Everything must go: Sales cost taxpayers thousands

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DENVER - It is not your typical "everything must go" garage sale. A new trend called pre-foreclosure or foreclosure sales offer deals for some, but often costs taxpayers thousands of dollars, according to mortgage experts and real estate agents interviewed by 9Wants to Know.

The sales offer everything from the kitchen sink to countertops, cabinets, toilets, the hot water heater and the furnace from a home.

Homeowners hold the sales ahead of foreclosure in an attempt to make money before they leave the house.

Some loans require the government to cover the loss when a homeowner defaults on a loan. When homeowners sell appliances and other fixtures in the home, its value decreases. The government covers the gap between what the home is worth and what the bank can sell it for, and that money comes directly from taxpayers.

Often the pre-foreclosure sales are advertised on the Internet classified ad site Craigslist.

"House is only three years old, selling EVERYTHING in it!" read one ad posted in late March for items inside a Green Valley Ranch home near East 43rd Avenue and Orleans Street in Denver.

A woman 9NEWS later found out is Heidi Hayes, 27, offered oak kitchen cabinets, bathroom sinks and cabinets, toilets, a water heater and a furnace for sale on Craigslist.

"Everything must go," the ad said, "we are leaving next week."

9Wants to Know showed up with hidden cameras at the house the day after the ad was posted and found a half dozen people there, some were removing items from the house.

"Not much is left," said a man who Hayes identified as her fiancé, J.J. "All the cabinets are gone. Bathrooms are gone."

The kitchen looked bare. Where countertops sat on cabinets, there was only empty space in the kitchen.

Holes for sewer pipe connections in the bathroom floors indicated where toilets sat.

"We're going to have the house taken almost completely down. We're going to redo the walls and expand the master bedroom," J.J. said.

"If it can come off right now, you can take it," he said, saying the house would be remodeled. "We're going to have a master bedroom with French doors."

"The house is just about paid for," said J.J., who claimed he was remodeling the house. "It's actually trust fund money that's going to be released when I turn 30 on the sixth of April. It's my present to my wife."

Hayes told a different story to 9NEWS undercover cameras as she sat braiding a young girl's hair downstairs. She couldn't hear J.J. tell his story of a remodel.

"We're gonna let go of the house and everything," she told 9Wants to Know. "It's not in foreclosure yet, it will be in the next month or so."

"They went up on the mortgage just a couple hundred bucks so it's like $1,500 right now," she said.

9Wants to know asked Hayes what the mortgage company might think of her sale.

"It's not their stuff, it's mine," Hayes replied as people worked in the background, removing items from the house.

But court documents obtained by 9NEWS show when Hayes signed the paperwork to get her mortgage from Oklahoma City based MidFirst Bank, she agreed to a standard clause to not "waste or destroy, damage or substantially change the property."

It's a clause most homeowners must agree to, and one some people break, said Great Way Real Estate Realtor Luke Michael.

"In this particular house they took the vent systems, door handles and sinks," he said standing in another stripped home near East 51st Avenue and Chambers Road.

The bank found this house stripped when the property went into foreclosure.

"It costs thousands of dollars to replace the items," Michael said. "The kitchen is going to cost you $5,000 to $6,000 to redo the whole kitchen, but really when a bank goes to sell the property it's going to knock off $10,000 to $12,000 because what you are doing is eliminating the financing capabilities such as VA loans and FHA loans."

VA and FHA loans are backed by the government and generally require a home to be in what is considered livable condition.

"FHA and VA loans have strict guidelines which say if a house is not livable, and this one wouldn't be, they won't lend money on the property," Michael said.

In Hayes case, taxpayers could face an even bigger loss.

Not only is the federal government responsible for the loan because Hayes purchased her house through using FHA, but there could be added losses because the home is stripped.

"An FHA loan means the government is involved in the lending process and in absorbing the costs that come out of this. As a federal agency, it's all of us as taxpayers," Colorado Bankers Association President Don Childears said.

9Wants to Know went back to Hayes and J.J.'s house three days after the sale to find out the real story.

"I don't need to talk to you," J.J. yelled standing in the front doorway of the house.

"It's my house and I can do that," he said when asked why he sold items from the home.

He said he didn't know if the home would be in foreclosure and then closed the door.

Court documents show MidFirst Bank representatives started their foreclosure process and filed a restraining order to keep J.J. and Hayes out of the house after 9NEWS started asking questions.

Court ordered receiver Gerald Rhiner, who is now responsible for taking care of the property, told 9Wants to Know he believes J.J. and Hayes left the home and have not returned.

In e-mails to 9NEWS on April 16, Hayes said, "I have done nothing wrong." She said all of the items she sold belonged to her.

"I don't think there is any way you can rationalize this kind of conduct as you've indicated in your examples," Childears said. "It damages everybody who borrows because it drives up the cost of credit. It damages people who own property nearby because it drives down the appraisals on their homes even though it's a block or two away."

Mortgage experts tell 9NEWS banks often don't go after homeowners who strip a house ahead of foreclosure.

Banks often find it too expensive to go after homeowners who already aren't paying what they owe, said Michael, who has served as the real estate agent for numerous stripped homes.

MidFirst Mortgage Division Senior Vice President Kevin Osuna said his bank is weighing its legal options.

Childears encourages the public to watch for neighbors stripping their homes. If they see it happening he says neighbors should contact their HOA, who could notify the mortgage company.

For neighborhoods with an HOA, he said people can also contact city council representatives or county commissioners.

"They obviously don't want to see neighborhoods damaged," Childears said.

"Effectively you and I and everybody else is on the hook for this," he said. "It is really frustrating."

9NEWS viewers immediately responded to our story that appeared on 9NEWS.com and on the front page of The Denver Post Thursday.

Some people criticized financial institutions.

"I still don't feel sorry for the banks. They have made plenty," DaSchwartz said, commenting on the story on 9NEWS.com.

Most people said they feel the people selling the fixtures did not act properly.

9NEWS.com reader Paulcaeser wrote, "The banks need to file a lawsuit against the people that are stealing. Sorry it is not your house, if it was yours a bank would not be foreclosing on you. The bank is taking it back because you don't pay your bills. I pay my mortgage, car payments etc. that is why I have a house. I will not own it till it is paid off though. Any thing in the house that is attached belongs to the bank not the squatter living in the house. Pay your bills and take responsibility for your own actions."

Steve Baker commented after watching a video preview of the story on the 9Wants to Know Facebook page, "I can do that cause it's my house," he wrote quoting a line from the preview. "Really? If was his house that means it was paid for in FULL and it wouldn't be heading to foreclosure now would it? I love how people justify theft."

Find 9Wants to Know on Facebook by searching blowthewhistle@9news.com.

Contact 9Wants to Know Investigative Reporter Jace Larson at jace.larson@9news.com.