They gather at the courthouse, bidders willing to take a gamble on something off the scrap heap of foreclosed properties that have been dumped there by the mortgage crisis and financial meltdown.
Every week now, there is a list of homes and properties whose owners couldn't keep up with the payments — properties repossessed by banks and mortgage companies and put back on the market for somebody to try to salvage and turn back into the American dream.
"Foreclosures are occurring in practically every subdivision in Fayette County. No area is immune," said Don Swain, who buys foreclosed-on properties.
The majority are in in lower price ranges, under $150,000 in value. But earlier this year, a house appraised at $800,000 in McMeekin Place was sold foreclosed.
There have always been foreclosures. But starting in late 2007, the scrap heap started piling higher and deeper, forcing the Fayette Circuit Court's master commissioner, the court officer in charge of auctioning off foreclosed property, to schedule foreclosure sales every Monday, instead of every other week.
"In years past, we never sold in December. This year, we're selling up to Dec. 22," said James Frazier, Fayette's master commissioner. Frazier said he had no choice. "Lenders are screaming. They want their money, or they want the property."
While Lexington and Kentucky have not suffered the same kind of economic pain that boom-and-bust states such as Florida and Arizona have endured, it has had its share of homeownership dreams shattered. And sometimes the homes haven't even been completed.
Already there are more than 300 properties scheduled for sale through March 2009.
Many of the homes that Frazier auctions were bought with an adjustable-rate mortgage that began with an interest-only payment. "Then the adjustments get made; people just can't afford the the payments," he said. "It's more of a house than they should have been in in the first place."
The final step often comes at the courthouse, as the lender tries to recoup its money from a homeowner who has defaulted. The bank either takes back the home or sells it at a foreclosure auction.
In 2008, the master commissioner received 926 court-ordered referrals to sell; 95 percent were homes. One order could contain multiple properties.
On Dec. 22, Frazier has three referrals, but one is a builder with 22 houses in various stages of completion that will be auctioned individually. Another referral has eight properties. The third is The Mark with 36 loft condominiums at Woodland Avenue and East High Street.
So the actual number of individual properties being foreclosed is twice, maybe even three times the number of court referrals, he said.
Starting in 2009, Frazier plans to track the total number of properties contained within each court-ordered referral.
Bidders who come to sales include real estate agents, renovators and the banks that took back the property through foreclosure.
Banks typically want to unload the property, but only if they can recoup costs they have incurred.
As foreclosures have mounted, Frazier has seen banks become more willing to take less than in the past. With swelling inventories of foreclosed properties, "They'll take a loss just to get rid of the property and get some money back on the debt," he said.
However, Wade Kundinger, president of the Kentucky Mortgage Brokers Association, still sees banks buying back quite a bit of property.
"They buy the house back, then go to their (mortgage) insurance company and say, 'We made a good-faith effort,' and ask for the difference between what they bid and what's owed," he said. As an example, if a bank is owed $100,000, it buys the property back for $60,000, then goes to the insurance company to get the $40,000 difference.
The bank then turns around and puts the house on the market for sale.
"There's nothing shady about it," Kundinger said, "but don't think banks are losing money. There's a reason the biggest buildings in town are bank buildings."
However, Proctor Caudill Jr., a director with Kentucky Bank in Paris, said mortgage insurance is primarily for lenders that hold secondary mortgages. Bidding involves some risk for banks, too
"I think it all has to do with the bottom line and whether they feel like they can hold a property and come back later and sell it. "
Kundinger said he has bought distressed property at foreclosure sales, but it is "tough" bidding against lending institutions.
At the sale two weeks ago, the Master Commissioner had 27 court referrals. Three houses were bought by individuals; the other 24 were either bought back by the lenders, or the sales were canceled.
One of the three successful private bidders was Chuck Hendricks who bought 1304 Sequoia Drive, which had $117,282 owed on its mortgage. Frazier started the bidding at $80,000 — two-thirds of what was owed — and in barely more than a minute, Hendricks had bought the house off Armstrong Mill for $88,100.
Hendricks and his business partners Don Swain and Chris Mulberry, have bought about 15 foreclosed properties in the past 15 months, Swain said.
Swain, a 40-year veteran of the real estate business, and his partners do many hours of research before buying a house. "I know the market, the trends in certain areas and what buyers are willing to pay in certain neighborhoods," he said.
Buyers can seldom inspect the house before a sale, frequently because people are still living there, so they don't know the condition of the basement, the plumbing, the floors, the roof.
The trio has work crews ready to do the top-to-bottom renovations that often are required to get the house ready to sell. "You have know how much you can afford to put into a house to fix it up, and sometimes these houses are trashed, disgusting," Mulberry said.
Mulberry wants a house fixed up in 30 days, then priced so it sells in another 30 days, not six months.
The group has gotten some good buys, but success takes work. "People think they can show up at a sale, buy a house, turn it around and make a killing," Mulberry said. "But a whole lot of time goes into researching what to buy. It's risky business."