Foreclosure Vultures

On a sunny fall Wednesday, Matt Steel is driving around Mercer Island looking for bargains amid what he calls "some of the most prime real estate in the world." Even along the island's Gatsbyesque outer ring, where custom-built mansions perch on hilltops overlooking Lake Washington, foreclosures have struck. Steel's task: scope out the houses that are scheduled for auction in another two days.

He descends a steep driveway and reaches a newly constructed, 6,100-square-foot tan compound with a fountain on the front patio. "OK, now what I'm doing is turning the truck around for our safety," he says, proceeding to point his GMC Denali back toward the road above, enabling a quick getaway if necessary. Then he gets out for "a quick walk around."

Sneaking along a neighbor's path, he crouches down to see whether there's another house between this one and the glistening lake. There isn't. "This is waterfront!" he exclaims. He heads back toward the front of the house and peers in the window. "It's definitely lived in," he says. "But lightly. They've got little furniture. Either it's a second home or a single father whose daughter lives here on weekends.

"It could be a divorce is what caused it," he says, speculating on why the homeowner has missed $134,000 in payments.

As the head of a company that buys up distressed properties, Steel's job is to evaluate their condition and figure out what might be going on with their owners. One thing he likes to know is if the owners are still living in the house, because if they are it will be up to Steel and his client to evict them.

On this day, Steel visits eight houses. One multimillion-dollar mansion has copper-laced balconies and a wrought-iron gate covered with cobwebs, a sign that nobody's come in and out of late. At a more modest rambler, Steel tries the outside faucet attached to a hose and finds the water has been turned off. Vacant, he deduces. He walks around to an overgrown garden; it betrays a history of such care that, he marvels, "Something happened."

There are 156 King County properties scheduled for auction the following Friday. Steel and the six agents who work for him will visit as many as they can, then make presentations to potential buyers on their "hot picks." Steel's team then attends the auctions, held in Seattle and Bellevue, to buy properties on behalf of clients, and sometimes for themselves.

There's so much work that Steel says he sleeps on a couch in his office three nights a week. "These are historical times," he declares over coffee one morning in Redmond. No kidding. The real-estate crisis that is giving Steel and his colleagues so much business has already led to a Wall Street crash, a taxpayer bailout in the hundreds of billions of dollars, the bankruptcy of Washington Mutual, and arguably the election of Barack Obama.

But while the foreclosure rate in King County is generally much higher today than it was a couple of years ago, the recent numbers have actually started to go down. This past July, 730 properties in the county were scheduled for auction. In October, that number dropped to 643. "We've already hit the peak," Steel asserts.

A number of factors are slowing the supply of foreclosed properties, including the bailout, by which the government has pledged to buy bad mortgages from banks, reducing their motivation to foreclose. The feds are also discussing extending help directly to homeowners by giving banks incentives to provide better terms.

All of which means that the kind of opportunities Steel and a bevy of others are grabbing in the current crisis probably won't last forever. "We have about another year," Steel speculates. He intends to make the most of it.

Steel is 31 and boyishly good-looking, with a salesman's wide grin and upbeat energy that betrays no hint of the depressing arena in which he operates. "Who's ready to make some money?" he enthuses one evening before a dozen or so potential buyers, including a software engineer and a retired bond trader, who have gathered for a presentation in Steel's second-floor walk-up office in downtown Redmond.

"Foreclosure is not in our name," Steel likes to point out of his company, which is called the Real Estate Investment Firm. "I'm not a real-estate agent, even though I have a license," he says. "No, I'm an investment specialist." As such, he says, "I'm not going to put you in my car and drive you around." That's for agents whose clients are driven by their "emotional" reaction to houses. In contrast, he says, most of the investors he works with "buy properties sight unseen. They buy on the numbers."

Steel lives flashily and takes pride in the fact. "If you come over to my house," he said a few months ago, "you'll see it's a $1.5 million house on Mercer Island. I have my choice of a brand-new black Denali or a black Infinity G35 sports car," the latter decked out with $12,000 rims. He's since sold the 3,500-square-foot Mercer Island abode, which had water views. He fetched only $1.25 million for it, but that's nearly $600,000 more than he paid for it two years ago, when he bought the foreclosed property from a bank. He says he's going to post a video tour of the house on his Web site with the caption: "Welcome to my flip." He's now living in a 2,700-square-foot fixer-upper he bought in Bellevue last year for $616,000, which he also plans to sell. Steel says he aims to buy and sell a property every two years, the period needed to realize savings on the capital gains tax, and so moves constantly, a lifestyle made easier by the fact that he is divorced and has little practical use for his mega-homes.