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Big homes, large loans raise rate of foreclosure

Posted On: July 2007

Weed complaints are up in Highland Park, and so are foreclosures.

"A good amount" of the gripes, said assistant city manager Patrick Brennan, "is attributable to the increase in the number of foreclosures. Many times, when a property is in foreclosure, it's abandoned."

Lower- and more moderate-income areas continue to be hit by foreclosures, but pricier communities in Cook and Lake Counties are hardly immune, according to an analysis done for the Tribune by Record Information Services Inc.

The Kaneville-based public-records tracker looked at foreclosures involving mortgages of $350,000 and higher and found 584 in those two counties in the first five months of 2007, more than double the 265 recorded in the same period last year and 117 in 2005. For comparison's sake, the median home price in the Chicago area is $252,000.

In many cases, the owners had the mortgage for less than a year, said Patty Maier, Record Information's data management director. "Are these cases of biting off more than they could chew or faced an unexpected personal crisis? Maybe a little of both," she said.

Foreclosure proceedings begin when an owner misses at least three mortgage payments and the lender files for a judgment. It usually takes seven months from that filing for a property to go to auction. During that time period, the owner still has rights. Potential investors, for example, can buy the home and assume the loan. Ultimately, the lender may repossess the property and resell it to recoup the loan.

In the interim, the fallout from foreclosures spills over to the neighborhoods in which they are located: pests living in overgrown yards and unsightly aesthetics, such as toppled planters, soggy phone books in driveways and tacky for-sale signs in windows.

There also are the worries of kids slipping into abandoned houses and the prospect that neglected properties will pull down neighborhood housing values. A foreclosure lowers the price of nearby single-family homes, on average, by 0.9 percent, one recent study showed. Each additional foreclosure on the same block cuts values another 0.9 percent.

Highland Park, where the median family income, according to city estimates, is $117,000, had 15 foreclosures involving mortgages of at least $350,000 in the first five months of this year. That's on track to be triple the number the suburb recorded in all of 2005. In 2006 it posted 26 such foreclosures.

Two of the latest foreclosures, one on Point Lane and another one street over on Museum Drive, are roughly at-the-buzzer basketball throws away from what was the longtime residence of former Chicago Bulls star Michael Jordan.

So far, housing values overall have not been hurt, Mayor Michael Belsky said, noting that property appreciation continues to rise in the heavily residential city of more than 11,000 households.

"Even with 40 homes [in foreclosure], it's not going to have a significant dent in the economy, but it's not surprising given what's going on nationwide," Belsky said.

The mayor said some residents are insulated from economic upheaval. "You do have some wealth, and you also have a lot of professionals that even in bad economic times are going to do OK because they're bankruptcy lawyers or something like that."

There are lots of reasons for foreclosures. Four out of five consumers had no idea what they were getting into with lenders' creative financing, said Tom Koikas of Exit Premier Realty in Park Ridge. Hired to sell a foreclosed property on Cavell Avenue, he believes it's simple: Too many people bought homes they couldn't afford.

Other reasons cited range from family emergencies to divorces to business problems spilling over into real estate holdings.

For example, Estelle Walgreen faces foreclosure on an investment property adjacent to her $3.3 million Lake Forest home, where neighbors tried to banish her pet potbellied pigs.

Divorced from an heir to the Walgreens drugstore chain, Walgreen explained last week that the foreclosure on her Sheridan Road rental property, which has a $1 million mortgage and is currently occupied by tenants, is related to the recent bankruptcy of her Wisconsin business, Converse Industries Inc., which sold parts to Harley-Davidson Inc.

"It has, in great part, to do with the fact that as a business asset, it's tied up with the business, and when the business takes a hit so do the other assets," Walgreen said. "It's now up for sale."

Former Chicago Bears star Dave Duerson has a similar story, facing foreclosure on his 17-room Highland Park home, which he is trying to sell for $1.6 million.

The foreclosure comes nearly 10 months after his Duerson Foods, which processed meats for such chains as Burger King, was forced into receivership. Last month, a Lake County judge ruled against Duerson in a foreclosure proceeding, finding that he owed nearly $550,000 on the Kelly Lane home that he had mortgaged to keep his business running.

