iami Beach’s Fisher Island, Fort Lauderdale’s exclusive Harborage Island and pricey private enclaves throughout Palm Beach County aren’t normally where you’d think to look for a home in foreclosure.
But the wealthy residents of these and other prestigious neighborhoods in South Florida aren’t safe from the nation’s foreclosure crisis as they fall behind on their mortgage payments. In some cases, they’ve watched as lenders take over their multimillion homes.
In the last three months alone, more than 150 notices of pending litigation, or lis pendens — many of which were pre-foreclosure filings by lenders — were recorded on South Florida properties with an estimated value of more than $1 million, according to data provided by Default Research and analyzed by the Daily Business Review.
The majority of the homes are valued at between $1 million to $3 million, according to the data.
RealtyTrac, which sells national foreclosure data, lists more than 500 residential properties in the three counties with loans of more than $1 million that are in some stage of foreclosure. The number also includes a few parcels of vacant land.
“Nobody is immune from the ripple effect of the whole credit crunch,” said Al LaSorte, a real estate litigation attorney who represents wealthy homeowners facing foreclosure. “It reaches into every tier of the real estate market.”
LaSorte, of the West Palm Beach office of Shutts & Bowen, recently represented Veronica Hearst, the widow of newspaper heir Randolph Apperson Hearst, in the $40 million foreclosure of her former Manalapan estate.
“The super, high-end market, $20 [million], $30 million and up, to some degree has been less affected,” LaSorte said. “Although there aren’t that many buyers, most of the buyers for those properties can pay cash. They don’t have to borrow money.”
Hearst’s case isn’t the only headline-making foreclosure recently. Ed McMahon, the TV pitchman and longtime sidekick to late-night star Johnny Carson, has been hit with foreclosure on his multimillion dollar home in Beverly Hills, Calif. And a foreclosure auction has been scheduled for the 54,000-square-foot Atlanta home of former heavyweight champion Evander Holyfield.
Many business owners, real estate developers and other professionals have been hurt by the sluggish economy and the turmoil in the real estate industry, said Cathy Pareto, a Coral Gables-based financial planner.
“There are almost two worlds of people that are impacted by this economic downturn: People with steady jobs and a paycheck, and people who have less latitude in their income stream, like those who own their own companies,” Pareto said.
“Think about a restaurateur,” she said. “When the economy is hurt, people cut discretionary spending. Restaurants are taking a huge beating because people aren’t eating out as much. Think about a dentist who does cosmetic dentistry. The luxurious type of expenditure will be impacted, and so will those professionals.”
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A wealth of problems
Selected multimillion properties that have been the subject of foreclosure actions: here |
Although many of these distressed homeowners have accumulated wealth, much of it is tied up in real estate and other investments that can’t easily be cashed in, she said.
“There are many individuals who are wealthy by everyone’s standards, but a lot of their wealth is tied up in business and real estate investments,” she said. “In this market, their assets cannot easily convert to cash; they are illiquid. It’s like they are house rich but cash poor.”
Homeowners who built their fortunes in real estate are among those who are hurting the most. Some of the most expensive South Florida houses in foreclosure belong to people in the real estate industry.
LaSorte is representing local entrepreneur and real estate developer William L. Knight, who has two Highland Beach houses in foreclosure — his primary residence, which he bought for $2.2 million in 2000, and one he built as a spec home several years ago that is still on the market with an asking price of nearly $19 million.
“It is difficult to carry on a mortgage for a spec house for that long,” LaSorte said.
Knight also owns Boca Raton commercial properties in foreclosure. NextStore MarketPlace, a combination gas station, convenience store and gourmet take-out operation, is scheduled to be sold in a June 26 foreclosure auction, according to court records. The lender, investor Norman P. Rappaport, is asking for a payment of about $4.2 million to release Knight’s two houses and the NextStore property from foreclosure, according to court documents.
Knight also owns a vacant lot next to the retail property. The lender on the land, Republic Federal Bank, claims in a foreclosure lawsuit that it is owed about $6 million. A sale date has been scheduled for July 28, according to court records.
LaSorte said he is negotiating with the lenders and that Knight plans to open two NextStore franchises, one in Boca Raton and one in Jupiter, in the next month or so.
Knight said he is confident he will be able to work out a deal with the lenders by the auction date.
“Times are tough for everyone,” he said, “particularly if you are in real estate. Now I’m also in a combination of the restaurant and the gas business. It’s not an easy time for those industries.”
Another Palm Beach County mansion in foreclosure is owned by William Nesbitt, president of North Miami-based The Nesbitt Company Realtors. In 2005, Nesbitt paid $9 million for the house in the Stone Creek Ranch community in Delray Beach.
American Home Mortgage Servicing, on behalf of lender American Home Mortgage Acceptance, filed a lis pendens on the property in December, and the foreclosure is pending, according to court records. The Nesbitt Company’s phone number has been disconnected, and Nesbitt did not return a message left on a phone number listed on the Web site.
The 17,400-square-foot house at Hawks Lane is listed for sale at $9.8 million.
Too much too soon
Many wealthy investors, eager to take advantage of the run up in values during the residential real estate boom, tapped into the equity in their homes to finance other real estate deals.
That likely was the case with the owner of a Pinecrest house scheduled to be sold in a foreclosure auction on July 30.
