WEST PALM BEACH, FLA.
When Frank Verna pulls up to a battered, four-unit apartment building at lunch hour, he's just over a mile as the seagull flies from the gated, oceanfront palaces of South Florida's wealthiest.
But this stretch of 21st Street, pocked by homes with boarded-up windows and dead-ending at railroad tracks, is unlikely to make it to a tourism poster. Verna turns the car around in case he needs to make a quick exit and tucks a Smith & Wesson pistol into his jeans.
"Just watch your step," the real estate agent says, parting bushes grown across the building's entry path. Beyond is the darkened doorway to Unit 1 -- missing its door.
"I think there's a dead animal over there," Verna says, aiming his flashlight at brown fur in the center of a living-room floor blanketed in garbage. The stench of whatever's in there is potent. Nobody is home.
Verna is here because he specializes in distressed properties and Florida, thrashed by the mortgage crisis, has thousands. But figuring out just how many is not simple.
Each month, analysts issue reports detailing the number of homes nationwide in foreclosure or held by banks. The implication is that if we can match buyers with these houses or help borrowers stay put, the economy will be able to heal at last.
At ground level, though, it's more complicated. The building on 21st Street is a good example.
The last buyer paid $309,000 six years ago. But today the county appraiser says it's worth less than a quarter of that amount. A bank filed foreclosure papers in 2008, but it still belongs to the original owner, subject to fines and liens by the city. The bank sold the underlying mortgage note to a hedge fund for pennies on the dollar. That company has hired Verna to check the condition and occupancy status of its investment, on the way to making it profitable.
It's one thing to measure the crisis in the black and white of statistics. But here's a reminder that reality also comes shaded in gray.
People in the foreclosure trade have a name for buildings like the one on 21st Street: "shadow inventory." Broadly speaking, it refers to all the homes in the foreclosure pipeline that will eventually reach the market but aren't there yet. The definition, though, varies considerably from analyst to analyst and there is truth to be gleaned from each of their studies.
Numbers matter because figuring out how long the debacle will last requires knowing the extent of the damage. But if we're going to take stock, reading reports may not be enough.
The only way to fully comprehend what's going on out there is to move beyond the figures and charts, and venture into the shadows.
All rise and come to order. Judge Diana Lewis' court is now in session. On a Monday afternoon, Courtroom 4B's benches are packed. Lawyers and home owners cluster around the door and stand along the walls. On a board in the lobby, 16 sheets of paper list 136 foreclosure cases awaiting Lewis on this one afternoon.
Too late for a seat, Leanna Lalla, a lawyer representing homeowners, leans over to explain that today's crowd in 4A is merely the norm, reflecting all those houses piling up in the pipeline.
"Do you see the shadow yet?" she whispers.
Florida is one of 20 states that rely entirely on courts to deal with the crisis. A major reason cases drag on for an average of two years is that last year's robo-signing scandal forced banks to put the brakes on many cases with suspect documents. A settlement with state and federal officials has allowed the process to get moving again.
But proceedings in Lewis' courtroom hint at the confusion, as well as delaying tactics by lenders and borrowers, leaving scores of homes stuck.
One of the first cases is Wells Fargo v. Killgore. The lawyer for a condo association steps forward, pursuing $15,000 in unpaid dues and fines on a Boynton Beach apartment in foreclosure. But a woman named Sue Elmore objects. Elmore is the daughter of the man who lived in the condominium. She explains that her father is in a nursing home. Years ago, he took out a reverse mortgage and when he got ill, the family agreed to surrender the home, a deal they thought was long done.
"In our minds, we didn't own it any more. We gave it back," Elmore says later. "We just did what they told us to do."
Somehow, though, the condo is still listed in her father's name. It's not clear exactly how a home like this one should be classified or what it will take to figure out a solution.
Later, Lewis calls up the parties in another case, Nationstar Mortgage v. Sands. The homeowner tells the judge he thought a loan modification had been finalized, allowing him to keep the home, until a lawyer called to say it was back in foreclosure.
"That's ridiculous," Lewis tells the lawyer for the bank. "I'm not doing this thing two or three times. You're making my head spin."
From the courthouse, it's a 15-minute drive to a neighborhood called Eden Place. On alphabetically named streets, well-tended homes built a half-century ago snuggle amid tropical foliage.
"That one on the corner, he didn't pay his mortgage. He just moved out to Okeechobee and let it go," says Jimella McKeag, surveying her block of J Street. "This one here, he rented it a couple of times. ... He let it go and it went back to the bank."
Of 13 houses on McKeag's block in Lake Worth, two are owned by banks following foreclosure. Two more sit abandoned. One was bought out of foreclosure by a local doctor last fall, but appears uninhabitable. The other, boarded up, still belongs to its original owner.
Houses on this block once sold for $250,000 or more; they've lost at least half their value. Eventually, the vacant homes will come on to the market, affecting the worth of neighboring houses. Analysts pore over data trying to figure out just how many homes like this are hidden from view.
Economists at CoreLogic, a California company that analyzes mortgage data, chart 1.6 million homes in shadow inventory nationwide. They count homes not listed for sale, with loans at least 90 days overdue, in foreclosure or bank-owned.
Others say the shadow is much bigger. Laurie Goodman of Amherst Securities in New York says it covers from 8.3 million to 10.4 million homes. Goodman's analysis includes homes with loans at least 60 days overdue, those that were delinquent before and are likely to default again, and thousands whose owners are making payments but may give up because they owe more than homes are worth.
"The question is `how long is the shadow?'" Goodman says. "I think some people are definitely underestimating the seriousness of the problem."
Mark Fleming, chief economist for CoreLogic, says his analysis is a snapshot of the problem, while Goodman's is more of a forecast.
"In many ways, we can both be right," he says.
