THE NORTHRIDGE QUAKE: The road to recovery 18 months out : Losing to Foreclosure : Repossessions Are Up 19%, Leaving Many Former Owners Bitter and Driving Down Home Prices

Robin Kay used her life savings to buy a two-bedroom condominium in Tarzana in 1990. When the earthquake struck, she lost it all.

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But the single mother is not the only homeowner who has been forced to walk away from a quake-damaged property.

The Northridge quake hammered the residential housing market in the San Fernando Valley more than any other area.

In the first five months of this year, home foreclosures in the Valley are up 19%, compared to a 5% rise in foreclosures in Los Angeles County, according to TRW Redi Property Data. Some realtors say that half of the foreclosures in the Valley this year are quake-ravaged homes.

Meanwhile, damage from the quake has helped continue to drive down the sales price per square foot of a single-family house in the Valley--down 34% since 1990, TRW Redi says--eclipsing the slide in real estate values anywhere else in Southern California.

One who felt the sting was Kay, who made about a $33,000 down payment to buy her Tarzana condo.

The $160,000 residence was near a good school for her daughter and within walking distance of shopping.

Kay, a 43-year-old hairdresser, still owed around $128,000 on the mortgage when the earthquake struck in January, 1994.

Her condo was not officially declared uninhabitable, but the deteriorating walls of adjoining units and sinking toilets left her too frightened to live there.

She still had her job as a hairdresser, but business slowed. She speculates that women dealing with the catastrophe weren’t inclined to have their hair done.

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Her bank granted her a moratorium on mortgage payments for a few months, but lump-sum payments were soon due.

“I don’t think anyone believed me,” she said. “I was really trying.” She tried to fight, but soon realized it was useless. “I had to walk away. There was nothing to save.”

Like many homeowners who bought when the market was at its peak, Kay owed more money on the condo than it was worth. Her condo is another foreclosure statistic.

Many homeowners, faced with expensive earthquake repairs and the inability to sell at a price high enough to pay off their loans, decided to walk away, said Ron Prechtl, a real estate agent with Century 21 Lamb Realtors in Northridge. He specializes in selling foreclosed homes.

“As soon as [the earthquake] hit, they lost all hope,” Prechtl said. “That sort of left them with no way out.”

Keith Hassinger was among those who tried to find a way. The onetime Canoga Park minister bought a four-bedroom home in Northridge in 1989, just after assuming a church post.

But property values on Key West Avenue in Northridge began declining almost immediately after Hassinger’s family bought the $350,000 home. Then came the earthquake.

He received an insurance settlement, but used the money to fix a sewer pipe damaged in the earthquake.

“I wish I could have taken the earthquake money and walked away,” Hassinger said. “But that wouldn’t be fair.”

His realtor, Carol Haddad, was able to negotiate a deal with his bank to reduce the amount he owed on the mortgage when the house sold, a procedure known as a “short pay.”

But the experience, in which a borrower usually must prove financial hardship, was tough to bear.

The bitterness is still evident in Hassinger’s voice. His former home sold for $218,000.

“All they would have had to do is renegotiate with me,” he said, “and I’d still have a house today.”

Haddad, an agent with James R. Gary & Co. Ltd. in Woodland Hills, said Hassinger’s misfortune ended up being a boon to the family that moved in.

The low housing prices, she said, means “that the seller’s hardship [is] the buyer’s gain.”

For instance, a Prechtl listing at Porter Ranch is a four-bedroom Mediterranean-style home at the base of a cul-de-sac with brick oven, swimming pool, beige carpets and three-car garage. It was worth $575,000 at the market peak.

But the quake proved disastrous for the previous owners, who tried to fix the damage themselves. Unprofessionally installed drywall squares left the foyer lined with dust.

The outer wall of the fireplace remains exposed to the back yard. The owners couldn’t keep up the payments, Prechtl said, and the bank foreclosed.

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“You’ve got hardship all over,” he said. “Some of the most expensive areas have hardship.”

Gary and Julie Bacon didn’t dwell on the misfortunes of the past owners when they bought that home in Porter Ranch.