Danu Dadlani, president of Miami-based PBD Realty, borrowed about $8 million from First National Bank of South Miami in 2006 to acquire and convert a building into office condo units. Dadlani pledged his 4,500-square-foot Pinecrest house as collateral for the loan, according to the loan documents.
The completed condo project, Sunset at Galloway, is up for sale, according to the company’s Web site. First National has filed to foreclose on the project’s unsold units as well as his Pinecrest house.
Dadlani did not return a phone message seeking comment.
Not even owners of properties on exclusive Fisher Island, where buyers have to pay a mandatory $250,000 fee to join the golf club, have avoided foreclosure trouble.
Several Fisher Island condos are in some stage of foreclosure, including one that belongs to renowned architect Moshe Cosicher, who designed the Grandview, a condo building in Miami Beach. He paid $1.75 million for the Fisher Island condo in 2006, according to property records. Washington Mutual filed a notice of pending foreclosure action on the property in April. The filing does not indicate how much Washington Mutual is seeking.
Cosicher could not be reached for comment.
Before the current credit crunch, cash-strapped homeowners were confident they could raise money by refinancing the property. That is no longer the case, LaSorte said.
“They can’t fold the interest into the loan,” he said. “That makes the principal too high because the appraisal doesn’t support it.”
Many of the high-end homes were also bought on speculation,” he added. “Some people bought houses for $8 million, thinking they would sell for $14 million, and now the house isn’t even worth what they borrowed to pay for it.”
Some rich homeowners may end up in foreclosure because they stubbornly refuse to confront their troubles.
Pareto, the financial planner, says even the wealthiest need to know when it’s time to “swallow the pride” and cut back.
“And if that means you have to stop going to the country club to play golf to reduce your expenses, do it.”
Research director Vala Issa contributed to this report.
Polyana da Costa can be reached at pdacosta@alm.com or at (561) 820-2065.
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Reader's comments
Ann said:Surprise, surprise..well not really..this was to be expected for several reasons 1)The lovely HELCO/refi's that people did yestereday to homes that have 40% less value today..this is seen everywhere are people who thought "Well, I live in a million dollar home," are finding that same home a problem to sell as a short sale at $699K..The MLS is loaded with properties that sold for one point something that are now 40-50% off..refi's are dead..2) Exotic mortgages..the dreaded MTA/NEG AM loans that put people who belonged in a $500K home into their dream home of $1.4Million..now reality says to those who want to refi that the product doesn't exist and PROVE to us with real income you can afford it and by the way that home is worth LESS.. 3)the wannabe Donald Trumps..for the boom era of few years everyone thought they hit the jackpot and took on more debt that they could handle because it was easy...now here is the reality..you were never a millionaire only a person going into serious debt..4)Reality...there are two kinds of people in the world..those on a sinking ship who grab a lifevest and try to make it out and those that think a bucket of water will save the ship...Most people don't want to face the reality that their life of fake "wealth" is over.."oh..things will get better in a couple of days, months..blah blah"...good luck to those..hope you can hold your breathe..June 18 at 1:48 p.m.
Dan said: "pricey private enclaves ...aren’t normally where you’d think to look for a home in foreclosure." Speak for yourself. I wouldn't expect hi-cost properties to withstand the huge drop in values that is hitting South Florida - especially condos. June 18 at 1:53 p.m.
bob said: your a smart person.. why would you buy there now when it will drop more in the future June 18 at 3:27 p.m.
jay said: No one escapes the downturn in this part of the country. What else is there in sofla but greed and social climbing? June 18 at 4:00 p.m.
Marcy said: 2/3 of an Ellipsis - it's the new sentence-ender! June 18 at 4:06 p.m.
1st grade math said: all the articles i read seem to be blaming it on a " credit crunch", its more like just plain old reality.people bought things they could not afford to pay and now its time to pay. June 19 at 5:22 a.m.
Robert Sherman said: This downturn of which housing is ONLY part is the result of Bush, the worst enemy the United States has ever had, and Republican party policies to to nothing about anything that will effect the assets of the wealthy at the expense of the people. The wealthy need to be on notice their ill gotten wealth will be taken away when Bush is gone to the dustbin of history. Class Warfare? You bet cha! It is time for the people to get even with the wealthy who are basically enemies of the people of the United States. This land is our land you sobs. June 19 at 9:18 a.m.
Grumble said: Some of the same professionals who promulgated the current mortgage morass; the mortgage brokers & realtors, are now falling on their own swords. Many of them who hyped this market and themselves believed their own hype by investing their commissions on their own false promises will get their just deserved punishment. June 19 at 1:08 p.m.
Shermanator said:Take your head out of your arse and look around Robert. It's not just Bush, it's the Fed, it's Greenspan's ripple, it's the real estate industry, it's the mortgage brokers, it's the people who bought more than they could afford, and it's also the Dems that are responsible for the mess we are in now. Things are only going to get worse if the irresponsible spending habits of the US government continue unchecked. You want change? You better get off your bum and throw the Reps and the Dems out of our houses and onto the streets. Tar and feathering all around! And this is not OUR land, in the interest of maintaining the rights granted by the US constitution: This land is my land, it isn't your land, I've got a shotgun and you ain't got one, If you don't get off, I'll blow your head off, This land is private property. June 20 at 4:20 p.m. | |
