Real estate investors, leaping to buy Baltimore homes during the boom, helped fuel the frenzy and drive up prices in neighborhoods from Canton to Reservoir Hill.
Now they're part of the fallout.
Properties belonging to "nonowner occupiers" - usually investors - accounted for nearly 30 percent of the city homes that lenders were trying to foreclose on during the first three months of the year, according to a Sun analysis of state court and assessment data. Caught by the market slowdown and in some cases blindsided by other problems, they defaulted on loans for more than 250 homes.
And they are disproportionately affecting a handful of city neighborhoods, both trendy and troubled.
In popular Canton, for instance, investor-owned real estate added up to more than half the 25 homes on the court foreclosure-filing rolls. At least eight of those properties - most bought during the housing boom - belong to a single investor.
"Some people just got left holding the bag," said T. Guy Cook, owner of Parkville-based Advance America Property & Finance LLC, whose niche is lending to Baltimore real estate investors. "It was inevitable. You knew it was going to happen - it's like musical chairs."
The rising tide of foreclosures has swept up investors both novice and experienced, though it appears that the newcomers are far more numerous. They were "the most giddy of all," jumping in too late and paying too much, Cook said. Many defaulted loans are on properties bought in late 2005 and in 2006, as the housing market began to hit the brakes.
"It's been a nightmare," said Ndabezinhle Moyo, a Baltimore resident who began investing last year in several city neighborhoods. After a series of setbacks, he's fighting to save four of his rentals - plus his own home - from foreclosure. "I was OK up until December. From December, I basically couldn't make a single payment for anything till about April."
Robert Strupp, director of research and policy at the Community Law Center in Baltimore, suspects that the pool of investors in foreclosure is only going to grow because they bought the majority of homes sold in the city in the past few years.
"We may just be seeing the early ... number," said Strupp, who chairs the enforcement committee of the Baltimore Homeownership Preservation Coalition.
Foreclosure, dreadful for property owners, isn't great for the surrounding neighborhoods either. As lenders seize properties in default, they're adding to the homes for sale in an already-saturated market.
And though owners in default on their mortgages might still manage to save their property or sell, a foreclosure filing is a clear sign of financial distress.
Baltimore, which saw foreclosure filings drop markedly during the housing boom, just recorded its first increase in years. Filings for all real estate, including some apartments and commercial properties, rose 22 percent in the first three months of the year, compared with the same period last year.
To gauge how many of those involved investors, The Sun melded the foreclosure filings with state property assessment records as of January to focus on filings for nonowner-occupied homes. While a nonowner-occupied unit might not be held by investors - the term includes vacant homes people have inherited or once lived in - it's the best yardstick of investor activity. If anything, lenders say, investors are undercounted because some buyers falsely claim they're the occupants to get a break on mortgage terms and property taxes.
Nonowner occupiers hold nearly 40 percent of city homes, according to state records, so they're not falling into foreclosure out of proportion to their numbers - at least not yet. Twenty-nine percent of foreclosure filings in the first quarter were for homes owned by nonowner occupiers.
But some neighborhoods once considered hot investments are feeling an outsized impact, including Canton, the upscale waterfront destination that drew rehabbers like a magnet; Washington Village and Reservoir Hill, transitional neighborhoods that some saw as the Next Big Things; and struggling Broadway East and McElderry Park, with cheap homes that investors thought were bargains because the east side's under-construction biotech park is nearby.
The high proportion of pinched investors in Canton, Reservoir Hill and Washington Village propelled those neighborhoods into the top 10 in Baltimore for total foreclosure filings.
Investors who descended on certain areas to buy, buy, buy during the housing boom helped drive prices up even further at the time, said Mark Fleming, chief economist with First American CoreLogic, a firm that helps the mortgage-lending industry manage risk and fraud.
"They artificially inflated values, in essence, because of their interest in bidding it up to get it away from the other investor," he said. "If you have concentrated investors in certain areas and then house prices start to move south or sideways, the ramification is their greater willingness to walk. It basically creates more volatility."
Interthinx Inc., a California mortgage fraud detection company, said just over 30 percent of the Baltimore loan applications it looked at in the first five months of the year had possible "property valuation" problems - often inflated values. That compares with 8 percent nationwide.