“We both fell in love with the house,” he said.

They liked the price too. They will pay $250,000 for the home later this month when it closes escrow.

Contractors have assured them the structure is sound, and Gary Bacon, a 44-year-old cameraman, plans to fix it up with the help of friends.

Bacon said the yard is perfect for the family’s three children.

He loved the neighborhood and he might not have been able to afford a home this size before the drop in property values.

“The time is right now to get a better house--to upgrade,” he said. “It’s like now or never.”

Bank officers say they tried to do what they could to help homeowners face the aftermath of the earthquake through the payment moratoriums and through short pays, said W.C. Taylor III, executive vice president and chief lending officer of Fidelity Federal Bank in Glendale.

Bankers say they also have suffered losses because of the earthquake, though their stories may not seem as poignant as those of individuals.

Bankers say they have responsibilities to shareholders and depositors, and an obligation to cut off a borrower who shows no prospect of being able to pay.

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“We’ve taken a lot of lumps. We’ve worked out and modified loans,” Taylor said. “We did what we could to keep this bank adequately capitalized in this plague.”

Taylor said bankers have also been hurt by new federal regulations that require more funds to be held in reserve.

The change followed the savings and loan crisis of the late 1980s.

Buyers aren’t the only ones responding to the altered market.

Banks have designated loan officers to deal solely with foreclosures.

A mini-industry has sprung up for realtors who specialize in short pays and foreclosures.

Prechtl said he’ll sell as many as 70 foreclosures this year, one-third of which are earthquake-related.

In 1985 he sold only six foreclosed properties.

Other realtors say they do little else these days.

Stephen Kaseno of Jon Douglas Co. in Woodland Hills says foreclosures make up 80% of his business.

Ultimately, the earthquake will become a force for renewal, says Pat A. Zicarelli, president of the San Fernando Valley Assn. of Realtors. Government funds that poured in after the quake have improved infrastructure and beautified some neighborhoods, he said.

“Earthquake-damaged properties have really become the fixer-uppers of the ‘90s, particularly for first-time buyers and the handy investors because of the potential long-term profits,” Zicarelli said.

What no one can predict, though, is how long the trend will last.

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Several agents say there is no slowdown in the number of foreclosures coming on the market.

Some bankers counter that the trend is leveling off.

“I think we’ve certainly hit bottom,” Taylor said, “not withstanding another act of God.”

For those who have suffered foreclosure though, such as Robin Kay, the bank repossession process will continue to mar her credit record for several years.

When she tried to buy a car this month, she learned how difficult it would be.

The bank turned her down while she was still at the Honda dealership. “It doesn’t seem fair,” Kay said. “It’s not my fault the earthquake came and destroyed my home. How do you say [to the credit rating agency], ‘Listen, it isn’t my fault.’ There must be other people like me.”

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The Northridge Quake and the Valley Housing Market

The Northridge earthquake hurt the residential real estate market in the San Fernando Valley more than any other area of Southern California. Since the quake, the number of foreclosed properties in the Valley has increased at a much higher rate than anywhere else and is a big reason for the continuing slide in property values. And this is on top of the long decline in the Valley’s residential market since the recession of the early 1990s.

Housing Foreclosures in the San Fernando Valley*

* About 85% are residential properties; the rest are commercial buildings

Median Resale Price of a Single-Family House in the San Fernando Valley

Single-Family Houses Sold

Median Resale Price of a Condominium in the Valley

Condominiums Sold

Residential and Commercial Foreclosures

% Change % change from year from year Jan.-May earlier Area 1994 earlier 1995 Jan.-May San Fernando Valley 5,437 +24% 2,474 +19% Los Angeles Co. 27,728 +16% 11,722 + 5% Orange Co. 6,070 +13% 2,377 + 6% Riverside Co. 8,520 +16% 3,285 -10% San Bernardino Co. 8,756 +17% 3,664 + 4% San Diego Co. 5,319 + 7% 2,315 - 1% Ventura Co. 1,634 + 1% 605 -14%

Sources: TRW REDI Property Data; San Fernando Valley Association of Realtors