NEW YORK CITY – From working-class enclaves in the outer boroughs to glistening new condo towers in Manhattan, the legions of New Yorkers at risk of losing their homes has been growing.

While the number of foreclosure filings in the state dropped during the first three quarters of last year compared to the same time in 2008, the filings jumped 14 percent in New York City, according to RealtyTrac. And no borough — including Manhattan (see related story here) — was spared.

Editor’s note: This article is reposted with permission by The Real Deal. Click here to view the original article.

By SARAH RYLEY

NEW YORK CITY – From working-class enclaves in the outer boroughs to glistening new condo towers in Manhattan, the legions of New Yorkers at risk of losing their homes has been growing.

While the number of foreclosure filings in the state dropped during the first three quarters of last year compared to the same time in 2008, the filings jumped 14 percent in New York City, according to RealtyTrac. And no borough — including Manhattan (see related story here) — was spared.

The Real Deal examined foreclosure data provided by PropertyShark, RealtyTrac and NYU’s Furman Center and found that across the board — from houses on cul-de-sac streets in Staten Island to tony co-op apartments on the Upper West Side — foreclosures in the five boroughs have quietly started creeping into more well-to-do neighborhoods.

While the level of distress in many of these higher-end neighborhoods still pales in comparison to foreclosure epicenters like East New York, Jamaica and Ozone Park, it is clearly on the rise.

In Manhattan, for example, the quarterly foreclosure rate shot up 108 percent during the first three quarters of last year. And among the most vulnerable properties were the borough’s prized co-ops, which have largely been viewed as shielded from foreclosures.

Meanwhile, in Brooklyn, foreclosures have started popping up in brownstone neighborhoods and in Williamsburg’s high-priced condos. And in Queens, Staten Island and the Bronx, the same trend exists for solidly middle-class areas that are now seeing the greatest increases in distress.

Analysts widely agree that this second wave of foreclosures is increasingly impacting higher-end areas as unemployment and upside-down mortgages — where a home’s property value is worth less than the mortgage — replace subprime and exotic loans as the principal causes of foreclosure.

That shift has already taken hold in New York, and analysts expect it will only get worse. Deutsche Bank predicts that the number of underwater loans in the New York metro area will jump from its current 11 percent to 77 percent by 2011. In addition, between October 2008 and October 2009, the city lost 110,000 jobs, according to the state Department of Labor. And if job losses continue at the current monthly rate of 3 percent, another 45,000 people will lose their jobs during the next six months.

Unemployed homeowners, with no money to make mortgage payments, have little hope of getting out of their financial bind anytime soon.  …CONTINUED

"Once the property value drops below what is owed, the likelihood for distress magnifies intensively. And when supply increases aren’t met by demand [in the broader market], prices drop, and when prices drop, people are going to default, period," said Bill Staniford, CEO of PropertyShark.

Compounding the problem, Staniford said, is that underwater homes are nearly impossible to refinance or unload as short sales. Brokers say those short sales — where a property sells for less than the mortgage is worth, often to avoid foreclosure — are usually dragged out for a long time and that in many cases banks end up refusing them in the end.

Part of the difficulty comes from second or third lien holders, who are desperately fighting for a greater share of the sale. And the Staten Island Advance recently reported a troubling new trend — these lien holders are now freezing bank accounts and garnishing the wages of homeowners in default on their first mortgage.

Although foreclosure’s effects on property values are hard to quantify, industry experts agree that a critical mass of distressed homes drags down property values, partly because normal sales have to compete with short sales and heavily discounted bank-owned property. That further exacerbates the problem of underwater mortgages.

In an effort to curtail this devastation, Governor David Paterson signed a new law last month that further toughened New York’s anti-foreclosure laws, already considered the strictest in the nation.

To address the issue of underwater mortgages, the law would allow banks to lower the principal amount owed on the mortgage if the homeowner agrees to split the profits once the property is resold.

The requirement that banks send a 90-day preforeclosure notice was extended to include all homeowners, versus just subprime borrowers. Also extended was the requirement that lenders engage in court-monitored settlement conferences with all homeowners (except for co-op owners, who don’t technically hold title to their apartments). Under the new law, banks must also give tenants 90 days’ notice before eviction, and can get charged by the city for property maintenance if they don’t do it on their own.

With foreclosures an even more onerous option for lenders under these new rules, State Senator Jeffrey Klein said, "I think banks are going to be a lot more willing to change the terms or modify mortgages."

The willingness of those banks could be the city’s only hope of curtailing the mounting wave of foreclosures, and the destruction left in its wake.

***

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