OCEAN SHORES — The National Recreational Properties era that once caused the price of property in Ocean Shores to skyrocket has now turned into a free-falling nosedive, leaving mounting foreclosures, unpaid utility fees and back taxes.
The city of Ocean Shores has had to foreclose on many of the properties for failing to pay assessments for sewer and water over the past several years, with the numbers expected to rise in coming years.
Some of them, such as a lot on Spruce Loop, were still held by National Recreational Properties Inc. (NRPI) of Ocean Shores, a company that no longer exists in the city but is still listed as an active company by the California Secretary of State.
Steve Ensley, Ocean Shores finance director, estimates the total to be nearly 100 lots, with many of them appearing to have a direct connection to the NRPI sales. About 40 went into foreclosure proceedings on April 27, and most of those were tied to NRPI transactions. There are potentially dozens more that will likely be foreclosed on for failure to pay the road local improvement district (LID) assessments from the major street repair project of two years ago.
“Right now, we have approximately 40 and those related to earlier LIDs, and none of them directly have to do with the street LID, but obviously there is an indirect relationship because it added more on to a bill that they were already not paying,” Ensley said.
The list originally was 60 properties, so some of the owners have come through with the overdue payments.
At Grays Harbor Title, about five callers a month for the past year or more have inquired specifically about National Recreational Properties. Usually, it’s because Grays Harbor Title originally did title searches for the company when it stocked up on Ocean Shores properties, and buyers later incorrectly assume that Grays Harbor Title also in some way is connected to the auction company.
That has Mike and John Melville at Grays Harbor Title concerned and they refer callers to the only NPRI address they have — the one in Irvine, Calif., and a phone number where a receptionist then forwards callers to a 1-800 number answered by an automated recording.
“Now that they have closed up shop in Ocean Shores, it’s hard to get a hold of them,” said Jon Melville, assistant manager of the title company. The former NPR Ocean Shores offices, in fact, were sold to the city and are now used as City Hall offices.
Mike Melville, vice president and manager of the title company, said he became aware of the number of calls after he reviewed the documents of a couple who had purchased one of the Ocean Shores lots. The documents they had listed Grays Harbor Title as the trustee on the deed of trust.
“It’s not uncommon for any title company, a law firm or even a bank to be inserted as the trustee on the deed of trust, so that is the only connection between what they thought had happened and what transpired here,” Mike Melville said. “We had nothing to do with the sale. We had nothing to do with the closing.”
He notes that the lots sold by NRPI during the auctions did not come with title insurance or title searches done on a regular basis.
“We get some pretty bizarre calls,” Mike Melville said. “One person called about their oceanfront property in Spokane County. The prices for California properties were fairly inexpensive. But for Ocean Shores, they were several times more than what anyone had paid before.”
“When they originally came to town, they set up sales offices and had people bussed down here,” Mike Melville said. “They were using the title companies in this county, and we were all doing their closings. Previous security documents were being released, titles were being issued and there were no problems.”
But then the foreclosures began to mount and people began to find that NRPI was no longer available to handle concerns or complaints.
“One of the problems is this company came to town riding on their white horses, and they bought all these lots, some of which had never been purchased from the original Ocean Shores estates,” Mike Melville said. “A lot of that was a for a very good reason. They might have needed fill, they wouldn’t perk or had other problems. Then they would sell them at prices that were too high, and the security instrument in taking them back would have been a high interest rate. And a lot of these were purchased by people out of the area.”
Dan Sherwood of Premier Realty isn’t quite sure how the real estate market in Ocean Shores will absorb a new round of foreclosed properties being put up for auction once the city chooses how and when to dispose of them.
“It might be a one-time big wow,” he said. “Auctions don’t necessarily reflect on the market values of other properties. And just because they put them up for auction doesn’t mean that someone is going to buy them.”
With assessments and back taxes, Sherwood said, the cost of the foreclosed properties is not that far from the prices of conventional lots on the regular retail market.
“Be careful,” Sherwood advises for anyone thinking about picking up one of the lots. “There could be liens and encumbrances that you’re not even aware of. It’s the old adage that if it sounds too good to be true, it probably is.”
Thorn Ward of John L. Scott Realty has seen a series of booms and busts in the Ocean Shores market, and notes that National Recreational Properties was not the first to try to mass market lots in the area.
“This is probably the third or fourth wave of this kind of thing,” Ward said. “I think what happens is that people buy property that is fairly inexpensive here and then pay on it for a while before they start to lose interest and things change, people move on. They they may not want to pay $1,200 a year for whatever LIDs are on it, plus taxes and things like that. They might try to sell it for a while, and then they say, let’s just move on.”
