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| October 19, 2007 |
By: Paola Iuspa-Abbott |
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Club at Brickell Bay Plaza
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iami’s financial district has become the embodiment of the deflated condo bubble, fueled in part by speculators ending up in foreclosure.
The Brickell Avenue area is home to the three high rises with the most units in foreclosure in Miami-Dade County.
The Club at Brickell Bay Plaza, the Vue at Brickell and Jade Residences at Brickell Bay were built during the height of the development boom in 2004 and 2005.
The condos sold in days, often to be put back on the market months later with much higher prices. Soon it became trendy to buy and flip.
Short-term investors began taking on adjustable rate mortgages, which offered low teaser rates that would climb progressively higher. But they expected to sell quickly and reap big profits, and it worked for awhile.
When the market turned, condo owners got stuck with their units and increasingly higher mortgage payments.
“It was kind of the musical chairs. It kept going until the music stopped,” said Gregory J. Laskody, managing director of iCap Realty Advisors in Coral Gables. “Now people are paying the price through foreclosures.”
Court filings show the 641-unit Club at Brickell Bay leads the trio with 54 foreclosures, or 8 percent of the units, this year through September, said real estate analyst Peter Zalewski, who analyzed the Miami-Dade Circuit Court filings.
The foreclosure process starts when a borrower is more than three months behind on payments and the lender files a notice of default. If the borrower doesn’t catch up, the home goes to auction. If it doesn’t sell, the lender takes possession.
Diana P. Restrepo is one of the condo investors caught holding units after sales petered out.
She began buying Brickell Bay condos in December 2005 with the purchase of a two-bedroom unit for $620,000 and financed the full purchase price. She obtained an adjustable rate loan for $496,000 with interest set to jump from 8 percent to 14 percent plus a 15-year mortgage for $124,000, according to public records.
Shortly after, she bought a second unit, paying $500,000 for a two-bedroom condo and again getting 100 percent financing with an adjustable rate mortgage. A few months later, she refinanced the unit for $566,000. She then bought a one-bedroom unit for $600,000 in January and days later paid $600,000 for a two-bedroom condo, which she refinanced for $693,000 a year later.
But Restrepo fell behind on her mortgage payments, and banks began foreclosing on three of the units in July.
Restrepo couldn’t be reached for comment. Court papers were served at a Pembroke Pines address, but there was no phone listing in her name at that address. Court records list Cezar Mancao as her trustee. He said Restrepo has moved, and he doesn’t know where. He declined further comment.
Nearby, the luxurious 338-unit Jade has 42 condos, or 12 percent of the building, in foreclosure proceedings.
Jade held the leading position in June but has been outpaced by the Club at Brickell Bay, said Zalewski, whose real estate firm Condo Vultures tracks foreclosures.
Nearby, the Vue at Brickell, a condo conversion with 323 units, has 49 foreclosures, or 15 percent for the highest rate among the three buildings.
Some of the buyers bought units at several area high-rises.
Paulo Musiate Kelly began a buying binge in November 2005. He bought a Vue unit for $365,000 with 100 percent financing. Six months later, he bought a $2 million Jade unit and financed $1.9 million. A month later, he paid $1.5 million for another Jade condo, securing two mortgages totaling $1.33 million. Banks began foreclosure proceedings on all three in August, according to public records.
Musiate is a real estate broker and his firm, Global Capital Realty, has an office on Brickell Avenue. He did not respond to several messages left at his office and on his cell phone.
Another area that compares to Brickell in term of buildings with high foreclosure numbers stretches from northern Miami Beach to Sunny Isles Beach and Aventura.
Oceanview, a condo conversion on Collins Avenue in Sunny Isles Beach, has 41 units with a total of $13 million in debt owed to creditors in some stage of foreclosure, Zalewski said.
In Broward County, one of the communities with the most foreclosures is the Palm-Aire Country Club in Pompano Beach with 53 actions filed against owners. Lenders are trying to recoup $5 million in troubled loans.
Foreclosure proceedings in Broward County doubled to 1,293 in September, up from 646 a year ago. Miami-Dade saw foreclosures jump 134 percent to 2,152 last month from 918 a year before, according to court filings collected by the Daily Business Review.
Private property appraiser Dave Randell said fraudulent appraisals and mortgage fraud in general became factors in condo resale pricing.
At the height of the boom, appraisers were factoring double-digit annual appreciation into their valuations, but some sale prices were climbing unusually fast, and experts insist some appraisals were fraudulently inflated.
Profits on the sale of one unit went to new purchases and mortgage payments until another resale, Randell said.
Owners who were unable to sell eventually were unable to keep up with their mortgage payments, he said.
“There was a lot of mortgage fraud going on,” said Randell, a principal with Hemisphere Real Estate in Coral Gables.
Randell, who teaches appraisal certification courses at Miami Dade College, tells his students to stay away from deals at buildings where he suspects questionable sales happened.
Miami-Dade County Mayor Alvarez recently created a mortgage fraud task force combining investigators from several law enforcement agencies, and 11 mortgage fraud arrests have been made. A new state law that took effect Oct. 1 spelled out mortgage fraud as a crime for the first time. Previously, investigators used other statutes such as wire fraud to press mortgage fraud cases.
Economist Christopher Thornberg, a partner in Los Angeles-based Beacon Economics, expects foreclosures to keep rising as interest rates reset.
More than $139 billion in adjustable-rate mortgages are to adjust to a higher interest rate by the end of the year nationally, financial analysts forecast.
“We haven’t seen the end of the credit crunch,” Thornberg said.
Paola Iuspa-Abbott can be reached at piuspa@alm.com or at (305) 347-6657.
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