Sheriff's sales are gauge of mortgage defaults

Last weekend Rachel Tusler and her boyfriend, Brad Zach, threw a party at their new house, once a foreclosed property.

The tour included photographs documenting the sweat equity they have put into the Brooklyn Park house since they bought it in March.

They spent hundreds of hours ripping out rotting carpet, removing cobwebs and years of grime from the walls and ceilings, replacing moldy floors and painting every room.

"It wasn't just a cookie-cutter Plain Jane house," said Tusler, 26, a financial auditor at Target Corp. "It has a lot of character. We saw the potential in it."

Tusler and Zach are among buyers finding affordable housing as foreclosures mount in metro counties. Sheriff's sales -- counties use them as a key indicator of the mortgage crisis -- have ballooned more than sixfold since 2003 in 10 metro counties.

An analysis by the Federal Reserve Bank of Minneapolis this spring predicted that several suburban cities were bound for a flood of foreclosures because tens of thousands of subprime borrowers will face higher payments on their adjustable-rate mortgages.

Cities as geographically diverse as Ham Lake, Apple Valley, Shakopee, Oakdale, Forest Lake, Elk River, Albertville and Plymouth will experience problems, the analysis said, because of concentrations of these types of mortgages.

Woodbury, not long ago the metro's fastest-growth suburb, projects 300 sheriff's sales through 2008 -- 10 times the number five years ago. "Woodbury's not immune to that kind of problem," said Stemwedel, who thinks that "problem loans" issued during the city's hot housing market will lead to trouble for more homeowners.

All metro counties appear to be on track to exceed last year's sheriffs' sales by big margins, and that's before higher mortgage payments come due this fall.

Hennepin County, for example, has seen a record numbers of sheriff's sales, with 3,826 in the first six months of 2008. Ramsey County's sales soared nearly 800 percent, from 393 in all of 2003 to 1,648 through June of this year. Washington County now is averaging about 100 foreclosures a month, up from a total of 147 in 2003.

"It's ultimately a correction to a market that went crazy too long," said Rick Ketterling, who sells houses for Coldwell Banker Burnet in the south metro. "During the hot housing market people sold junk for top dollar and people paid top dollar for junk."

Ketterling said he has seen many homeowners who bought houses they couldn't afford. But there's a silver lining, too -- more buyers, he said, are now seeking to live within their means and more foreclosed houses are selling.

They bought the house on 66th Place North for $148,000, invested $10,000 for repairs and improvements, and figure they got a deal -- a similar house on the market is priced at $272,000.

Tusler and Zach hired an inspector to check the house, calculated the task before them, and decided to buy.

But Ketterling warns that lower prices don't always mean a good deal. Many foreclosed houses might require a considerable investment to repair damage, replace missing appliances or install a yard. "If you're struggling, look for ways to reduce your household budget," he said.

Even as many people go shopping for bargain houses, more and more homeowners are finding themselves falling behind on mortgage payments.

"We're going to see a continued increase of foreclosures," said Mark Ulfers of the Dakota County Community Development Agency. "What's going on is that a lot of these people are upside down, where what they owe on their mortgages is more than the value of their homes."

"Clearly the problem has escalated," Ulfers said. "That's pretty disturbing."