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Denver leads nation in foreclosure of homes with positive equity

Far fewer homeowners in metro Denver are upside down on their mortgages — a key benefit of the strong home price appreciation over the past few years.

But Denver now leads on another measure: homes in foreclosure that are worth more than what is owed on the mortgage, according to a report Thursday from RealtyTrac.

About 83.7 percent of homes going into foreclosure in metro Denver have positive equity versus only 42.4 percent nationally. Other cities with elevated positive equity foreclosures include Austin, Texas; Honolulu; San Jose, Calif.; and Pittsburgh.

“It is something we have seen happening more than we have ever seen before,” confirmed Shannon Peer, director of housing counseling with Denver-based Brothers Redevelopment, which oversees the state’s foreclosure hotline.

Denver County Clerk Recorder Debra Johnson, who is also the public trustee, said 70 percent of homes in foreclosure going to auction in Denver this year have sold for more than the amount due the lender.

That in turn has generated “overbid” proceeds for borrowers ranging from a few hundred dollars to tens of thousands.

“We issued a check for $166,000,” she said of a recent payout.

Colorado also leads all states with 72 percent of homes in foreclosure having positive equity, according to RealtyTrac.

To lose a home with positive equity in foreclosure is akin to a swimmer drowning in shallow, warm water a few feet from shore with a life jacket on.

Positive equity, in theory, should allow the owner to sell, pay off the mortgage and avoid the discounts commonly associated with an auction sale by a public or private trustee.

Unlike during the housing downturn, when distressed homes languished for months as the foreclosure clock ticked away, homes in metro Denver, especially lower-priced ones, are selling within days of listing.

But it still happens for a variety of reasons, said Greg Smith, broker owner at Re/Max Alliance in Boulder.

For starters, most measures of positive equity don’t account for the costs involved with selling a home, which include commissions that can claim 5 percent to 6 percent of the sale price.

A borrower who shows positive equity on paper may not be liquid enough to see a traditional sale through.

Peer said he has also seen cases where homeowners seek loan modifications, but don’t complete the applications properly. They think the foreclosure clock has stopped, when it is still moving forward.

Some people are so emotionally attached to a home that they fail to act in their own economic interest, Peer said. “We still see that delay of embracing or acknowledging the situation at hand.”

Others just don’t realize that they have equity, Smith said. “They may have so many other life circumstances going on that they may not be in tune with the value of their property.”

Smith said some delinquent homeowners are more logical in their calculations. They realize that they have damaged credit scores and won’t be able to obtain a new mortgage.

By avoiding mortgage payments for a year or two as a foreclosure winds its way to auction, they save more than whatever they might lose by not selling a home on their own.

Once a home sells at a public trustee auction in Colorado, anything left after the lender gets what it is owed must be returned to the borrower.

Peer said people going through a foreclosure need to make sure the public trustee has their current contact information and they need to pay attention to any notices they receive.

Johnson warns that third-party “finders” are taking advantage of the situation by offering to “help” homeowners reclaim their overbid proceeds, in some cases pocketing as much as half the proceeds that are obtainable for free.

“The homeowner doesn’t have to or need to use a third-party finder. They can come directly to our office and pick up the money,” she said.

To be clear, the share of homes in foreclosures in Denver and elsewhere is only a fraction of levels seen during the housing bust.

As of May, only 0.34 percent of homes in metro Denver were in some stage of foreclosure, compared to 5.74 percent back in February 2010, according to CoreLogic.

As more homes overall regain equity, it also isn’t a surprise that a smaller share of homes in foreclosure will be underwater.

Only 4.6 percent of homes in metro Denver met the definition of being seriously underwater, meaning that the mortgage on a home was 125 percent or more of the estimated value, according to RealtyTrac.

As recently as the third quarter of 2013, 15.1 percent homes met that definition.

Now, nearly one out of five homeowners in metro Denver, 19.2 percent, are “equity rich,” which RealtyTrac defines as a home that is worth twice or more than the debt owed on it.

Aldo Svaldi: 303-954-1410, or

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