Measuring shadows grows more difficult continuing down J Street. A two-family house with a carport has gone through foreclosure and is owned by the Federal Home Loan Mortgage Corp., records show. But tenants say they are still paying rent to the previous owner. There are scores of homes like this, experts say, owned by lenders who haven't pursued eviction.
Lenders have good reasons to delay. Empty homes require upkeep and claiming ownership means shouldering taxes and fines. As long as a case in still in process, loan servicers continue to collect their fees.
A recent check of records in this one county found more than 10,000 cases in which a bank secured a final judgment more than a year ago, yet there has still been no change in title, says Michael Olenick, a West Palm Beach computer programmer who tracks the system.
Then there are houses like one where Peter Gardner answers the door. Gardner, a former laser technician, bought it for $44,000 in 1995. After a car accident left him disabled, he says he tried to catch up on payments, but couldn't meet demands to pay accumulated late fees. The lender filed foreclosure papers three years ago. Gardner, who says it's been years since he's made a payment, tried for a loan modification, but every three months was told to reapply. Last fall, the lender claimed his house at auction for $500.
It's now owned by Bank of America, whose representatives still call. "They want me to live in the house, mow the lawn, keep the air conditioning on so the fungus doesn't grow in it," Gardner says. He tells callers he no longer owns the place, but they don't believe him.
"Somebody went and sold my house and they're telling me I'm not even in foreclosure," Gardner says. "I was mad crazy with it and every time you just have to laugh. Otherwise, you'd just kill yourself inside."
The housing market is working through a riddle, determining what homes are worth given limited demand. But shadow inventory keeps part of the supply hidden.
"It goes deep and you have no clue," says Danielle Giunta, who checks on distressed homes for lenders. Giunta sold real estate until the market tanked. Now, a few days a week, she drives a 120-mile route through six Palm Beach County zip codes, knocking on doors and snapping pictures.
Giunta says it's troubling to see vandalized homes and talk with families worried about eviction. But she's also bothered by the difference between the number of homes listed for sale and all the others she sees.
"I go online and see what they're reporting and it's not the same," she says. "It's not going to be better for years ...and the reason I say that is the truth is not out yet."
There is, however, substantial demand for foreclosures at the right price. Driving through inland neighborhoods, agent Sharon Restrepo stops in front of a condo she bought for $30,000 a few months ago and resold to an investor for $40,000. After the investor paid $1,600 to fix it up, the place now rents for $950 a month. Restrepo says she's buying five to 10 homes like this a month, turning most around as profitable rentals. You can't build these houses for what they cost, she and others say.
But investors complain banks are not realistic about the prices they'll accept. Verna, the real estate agent specializing in distressed properties, says slowing the flow of homes into the market artificially lowers inventory in some neighborhoods, which can temporarily lift prices. At the same time, lenders are increasingly selling homes or the underlying loans in bulk to hedge funds.
That's where Verna comes in, tracking down borrowers to convince them to trade deeds for cash, and turning around homes for rent or sale. At this rate, Verna figures it will be three to five years before lenders let all the homes go. The risk is that going too slow could artificially raise prices in some areas, which might spur investors who bought homes as rentals to put them up for sale.
"The truth of the matter is we would have already gotten over it if they just let the properties get out there and get sold," Verna says. "So what are you doing? You're not stabilizing the market. You're creating more chaos."
When Lynn Szymoniak moved to Florida three decades ago as a lawyer for farm workers, dirt along Lantana Road was planted with cash crops. Today, what once was a U-Pick farm is a neighborhood of 262 homes called Strawberry Lakes.
"Sometimes you can't tell when a house is in foreclosure unless you go back two or three times, because the neighbors will do things like park their cars in the driveway, all in an effort to make things more secure," Szymoniak says, pointing to old newspapers piled on front steps and fabric hung across windows.
But "with all these foreclosed homes we've come upon, we've come upon zero `For Sale' signs," she notes.
Szymoniak hasn't counseled farm workers since the 1980s. But she found Strawberry Lakes after battling to keep her own house. In 2008, Deutsche Bank filed foreclosure papers against her. By then, Szymoniak had spent years representing insurance companies in fraud cases. She spotted suspect signatures on loan documents. Her detective work was instrumental in exposing the robo-signing scandal, reflected in $18 million awarded Szymoniak in the settlement between lenders and government officials.
She remains unconvinced banks are doing enough to resolve the crisis. Strawberry Lakes is Exhibit A.
Homes here sell for a third of the $275,000 or more they fetched at the top of the bubble. At least three dozen are in foreclosure, with many cases dating back three or four years. Of those, at least five are houses where lenders have won final judgments without moving forward.
In addition, at least 57 houses not in foreclosure are owned by people who paid far above what they're now worth.
Prudent Alcindor, who paid $253,000 for a house currently appraised at less than $112,000, says he wonders whether to give up.
"I still pay, but I will never have the house. I pay to stay in it. But it will never be mine. It's like I rent it," Alcindor says. The pressure on his neighborhood is "getting worse and worse every day."
Jeremy Vassalotti, president of the homeowner's association, says as neighbors fall behind, more responsibility lands on everyone else. Vassalotti, who owns a masonry company, lives in one of the neighborhood's most carefully tended homes. But he spends substantial effort keeping tabs on the houses around him. In Strawberry Lakes, 105 homeowners are behind on HOA dues, a hint more could be in trouble.
Uncertainty makes it difficult to gauge the duration of the crisis. But Szymoniak cautions against assuming that the problem is going away.
"When anybody tells me we're coming out of the foreclosure crisis," she says, "I always take them for a ride and let them see what's happening" in neighborhoods like this one -- bathed in South Florida sunshine, but set deep in the shadows.
Adam Geller, a New York-based national writer for The Associated Press, can be reached at features(at)ap.org