Foreclosures rose 11 percent in 2010 as more than 26,000 Minnesotans lost their homes.
Officially, the recession is over. Manufacturers are building again, consumers are occasionally spending and the stock markets are reaching highs not seen in more than two years.
But the foreclosure crisis is far from over. During 2010 almost 26,000 Minnesota homeowners packed up their houses, gave their keys back to the bank and watched their houses be sold at a sheriff's sale. It was an 11 percent increase over the previous year, the second-highest number on record and four times what it was in 2005, according to data compiled by HousingLink for the Minnesota Home Ownership Center.
"Staggering," is how Julie Gugin, executive director of the Minnesota Home Ownership Center, described the numbers.
Also on Thursday, RealtyTrac said that foreclosure nationwide rose 1 percent during January. Filings in Minnesota were down 8.5 percent compared with last year, mostly because of delays caused by a slowdown in the way foreclosures are processed, RealtyTrac said.
Still the Home Ownership Center report, which was based on sheriff sale data, offers a somber warning for the broader housing market, which despite a dismal 2010 had appeared to stabilize in recent weeks. Foreclosures have a devastating effect on the overall housing market, pulling prices down and flooding the market with hard-to-sell inventory.
The foreclosure increase is also a sign that improvements in the broader economy aren't trickling down to many individuals.
"While some economic indicators are pointing in a positive direction, many people and neighborhoods are still deeply mired in the recession and aren't seeing a turnaround," said Steve Cramer, executive director for Project for Pride in Living, a Twin Cities-based affordable housing nonprofit.
Cramer said that he sees the fallout from foreclosures on a day-to-day basis in neighborhoods that had seemed on the upswing prior to the housing crisis but are now giving back some of the gains.
Though there are certain neighborhoods in the Twin Cities that have been particularly hard-hit, Cramer said that this is an issue that has implications for the health of the entire state. Aside from causing a drag on home values, foreclosures cause declines in property tax revenue, they cause trouble for schools and they make it difficult for families to function in a healthy way.
"Our region is really one economy, and the weakest areas diminish the strongest and impact the overall quality of life here," he said.
In the metro area, foreclosures increased 9 percent from 2009 to 2010; in greater Minnesota there was a 16 percent increase.
The highest foreclosures rates, were in so-called "collar" communities surrounding the metro area. During the building boom, "drive-until-you-qualify" home buyers traded a long commute for the opportunity to own a home. Many of those buyers were first-timers who were already living on tight budgets and couldn't keep up after losing a job. They often put little money down, giving them no equity, as home prices sunk.
The worst was Sherburne County, where the foreclosure rate is almost 3 percent.
Many foreclosures during the first couple of years of the crisis -- there were more than 26,000 in 2008 -- were the result of mortgage and other kinds of fraud. That's not necessarily the case anymore. Experts widely agree that the latest wave of foreclosures is being driven by unemployment and underemployment, meaning workers have had their hours cut and they can't find other work to make up for the lost income.
"Until we see protracted periods of job creation, we will see elevated numbers of foreclosures," said Ed Nelson, spokesman for the Home Ownership Center.
In outstate Minnesota, the problem is particularly acute in smaller communities that don't have diverse economies that are able to rebound after a business closes.
Crystal Pastien lives in one of those places: Eden Valley, a town of about 800 people that's northwest of St. Cloud with only a few businesses, including one that relies on temp workers when there's business to support it.
Pastien said that she knows of at least five friends who have lost their house to foreclosure, and in just the past couple of weeks she helped move a friend and her two young daughters to a rental house after the one she owed $140,000 on sold at a sheriff's sale for just $36,000 after a modification plan didn't get approved.
"It was bad and hard for me to see it," she said of the experience. "But they had false hope that something was going to happen, but it wasn't."
Pastien could have been in the same boat. After losing a job and refinancing out of an adjustable-rate mortgage, she was on the "brink" of foreclosure for a year and a half before persuading her lender to recast her mortgage.
After adding $15,000 in fees to the mortgage, she now owes $102,000 on a house that's worth $62,000.
"At least I saved my house," she said.
Jim Buchta • 612-673-7376