that Honduran banks never do short sales, and are reluctant to work with real estate agents by giving them commission. “The problem is the banks are asking too much money. Sometimes as much money as they were originally owed,” pointed to another issue Julio Galindo, Roatan’s mayor. “[Still] they do a pretty good job of working with people who have problems making payments.” That is pretty much the best choice that the banks have, as there are few buyers and prices of properties have fallen, some as much as 30%-40%.

Most often the foreclosed homes sit abandoned, without maintenance. The properties are used by squatters, vandalized and eaten by termites. Left without maintenance, within a year or two these properties can turn into a pile of broken wooden planks and depreciating the values of surrounding properties. “The problem is who will pay for that: the seller or the buyer,” said Arias. “Banks are not in the business of holding real estate.”

In Honduras the system of listing the foreclosed properties and moving them from one owner to the next is not efficient. Each bank has its own procedures of how to deal with foreclosures and they are dealt with on regional basis, Bay Islands being a part of North-Atlantic Coast region in Honduras.

One of the biggest foreclosures in last few months was that of Banco Atlántida foreclosing on Las Palmas, a development in Dixon Cove. In fact the last three owners of the development got the property thru a foreclosure. Now a group of several investors made the purchase.

Banks aren’t the only entities being stuck with properties instead of cash. Even RECO, the local power company, got stuck with properties for unpaid electric bill. Now RECO finds difficult to get rid of them.

Some home owners have been forced to, or have simply walked away from mortgages. The country uses “La Central de Riesgos” a central risk rating agency that has a database of anyone who has ever applied for a credit card, personal loan or a house loan in Honduras. “If someone falls behind three months in payments they won’t be able to get a loan for five years,” explains the system Arias.

One group that Honduran banks have increasingly been reluctant to work with is foreigners. The foreigners who default on a loan often leave the country and are “hard to track down” which complicates the foreclosure process for the banks. “The reason we do so few foreclosures is that it takes so long and is so tedious. We have to advertise [the foreclosure] for 21 consecutive days in the newspaper,” says Arias, who says that Roatan Lafise bank may do three foreclosures in one year.

Some of the foreigners living in Honduras have been counting on income in the US, or Canada that has dried up. Others have overextended themselves and can no longer afford the payments. “Every time you call someone at the bank says they will help you, but no one does,” says a Canadian retiree living and working part time in Roatan, who asked not to be named. He lost his island house to Lafise in a foreclosure a few months ago. He says that the bank’s attitude made him angry, frustrated and about $20,000 poorer.

In 2008 the Canadian took out a 12-year 12% interest loan for a $50,000 two story Sandy Bay home sitting on about a quarter acre property. He paid $15,000 down and fallowed up with about one year of $600 monthly payments. Retiree says that without authorization Lafise withdrew $2,000 from his bank account to pay the ZOLITUR property sales tax that the seller was supposed to pay. This was just the beginning of the problems he begun having with the bank. “They [Lafise] said that they couldn’t find the seller and just took my money,” said the retiree.

When his financial and personal situation changed, he asked the bank to change the name on the ownership papers of the corporation he received many promises, but no help. “All the hustles involved with the property weren’t worth the $15,000 I paid,” said the retiree.

With all this, there are few opportunities for buyers. The interest rates offered by the banks are steep: 10, 12 even 15 percent, and involve 10 to 15 year loans. Refinancing is sometimes an option, but closing fees are high and banks require life and home insurance to be part of the loan security. According to Hasz, in the end, the purchaser would pay an interest more like 18%. [/private]

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