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A town right on the default line
By David Streitfeld, Times Staff Writer
Oscar De Leon was washing his car a few weeks ago when he noticed a piece of paper stuck to the front door of the house across the street. He strolled over to check it out.
"You are in default," the paper proclaimed. "Unless you take action to protect your property, it may be sold at a public sale."
De Leon, who lives in the Riverside County town of Perris, knew this official notice of foreclosure was bad news. Not just for the home's owners, who tried to sell for months, failed and quit town for parts unknown.
It was bad for De Leon too, a 28-year-old employee of a food service distribution company. He and his wife, Sandra, pay their mortgage every month, happy they can raise their three children far from the urban problems of Los Angeles.
Two years ago, this neighborhood didn't exist. De Leon, who bought in June 2005 for $324,000, got the first home on the street, the first house he had bought anywhere.
"I like it here," he says, "They could offer me a house for free in L.A. I'd take it and sell it, but I'd never live there."
It's the age-old dream of the suburbs. Now, it's at risk in communities throughout the country, thanks to lenders too eager to lend and borrowers who thought houses would dispense money forever, like magical ATMs.
In California, Perris is at the epicenter of mortgage problems. From November to January, 177 homes in Perris' central ZIP Code have received notices of default, the first step toward foreclosure.
That's about 1 of 53 houses, the highest level of any ZIP Code in California, according to a Times analysis of statistics provided by DataQuick Information Systems. The neighboring towns of Lake Elsinore and Moreno Valley came in second and third.
A few doors away from De Leon's house sits a second empty property foreclosed on by its lender. "A divorce," he explains. "The husband couldn't afford it alone. He was paying $2,500 a month. Ridiculous."
A few blocks away is a third foreclosure, this one only a frame skeleton abandoned by its builder. A young woman who answers the bell at a fourth house says through the screen door that she doesn't know anything about the place's being in default. She pays rent to someone who pays the owner, she says; please go away.
The trouble stems partly from a proliferation in recent years of so-called sub-prime loans to borrowers with shaky credit or erratic income, borrowers who are more likely to miss payments and not catch up. Such defaults are typically in communities like this one -- a long way from the high-priced and built-out coast. The Inland Empire is full of new and almost-new homes and commuters who often travel great distances to jobs to pay for them.
The default rate in Perris compares with 1 in 105 homes in Palmdale, 1 in 150 in Van Nuys, 1 in 189 in Northridge and 1 in 283 in Altadena. Many coastal communities have so few default notices they don't even place in the top 400 ZIP Codes.
There are other signs of distress. De Leon's development, called the Villages of Avalon, has an unusual number of homes for sale, considering it's so new that the Google Earth satellite scan still shows much of it as dirt.
At the top of his street, next to the charred shell of a house that mysteriously burned a few months ago, is a house for sale. The house immediately next door is on the market too. A few doors away from De Leon's home in the other direction is a third house looking for a buyer. Some owners are trying to rent their places out, advertising with little signs on the front lawn.
De Leon fears what will become of his neighborhood if it becomes dominated by renters.
"You get people who don't care about the neighborhood and don't take pride in it," he says.
He's hardly alone in that view.
"If people start to rent, that's when you start to worry," says De Leon's next-door neighbor, Jose Serrano.
Serrano, 34, grew up in Long Beach. He saw friends die in Long Beach. He still commutes there every day to work on the docks for Toyota Motor Corp. It's an hour in the morning and two hours coming home, a grind he suffers for the sake of his three young kids.
Like De Leon, this is Serrano's first house. Like his friend, he is bracing for the future, hoping that even if things get worse now, they'll get better later.
"A lot of people got in over their heads. They are going to lose their homes," Serrano says. "The market goes up and down. You have to look at it for the long term, ride it out."
Good advice, but Perris could be in for a rough trip. Named after a railroad engineer, it began in the late 19th century as a stop on the Barstow-San Diego line. For most of the next century, it was a farming town -- sugar beets, potatoes, alfalfa.
Hustle and gloom
Cheap land drew the developers, and cheap houses drew buyers. The market may have slid over the last year, but the hustle remains. The billboards on the way into town extol 11 active developments. Signs on the city streets point visitors to them. So do curbside salespeople holding oversized arrows, and balloons floating over sales offices.
But many intersections tell a more downbeat story. Telephone poles are festooned with signs that say, "Behind in payments? We can help" or "Foreclosure loan specialist" or "We'll buy your house in nine days or less."
Lily Quinlan is thoroughly exhausted and a lot smarter about real estate than she used to be. Quinlan, 30, just sold her three-bedroom house on a cul-de-sac in one of Perris' older developments.
It went on the market last June, for $395,000. Her first agent reduced it to $383,000, then $375,000, then $369,900. Her second agent dropped it all the way to $333,000, where it finally found a buyer.
While the price was descending, Quinlan's ability to pay the mortgage was becoming intermittent. Her husband left the Navy to start a new job in Florida at a lower salary. World Savings, their mortgage company, started sending default notices.
The couple bought in 2002, as the boom was beginning. At its peak, the house was worth more than three times what they paid for it. But they refinanced and took cash out to do upgrades on the house, and then they refinanced again because -- well, Quinlan isn't sure why.
She's learned this about lenders and loan agents: "They make it look like they are trying to do all this for you, but the reality is that it was mainly for them. They got their chunks out of you, and then they put you out to the wolves."
Even when she was in default over the last few months, the offers continued. "They kept calling and calling, saying, 'You won't have any payments for two months.' And I'm like, 'Dude, the last thing I need is another refinance.' "
She's sorry to be leaving for Florida. If their house had not increased in value, if it was still worth exactly what they had paid for it four years ago, they could afford to stay. But the boom ruined everything, and so Quinlan was selling what she could at a yard sale before packing for the movers.
Some of the clothing and dishware spread on the driveway belonged to her neighbors, Ron and Dawn Blacic. Their house went on the market this week for $369,900.
"The price you got is going to drag down our price," Ron tells Quinlan.
"Thanks, Lily," cries Dawn as she pretends to punch her.
The Blacics, who are moving to Yucca Valley, owe $372,000. They refinanced once, taking out cash to pay for their wedding and other bills. "We figured the value would go up and up, and it didn't," says Ron.
After the agent's cut, the couple will need to bring a check to the table for $22,000 or so to avoid destroying their credit. They're counting on a loan from Dawn's parents.
"We want to purchase another home," explains Ron, who works for a sanitation supply company. "We don't want to wait 10 years until our record is clean again."
If the house sells for their asking price, the Blacics will come out about even on their first real estate venture: First the house dispensed money, then they had to give it back. For them, it will be as if the boom never happened.
On the other hand, if the house doesn't sell immediately, they'll have to rethink their plan. They can borrow only so much.
The onset of the spring home-buying season is a matter of acute concern to the Blacics, as it will be to many others.
On Tuesday, the house in foreclosure across from Oscar De Leon's home will go up for auction.
Public records show the mortgage was held by New Century Financial Corp., the Irvine-based sub-prime lender that collapsed this week amid rising defaults.
De Leon doesn't remember much about the former owners. They had two young kids. The father might have been in construction. They put the house up for sale last fall, barely a year after moving in.
In November, a moving van showed up and the family quietly left. The house stayed on the market; the agent watered the lawn to keep it presentable. Then one day he quit too. The lawn is starting to brown.