Interthinx believes inflated values are a mix of fraud and honest overpricing. The report identified other types of potential fraud in Baltimore, including investors posing as owner occupiers.
The city was battered in the late 1990s and early part of the decade when unscrupulous investors bought homes and then quickly resold them for far more than their value with the help of forged documents or false appraisals. But investors can be victims of fraud, too, said Ann Fulmer, vice president of industry relations at Interthinx. She's seen a number of cases recently in the United States involving people recruited into investment clubs run by con artists.
"They end up getting inflated property, and then the orchestrators just disappear," she said.
Strupp, with the Community Law Center, believes that investors are also falling prey to bad financing. He doesn't mean subprime loans - though investors do face higher interest rates than homeowners because they're seen as a bigger risk. He's concerned about the terms offered by some "hard-money" lenders, companies and individuals that specialize in financing investor real estate purchases. He's seen loan documents allowing the lenders to demand all the money back with only 90 days' notice.
"There are inexperienced investors who are going to end up ... and may already be, losing the houses because they can't turn them around before these balloons come due," said Strupp, who saw several investors with such loans file for bankruptcy recently to avoid foreclosure.
In a strong market, real estate investors who make bad deals can get out quickly without much harm done. But prices aren't increasing at a double-digit clip anymore, and sales have slowed. In the 21224 ZIP code, which includes Canton, units on the market in June outnumbered sales 7 to 1. The average home took more than 100 days to sell, three times as long as it did two years ago at the height of the boom.
"A lot of people [who] got in - put a lot of money into fixing up houses and have loans - can't sell them, they can't rent them for enough to cover mortgages, and they're stuck," said Alan Chantker, president of the Mid-Atlantic Real Estate Investors Association and a Baltimore rehabber. "They may have thought they were going to be in and out of the home in six months, nine months - and then it turns into a year, a year and a half."
When the market was still hot, a Washington Village home Chantker sold to another investor was quickly resold to a third investor - for a lot more money. Now that example of boom-time euphoria is a cautionary tale for the slump. The last buyer paid too much, struggled with contractors and couldn't sell, Chantker said. He thinks she eventually gave the property up to her hard-money lender.
"I don't think the property even got properly finished," he said. "She just ran out of money."
Moyo, 40, can relate after going into default on multiple homes.
He began investing in Baltimore rental homes last year, something he'd dreamed of doing since renovating his Fells Point house in 2005. He jumped in full time after leaving a job in the grocery business, quickly buying nine properties and signing contracts to acquire more.
Then everything went south.
His new tenants, he found, were either paying much less rent than the sellers claimed, or they weren't paying at all. Contractors disappeared after accepting down payments for work. And he was too optimistic about at least one of the neighborhoods he bought into, rehabbing for a classier clientele than he could get on a street with boarded-up properties and a flashing police camera.
As cash got tight and Moyo fell behind on his mortgages, lenders tried to foreclose on many of his rentals and his own home, which he had borrowed against to start buying.
"I've invested all my life savings," said Moyo, who is working with the lenders to try to hold onto his properties. "I have to try. ... I have to continue to fight."
He said he has at least $10,000 in mortgage payments a month and more than $1 million in debt hanging over him. He has tapped into his 401(k). His wife, a nurse, is working overtime to keep them afloat.
Moyo - a slight man with a quick smile - remains hopeful despite it all. He thinks he can still turn investing into the profitable business he's wanted since his childhood in southern Africa.
Little by little, he's removing nonpaying tenants. A handful of men and women who help him clean up after evictions descended recently on his Belair-Edison rowhouse to give it a thorough scrub, shaking their heads over the tenant who filled the place with furniture and flat-screen TVs but rarely paid rent.
"Living like a millionaire," tsked Ernestine Glenn as she waited for cleaning supplies.
Moyo has a plan for this place: market it as two units, attract working professionals and collect $1,300 in monthly rent combined. He'll check for criminal records, insist on a signed lease and get a security deposit upfront - he's learned all that the hard way.
But getting his head above water is easier planned than done.
Earlier that day, representatives from the sheriff's office declared that they could not remove a tenant from one of Moyo's homes in the Broadway East area until the facade's missing street numbers were replaced and the request to evict refiled.
"In this business, nothing is ever smooth," Moyo said later. "As I find out on a daily basis."
jamie.smith.hopkins@baltsun.com