Big spike in number of homes lost in GTA

Banks seize properties as mortgage defaults grow

When Victor Sebestyen bought his three-acre estate in Caledon, it was a statement that the humble plumber had finally arrived.

The close to 5,000-square-foot mansion was a just reward after 20 years running a heating-and-contracting business in Toronto. In addition to the $550,000 purchase price, he added an estimated $700,000 in renovations, including gutting and rewiring the home and luxuries such as a stocked fish pond and rockery.

But as the economy and real estate market started to head south, so did Sebestyen's business. He was forced to declare bankruptcy last October.

His dream home is now listed for $750,000 under power of sale by the Royal Bank of Canada.

"It was extremely difficult. I will never have a home like that again. After 20 years, it was over," says Sebestyen, who now lives in a rental apartment with his wife in Mississauga.

Power-of-sale statistics are not officially tracked by any agency. But according to figures compiled for the Star by real estate broker Mike Donia and by Jim Common, a realtor who has a monthly power-of-sale newsletter, there were 472 such listings in the Toronto area on the Multiple Listing Service in March, up 44 per cent from March of last year, the first year-over-year increase Common has seen in recent memory.

"I have not seen the level of desperation I am seeing out there ... now," says Common.

In the ruthless world of real estate cycles, one person's misfortune is another person's opportunity. As the economy sours, power-of-sale properties – typically homes that have been repossessed by a lender because the owner defaulted on their mortgage – are making a comeback.

"There are no barriers to this downturn. Everyone can get hit, rich man, poor man. You can't buy immunity from the financial crisis," says Donia, who does a thriving power-of-sale business. "There are a lot of people out there who bought with zero down during the good times and are now walking away."

The number of distress sales, while growing, still represents only a tiny fraction of the thousands of listings on the Multiple Listing Service. But they do act as an early warning stress test of potential problem spots in the Greater Toronto Area.

According to the research for the Star, the vast bulk of sales are in the Brampton and Bramalea area, followed by Oshawa, both areas that have been severely hit by manufacturing and auto plant layoffs.

More recently, Chrysler has filed for bankruptcy protection in the United States, while General Motors of Canada announced last month it would downsize even further – which could kill 38,000 jobs in Canada, with most of them in Ontario.

"Once you lose your job it's hard to hold onto that home – so these areas get hit first," says Donia.

The concern is shared in a recent report by the Canadian Association of Accredited Mortgage Professionals, which warned mortgage defaults could be on the rise because of the high number of job losses in the economy.

"The greatest risk facing the Canadian mortgage market is job loss," said CAAMP chief economist Will Dunning.

So far the existing home market has held up relatively well, with sales off by only 7 per cent in April compared to a year earlier, in a better-than-expected spring market. But economists are worried about the long-term implications of job loss. The equation is simple. No matter how low interest rates go, without a job, no home is affordable.

Canadian employment rose by 35,900 jobs, said new figures released yesterday, the first positive figure since last October. But the unemployment rate remained unchanged at 8 per cent, up from 6.1 per cent a year ago, as the number of Canadians receiving employment insurance reached its highest level in nearly five years.

According to the Canadian Bankers Association, mortgages in arrears (in default for three or more months) were up to 14,676 in February of this year from 10,376 a year earlier. The number is still small, representing just 0.38 per cent of all outstanding mortgages in Canada, but it is up from 0.27 per cent in 2008, a number that had remained relatively flat until it started creeping up in November of last year.

Sebestyen has become one of those numbers. He tried to sell his home last year for $829,000 before his bankruptcy, but the bank now has it listed for $750,000.

"I put my life into that house. I renovated it from top to bottom," says Sebestyen. At 57, he finds himself working odd jobs to make a living, not the hundred-thousand-dollar contracts his company used to do, and he has to make do without the tools he lost to bankruptcy. He also has health problems as a result of diabetes.

"I don't know about retirement. I will be working my entire life. I fix a toilet here or there, but at least I can get by."

Sebestyen at least has a roof over his head. Donia says he has another client, a machine operator who lost his $47 an hour job and $600,000 Richmond Hill home. He now lives in a park.

"He just pitches his tent and showers at the YMCA," says Donia. "He says at least he doesn't have to worry about the property tax."

While there are more Canadians losing their homes, Donia stresses that the numbers are not comparable to the United States, where distress sales on properties have ballooned to historic proportions.

House prices have cratered by 50 per cent and more in some states as buyers walk away from homes that are worth less than the mortgages they owe. In some areas such as Santa Ana, Calif., more than half of the existing home sales in the first quarter were distress properties.

This has led to the phenomenon of foreclosure tours, where potential buyers hop on a bus to see if they can spot a bargain.

That's not quite the case in Canada, where volumes have been lower, although the numbers have been picking up.

In a normal year, realtor Michelle Fraser sees maybe one or two power-of-sale listings. But in the first few months of this year she has already handled seven.

Last month, Fraser's listing for a Power St. semi-detached in the trendy Parliament and Richmond Sts. area of downtown Toronto sold for $333,000. She figures the same property may have gone for $400,000 a year earlier.

"When people see power of sale they're immediately thinking bargain – and there are some good deals out there if you act fast," says Fraser.

High-priced properties have been hit as well. "There are a lot of people out there who had the big house, but when the economy is down or they lose their job, it becomes really difficult to carry that big mortgage," says broker Armando Chu. Early in the spring he was listing one of the most expensive powers of sale on the MLS for the Bank of Nova Scotia, at $1,315,000. The price had been lowered from $1.4 million. With 6,200 square feet and a two-storey foyer, the six-bedroom Richmond Hill home also comes with an interlocking brick driveway good for six cars.

Another large home in Pickering – 8,600 square feet on 10 acres – was listed in 2007 for $1.4 million. The six-bedroom home is now going for $749,000, or almost half the price, but the listing warns that it "needs some work." It also notes that there is no power, and to "Bring a flashlight," suggesting that the resident and the home fell on hard times.

While banks aim to get market value for power-of-sale properties, realtor Fraser says the banks are not comfortable having their money tied up and are ultimately willing to deal – although it depends on the property. Earlier this year she sold a home in Oshawa for $100,000, a far cry from its listing price of $148,000.

"I thought to myself, `no way the bank would take it,' but they did," says Fraser. "The banks aren't in the business of owning real estate, and given the downturn they seem to be taking lower offers than they normally would."

As for Sebestyen, he says if things get worse, he may call it quits and return to Hungary, which he left decades ago to pursue a better life in Canada.

"I paid my taxes, I worked hard for the dream. But it got me nowhere. Over the years I've been up, I've been down. But this recession took everything from me."