Often, the buyers treats the lots like stock, Ward said, “and the only people who make any money on it is us.”
“We have never had a shortage of property out here. There always has been a tremendous supply,” he said.
Under the current economic conditions, its now more difficult to borrow money for land purchases, and Ward said most agents don’t like to sell lots because they don’t make that much in commission on them.
“The market for real estate has fundamentally changed in the last four years. Things are easily shown on the Internet from the comfort of one’s home. That tends to make it lower price,” Ward said. “Recreational property is one of those things that has to be sold rather than shopped for. And sold hard, kind of like a car.”
Ward was around during the Erik Estrada promotional days, and he notes that it was very similar to the tactics used to sell Ocean Shores in the 1960s and ’70s.
“What they did was they bought cheap lots from everybody in town, or foreclosures, and then they peddled them for far more money in places like California where the prices just seemed unbelievable,” Ward said.
When NRPI began its early buying frenzy, suddenly the cheap deals in Ocean Shores vanished.
“They bought it all so there wasn’t any cheap stuff around,” Ward said. “Second thing was it was in a time of a big boom for real estate and everything else. The third thing was they self-financed it so you didn’t need to go out and get a loan to buy it. The most important thing they did for the market was to get rid of the cheap stuff.”
Ward can’t believe more buyers didn’t do their own research.
“What I can’t understand is their prospects didn’t shop. It made no sense at all. They could have looked on our website and they would have seen quite a bit of property for sale for at least half the price,” he said.
“Ocean Shores is and probably always will be a blue-collar vacation area,” Ward added. “There’s not much we can do about that. At some point, Ocean Shores will have a lot of houses in it, but as long as we look like a place where people go to get away, we won’t be as popular.”
Ward is convinced the city eventually will recover its costs by selling the lots. Could a similar experience happen again?
“Oh sure,” Ward said. “The money cycles are going to determine that and how easy money is to get. I think we are probably in for another tough six or seven years. But what could happen is another company comes in and buys up a lot of the cheap lots, jacks the prices by 50 percent and resells them again. There is nothing new there.”
Ensley noted that any properties the city forecloses on for non-payment of assessments have a two-year waiting period that must be completed before a new buyer actually can take title to the property. During that period, the previous owners have a chance to pay up the delinquent assessments and take back control of the property. Ensley noted that a couple of the properties already have been “redeemed” in such a manner.
“I have no idea what they disclosed to people, how they marketed, or how they represented these properties,” Ensley said.
In the long run, he predicts, the foreclosures won’t cost the city any money “because we’ll have the properties. In two years, we will have survived the redemption period and will have paid off the back taxes, and we can sell the properties for substantially more than we have invested in them. Some of them are good and some of them aren’t, but we won’t be making any killing on it. “
No general fund money is being used on the properties, Ensley added.
“All of this is happening within the domain of our LIDs, so the city itself isn’t paying any of this. All of the legal expenses and all the back tax payments stay within in the funds. When all is said and done and we sell the properties, all that money goes back into the LID fund.”
The city in the meantime does have to pay for an attorney to handle the process as part of the cost of LID management and it also has to write checks to the county twice a year to pay off back property taxes so the county also doesn’t move to foreclose.
“We’ll get back what money we may have invested in the process,” Ensley said. “In my way of thinking, we’re not going to lose any money on this and we have enough extra capability in the funds to handle this.”
“A whole lot of those people paid their LIDs and are not part of this process,” he noted. “They may be under water on their value, between the price they paid and then the street LID landing on top of them, and how well that was disclosed. Who knows?”
Ensley said he knows of no contact with the company in the two years he’s been looking into the problem.
“At some point, we are going to have a large inventory of property, or the LID is going to have it. We basically have collected the property in lieu of the LID.”
Most of the properties he estimates will sell for between $6,000 and $8,000.
“In truth, that’s all we need to break even and be whole,” Ensley said.
He hasn’t seen another company attempt to buy any of them in bulk like NRPI did.
“There are a lot of people who paid $30,000 for lots and they were doing it as a speculative deal,” he said. “Too much money was going around.”
Brad Skramstad and Mary Anna Byrne of Thurston County have started compiling lists of people who have had trouble with their property purchased from National Recreational Properties Inc. or one of its related companies. E-mail them at email@example.com or reach them by phone at (360) 556-4999.