"For us, business is good,” says Barry Lander, clerk of the bankruptcy court. “It’s a sad thing.” Indeed it is. The courts, judges, clerks, and the legal profession have been blown good business in San Diego’s ill wind. For example, for the 12 months ended in February, bankruptcy filings in San Diego and Imperial counties are up 73 percent to 14,509, compared with the same period a year earlier, says Lander. That’s Chapter 7 filings (liquidation), Chapter 11 (reorganization), and Chapter 13 (wage earner’s plan). For the full year 2005, there were 15,686 bankruptcy filings, but that was because Congress passed a law making it more difficult to go into Chapter 7, so people rushed to file before the law went into effect.
There are other depressing numbers. Home foreclosures rose 133 percent in 2008 to 19,557, according to the county assessor’s office.
In the last six months of last year, county filings for unlawful detainer, the legal route to tenant eviction, rose 30 percent to 10,132, compared with the same period of a year ago, according to superior court records. Eviction actions were up 46 percent in South County and 42 percent in North County. People think of unlawful detainers as the legal process by which landlords boot out tenants. But that’s not what’s going on in San Diego now. Unlawful detainers are being filed by banks or somebody who bought foreclosed property at a trustee’s sale; the former owner, or tenants of an owner, aren’t vacating the place as required and must be ejected by court action.
The stunning increases in bankruptcies, foreclosures, and unlawful detainers are related. Longfellow would have called them “mournful numbers.” Says Richard Kipperman of La Mesa’s Corporate Management, a trustee in Chapter 7 cases, “In 2004, of the first 100 cases I did, 8 people owned real property. Nobody owned more than 1 property, and all 8 people said they would try to keep up their payments. Of the first 100 cases in January of 2008, fully 42 people owned real estate, and of those, 7 owned more than 1 property. And 22 people said they are just giving their property back to the bank.”
Says Kipperman, “People lived off the equity in their homes. They used their home as an ATM card. The value would go up, they would refinance, take out money, pay off their credit cards, and take a trip to Hawaii.” Now that home values are going down and people are losing their jobs, “Bankruptcies have skyrocketed in San Diego County. It’s a case of too much debt, excessive consumption, borrowing money against inflated assets, people getting loans they never should have gotten, and the constriction of the economy.”
Radmila Fulton has been a bankruptcy attorney in the county for 27 years. “I have never seen it this bad,” she says. “People are losing their jobs. They can’t make their debt payments. They use their credit cards to live on. When they fall behind on their credit card, their interest rate goes up. The credit card company says that ‘if you fall behind on another card, even if you are current with us, we have the right to increase your credit card interest rate; we consider you in default mode.’ ” She says, “People are walking away from their homes, but most banks aren’t taking back the keys; they want to go through the foreclosure process.”
The misery flows through the economy and in this case is flowing upward. “The small business owner had been making it, but now sales are down dramatically as [customers] contract their spending. Now the small businessperson is not making the amount of money needed to make the mortgage,” says Fulton. So her clientele is more upscale than she has seen before. “People have the feeling that things are not going to get better.”
With all the home foreclosures, “We had been expecting a big flood of people moving into apartments, but it has been more like a trickle,” says Robert Pinnegar, executive director of the San Diego County Apartment Association. “If people are losing their houses and their jobs, and they are not from San Diego, they are moving back to where their family is.” He doubts that the unlawful detainer actions are being filed by landlords to any significant degree. If there had been a spike in evictions, he would have seen a sharp rise in screening activity or landlords asking potential tenants about their credit, unlawful detainer history, criminal record, and even terrorist activity, he says. “We have not seen the big increase in screening activity. I think it is the banks taking back properties.”
“I don’t think the landlord/tenant unlawful detainer activity has had any dramatic upswing, but there has been a huge increase in foreclosure evictions,” agrees Ted Kimball of the San Diego law firm of Kimball, Tirey and St. John, a specialist in such activity with offices around the state. He, too, thinks these actions are being filed because former owners or their tenants are not moving out as required after a foreclosure. “Once the foreclosure procedure is finished, if the [former] owner or tenants of the [former] owner are still occupying the premises, then an unlawful detainer is filed by the bank or whoever bought the property at a trustee’s sale,” he says.
In today’s economy, “Landlords are more likely to work with tenants before pulling the string,” says Kimball. “These are their customers. The last thing landlords want is turnover. They have to go through the eviction process, clean up the apartment, paint it, find a new tenant — it’s expensive.” Says Kimball, “In a tight market with a waiting list, the landlord will not put up with nonpayment or behavioral issues.” But to everyone’s surprise, the rental market is not tight. “Landlords work with their tenants.”
The key is home foreclosures, which soared last year. It’s a national problem, and governments at every level are trying to address it. In San Diego, the mayor claims he will act on recommendations of his Committee on Foreclosures and Neighborhood Stabilization. Among several things, the City vows to hold property owners responsible for maintaining vacant structures.
Both the state and the Obama administration have launched programs to stem foreclosures. The San Diego pace has slowed this year. Brian Yui, chief executive of HouseRebate.com, says, “There is going to be an onslaught of foreclosures. They have been delayed” because of the state and national programs. However, he notes that hedge funds are now buying pools of performing and nonperforming loans. “They are buying at a discount; a lot of them are in a position to write off part of the principal — they are paying 18 cents on the dollar.” The U.S. Treasury Department has unveiled a plan to buy as much as $1 trillion worth of troubled mortgages and related assets from banks and subsidize private sector firms, such as hedge funds and private equity groups, to pick up the toxic paper. Such actions “will help stem the tide of foreclosures,” says Yui.
But overall, don’t expect San Diego’s foreclosures, bankruptcies, and unlawful detainers to slow down much, if at all. The courts will be doing fine.