In some cases people trade up to bigger houses with the assumption that their earnings will continue to rise, but sometimes paychecks can fall off just as quickly.

"I was starting to pull in $15,000 a month," recalled Libertyville's Peter Phagan, who started his own brokerage in 1992, working at the Chicago Mercantile Exchange.

"From January to June of '04, I had done more business than I had done in any year before. It was 'Let's get a nice house.'"
So Phagan sold his $230,000 Libertyville home for $400,000 and bought an even bigger one, taking out a mortgage for $513,000. But by May 2005, his earnings fell to 10 percent of their peak, hurt by the shift to computerized trading, he said. And about that same time he decided to invest $300,000 into opening a smoothie business in Libertyville, making his financial situation more difficult.

"One problem is the rent is $25 a square foot -- you spend $4,000 a month to run a store. It's 1,000 smoothies a month just to take care of that. Since May '05 I haven't brought any new money home because I'm trying to get this business up and running."

Now he's looking for a business partner, and his Libertyville home, which National City Bank initiated foreclosure proceedings against, is for sale at $725,000, down from an initial asking price of $750,000. It gets about a look a week, he said.

"I wish I hadn't moved," Phagan said, especially not at the same time as starting a business.

At 1550 Museum Drive in Highland Park, neighbors lament the day work began on what was supposed to be a luxury home that included a 2-acre parcel, an indoor and outdoor pool, elevator and roof deck.

But there's little more to show than a foundation and the beginnings of a superstructure, cloaked in sheeting and surrounded by a chain-link fence. The site is overrun with nearly waist-high weeds.

"It's horrible," declared neighbor Michael Friduss.

The city "said they'll have to tear it down anyway because they won't allow any further building on it because what is there is rotted by now," he said. "You worry about property values, the looks of it, the safety of it for kids, the weeds blowing on your property."

The original mortgage in September 2004 was for $1.7 million and increased to $2.3 million in May 2005. The lender's complaint in Lake County Circuit Court claims it is owed $1.1 million.

The project's architect and construction manager, Hernando Moreno, of Chicago Workshop Architects, said he planned a 13,000-square-foot custom-built home. "It's deteriorating," Moreno said. "If we could find someone to finish it, I'd be happy to help clean it up and build it."

In a response to the foreclosure complaint, Joyce and Felipe Calubaquib said they met their financial obligations but that the bank refused to make advances to complete the home's construction. The couple's lawyer didn't return phone calls. Messages left at a business address and the home address where a notice was served were not returned.

Through its lawyer, the bank, First Bank of Highland Park, declined to comment.

Some homes wind up in foreclosure after contractors are unable to resell them.

Consider 860 Pleasant Ave. in Highland Park, otherwise known as the "orange house" by neighbors like Holly Moore. "No one ever lived there," she said, after the 11/2-story bungalow was renovated and then unsuccessfully listed for about $600,000. "It has been a nightmare," added Jim Graue, whose wife regularly calls Highland Park officials about the tall grass and weeds; yards are in violation when weeds or grass exceed 8 inches in height. At one point the couple complained about raccoons foraging in a pile of trash.

Graue wonders whether the house will be sold. In another part of Highland Park, neighbors even worry about contaminants from a foreclosed and abandoned house.

It's in a development called the Town of Fort Sheridan where many houses were built in the late 1800s. "It takes $100,000 just to make them safe and habitable," said Caryn Tatelli, who speaks from experience and worries about lead exposure from the abandoned property next door.

The owner, she recounted, knocked down part of the house during its planned renovation. But then the lender won a $740,000 foreclosure judgment, and work stopped.

"Until they tore the back off, this was all enclosed so it didn't matter as much," Tatelli said, pointing out peeling paint on what's now the back of the house.

"All of that is lead paint. The board of health can't do anything until we prove that one of our children has exposure," she said. "I think about the hundreds of thousands of dollars we have spent abating lead from our home, and I'm sickened by the fact we live by this giant contaminant."

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By Becky Yerak | Tribune staff reporter
July 22, 2007
byerak@tribune.com

Posted On: July 2007

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