By Micah Maidenberg
July 28, 2010
When Mohammad Valadan first starting hearing about the South Loop in the media several years ago, it was described as a rapidly expanding neighborhood. In short order he decided that residential real estate in the area had lots of upside for someone, like him, looking for an investment opportunity.
On Aug. 7, 2006, he and his wife took out a $118,320 mortgage to purchase a unit in the building at 1620 S. Michigan Ave., a new construction condominium tower that now contains 249 residences. The idea was to rent out the unit, earning a bit of income each month.
“It was growing and everybody was talking about it,” Valadan said of the South Loop. “I bought and a lot of my friends bought.”
A hiccup along the way was the recession. Valadan, who lives in Morton Grove, said he was hurt by the economic downturn — a restaurant he owned in part was doing poorly and he stopped making payments on his condo loan. On March 23, his lender filed a foreclosure suit against him and his wife, who is also listed on the mortgage they took out to buy into 1620 S. Michigan. The couple still had more than $114,000 left on the note as of the filing date, according to court records.
Valadan’s was the sixth foreclosure suit to hit a unit owner in 1620 S. Michigan this year, Circuit Court of Cook County records show. The seventh, filed on May 16, foreclosed on a mortgage taken out by Romelia Montoya, a Cicero resident who works in human resources. As was the ninth.
Montoya said she closed on two units in 1620 S. Michigan in 2007, hoping to eventually resell them. She soon had them rented out — one to a flight attendant, one to a relative. Another flight attendant, she said, later moved into the second unit as well. Even when both were occupied — the tenants were gone by October 2009 — the finances were difficult. The tenants’ combined rent of $2,400 didn’t cover her two mortgages, which ran to approximately $3,600 each month.
“The plan was to refinance and that didn’t happen, and my cash reserves went away,” Montoya said.
The economic crisis and struggles of the housing market blindsided her.
“For years you figured the bottom’s going to drop, the bottom’s going to drop and it never did … and then it dropped,” Montoya said.
Through June, lenders filed 14 foreclosures against mortgagees in 1620 S. Michigan. The issue isn’t isolated to one building in the South Loop. Twenty-two condo owners at 1720 S. Michigan, a 498-unit building, had foreclosure suits filed against them in the first half of 2010, court records show, as have 22 owners at the River City Condominium building. And the pace of foreclosures filings in the neighborhood and on the Near West Side is now accelerating.
According to data recently published by the Woodstock Institute, a Chicago-based housing research and policy organization, lenders filed 131 foreclosure actions against mortgagees in the first half of 2010 on the Near South Side, an area bound roughly by Roosevelt, 26th Street, the river and Federal and Lake Michigan. That’s up by more than 54 percent over the first half of 2009.
On the Near West Side, a zone bound by Kinzie, 16th Street, the Dan Ryan Expressway and Rockwell, lenders filed 227 foreclosures through June, up 72 percent versus the first half of 2009.
The Loop’s 132 foreclosures filed through June, meanwhile, represented a 120 percent jump.
“If you look in the city, you see areas with the most substantial growth tend to be middle- and high-income areas that were not going to be hit by the foreclosure crisis in the early stages, in 2006 and 2007,” said Geoff Smith, a senior vice president at Woodstock.
During that time, Smith said, lower-income communities of color were hit hardest by foreclosures due to the prevalence of sub-prime mortgages lenders targeted to borrowers in those neighborhoods.
That wave of foreclosures, according to Smith, may be peaking. Neighborhoods like Englewood, Austin and Grand Boulevard have seen year-over-year declines in new foreclosure filings, Woodstock’s data shows.
“Now filings are rising in condo development areas,” Smith said.
White collar workers who might have had a nest egg to lean on following a job loss may be now simply out of funds to maintain their loan, he said.
Throughout the city, condominium foreclosure filings rose by 38 percent through June, according to Woodstock, compared to the same period of time in 2009.
Smith cautioned that communities near downtown still had middle-of-the-pack numbers in comparison to areas in the city hardest hit by foreclosures. The Near South Side’s 131 filings through June are dwarfed by, for example, Chicago Lawn’s 319 filings (a number that is itself down 8 percent versus last year).
While there is no hard data available to illustrate the trend, both Smith and real estate agents pointed out that some of the foreclosures in the residential areas near downtown were hitting investors who never planned to live in their units.
The investor issue is evidenced by interviews with borrowers and by “second home riders” attached to mortgages.
Foreclosure filings also sometimes indicate borrowers who live far from Chicago. A New Jersey couple, for example, faces a foreclosure filed on Feb. 25 for a unit they purchased in 1720 S. Michigan.
Michael Murphy, who sells real estate in the South Loop for Prudential Rubloff, said some South Loop and West Loop developers sold heavily to investors who “thought they would close and they would think they could flip” the units.
“Now they’re stuck,” he said. “They can’t get rid of it. They can’t rent it.”
What comes next for the borrowers — and their units — depends on the person and circumstance.
Valadan said he wants to restart payments on his loan, pending a modification. But Montoya has determined that if her units aren’t sold to an investment group in a short sale — where the lender agrees to sell a unit for less than the balance due on the mortgage loan — she will give them up to the bank.
“I have no choice,” she said.
Besides speaking with Valadan and Montoya, Chicago Journal’s attempts to reach others facing foreclosures were unsuccessful. Further details, however, could be culled by reading through a sampling of foreclosure cases filed in circuit court during the first half of this year.
Some owners, court records show, seem to have given up paying their mortgages almost immediately after taking out loans.
A man who in September 2007 had taken out a loan valued at $284,800 for a condo in 1720 S. Michigan had paid off less than $300 on the principal by November 2009. Another buyer in the same building had not paid a single cent toward his $326,619 mortgage 13 months after the mortgage was recorded.
Other mortgagees whose loans included adjustable interest rates were not, as many have been across the country, done in by the increasing rates, simply because the lender filed for foreclosure even before the rates could kick up.
Valadan, who said he has hired an assistant to bargain with his lender, is still hoping for the best. In spite of the problems he has experienced with his South Loop unit, the property remained, he said, “a good investment.”
Since July 1, lenders filed an additional four foreclosure suits in his building.