Those closest to the action say there are regular stories of investors breaking into houses to check them out before the sale, trashing houses after lien holders redeem them, banks sending eviction notices on properties they don’t own yet, and investors going into homes to start remodeling them before they have the title.
That last scenario is actually getting out of hand, said Public Trustee Tom Mowle.
“We’ve had a rash lately of what I would characterize as burglaries,” Mowle said. “We’ve had a couple cases lately where people have bought property at sale and immediately go to the house, lock people out and take their stuff.”
Whoever buys a property at the foreclosure auction — an investor or the bank — has to wait eight business days before taking possession of the property. That period allows the bank to discover mistakes and lien holders an opportunity to buy the property even if it already has been sold to an investor.
If the title transferred immediately, it might have to transfer multiple times and the chain of title would be messy, Mowle said.
“An unintended consequence, which I think is nice, is that it gives the homeowner two weekends to realize it finally sold and get their things out,” Mowle said. “I don’t think that was intended in the law, but if it wasn’t there it would be awful.”
He’s been getting a lot of calls from homeowners about investors moving in too early and not treating them fairly, despite Mowle’s regular warnings at the beginning of sales that the investors won’t own the properties for eight business days and they should stay out of them.
How it happens
An El Paso County sheriff’s deputy responded to a burglary call on Sept. 4. Lydia Graham, referred to as Lydia Upchurch in the deputy’s report, said she felt an investor had burglarized her home.
Graham told the CSBJ that she saw a dumpster in front of her property at 1815 Okeechobee Drive (80915) on Monday, Sept. 3, which was a holiday and was only seven business days after her home sold at the El Paso County Public Trustee’s foreclosure auction on Aug. 22. She said there were cabinetry and personal items in the dumpster.
“I was hot,” she said. “I was livid. They went in there without permission and were throwing my things in the trash.”
Graham said she hadn’t received any notice that the property had finally sold at auction.
She said she had furniture, cutlery, clothes, tile, paint and other home improvement supplies along with a motorcycle stored in the house.
“They didn’t have any right to move stuff,” Graham said.
Graham told deputies that the investor, Nikolas Fedorczuk, had called her and told her she could come get her things, but she had to get them before Sept. 4 or he would take possession of them.
Mowle learned of the case Sept. 4 and said it was an upsetting example of recent behavior.
“As of yesterday, this property was her property,” Mowle said on Sept. 4. “Even today when the investors became the owners — there’s still a legal process you have to go through to evict someone. You can’t just go in and take stuff.”
When the deputy called to investigate, Fedorczuk said he’d gone into the home to secure it, something the law allows. There was a broken window and the house was “trashed,” according to records. Fedorczuk asked neighbors and they said the house had been empty four years. The bank had also changed the locks on the house, according to sheriff’s records.
Fedorczuk also told deputies he’d misunderstood the instructions. He believed the waiting period was eight days — rather than eight business days — and that Graham’s belongings were still at the house and she could come get them if she wanted. Fedorczuk declined to comment to the CSBJ for this story.
When the deputy met with Fedorczuk and Graham at the house on Sept. 5, Fedorczuk said he’d moved some larger items into storage for safekeeping and would gladly get them back to her if she made a list, according to the sheriff’s records.
Graham said it would be hard to remember everything she had in the house and didn’t feel it was fair to have to make a list.
She said she owned the property as a landlord and owns others.
“I know what my rights would be as a tenant, but I have no idea with this,” she said.
Civil or criminal?
The county deputy who handled the case consulted with the 4th Judicial District Attorney’s office and determined that Fedorczuk had no criminal intent when he went into the house, so they would not file criminal charges.
That sets a dangerous precedent, Mowle says.
“In my opinion this is a property crime,” he said. “There’s absolutely no right for anyone to do anything other than secure against theft and damage.”
That means fixing broken windows and leaky roofs and locking the doors, he said. It doesn’t mean moving motorcycles into storage facilities or tearing out carpets.
“How is it a civil matter when you’re destroying someone else’s property?” Mowle said.
He’s heard enough stories of this kind of thing and he’s sure it happens even more often than he realizes.
“If a property is vacant, I think a majority of investors are going to bet the owner isn’t coming back,” he said. “And unless they contact me, I wouldn’t know about it.”
While the DA’s office might have advised the sheriff’s office that Graham’s particular case is a civil matter, Robin Cafasso, chief deputy district attorney, said not all cases like this will be civil.
“We do not have a policy that all cases like this are civil,” Cafasso said. “On the contrary, we would urge law enforcement to investigate it as a burglary.”
In most cases, she said this type of thing probably should be handled as a criminal matter.
“How did they get in? If they broke a lock, there’s property damage,” she said. “If they’re taking things out of the home, there’s theft.”
She said ignorance of the law is no excuse.
“Anyone buying property in a foreclosure process should know the law,” she said. “There is just no way that someone holding a certificate of purchase holds the right of possession.”
Why it’s happening
Ignorance and inexperience along with a wildly competitive market for real estate investors are at the heart of the problem, said real estate attorney Paul Murphy.
“We have the regulars who certainly know,” Murphy said. “But we have so many people now going down to the auction who shouldn’t be doing it because they don’t have the foggiest idea what they’re doing.”
Through the 1970s, Murphy said, there were usually five regular local foreclosure investors a year. Now there are at least 100.
He said it’s possible some of those new people really don’t understand, but it’s hard to believe as Mowle makes an impassioned speech before nearly every auction, warning investors to stay out of houses until they officially own them.
They probably know what they’re doing, Murphy said. But it’s a risk they’re willing to take in this market.
“I can see economic reasons why it would be becoming a bigger problem,” Murphy said. “There’s a lot of pressure on investors now to do quick flips, get in and out.”
He said a lot of them are working with hard-money loans that cut into their margins, and they can’t afford to wait.
With more people bidding on properties, the prices also are higher.
“We’re getting more and more of these people doing this, and a lot of them don’t have a large financial backing,” Murphy said. “They can only do one at a time.”
That means they need to get through the process as fast as they can. If they get in before they own it, they have a 12-day head start.
“They’re foolish to do it, though,” Murphy said.
If a lien holder redeems the loan, the investor will lose the money spent in that interim period.
Beyond that, if they’re too reckless, they could face civil lawsuits from homeowners and the possibility of punitive damages.
Of course, most of the down-on-their-luck homeowners who have been foreclosed on aren’t going to go through the expense and turmoil of suing an investor, Murphy said.