Rich Neighborhoods Riddled With Foreclosures

Victoria Gotti, the reality TV star and daughter of infamous mob don John Gotti, made headlines in 2009 as the latest high-profile homeowner facing foreclosure. According to the New York Post, Zillow.com and others, she had stopped making mortgage payments to lender JP Morgan on her Long Island, N.Y., estate, which she had put up for sale the prior year, finding no takers at an asking price of $3.9 million. The home, in the tony neighborhood of Old Westbury, originally cost close to $4.1 million. Two years later, she’s still in the house–now listed for $2.9 million.

She’s hardly alone, of course. Millions of American homeowners have faced foreclosure over the past several years and roughly 11 million more remain significantly underwater on their mortgages. About 7.7% of all mortgages nationwide are in trouble, either seriously delinquent or already in foreclosure. But somewhat surprisingly, ritzy ZIP codes like Gotti’s Old Westbury 11586 aren’t immune. Far from it. According to LPS Applied Analytics, 6.5%, or 33 out of the 516 active loans in her area are in some stage of delinquency. In nearby Great Neck, the default rate is even higher. Of the active home loans in the peninsula enclave, 7.2% are in some stage of foreclosure or pre-foreclosure.

See full list: Rich Neighborhoods Riddled with Foreclosures

We asked LPS Applied Analytics, a unit of Lender Processing Services that publishes the monthly Mortgage Monitor report, to pull the foreclosure statistics for the priciest neighborhoods in America. Using Forbes’ 2011 list of the Most Expensive ZIP Codes, the folks at LPS Applied Analytics calculated the number of defaulted loans against the total number of active loans – which include everything from subprime loans to conventional loans to jumbo prime loans (and even complicated nontraditional financing, which undergoes the foreclosure process the same way as a traditional mortgage) – in America’s 100 most expensive ZIP codes.

Where It’s Worst

The result? Perhaps not surprisingly, hard-hit Florida led our list. It has two higher end hoods in top spots: Fisher Island (No. 1) and Rosemary Beach (No. 3). Fisher Island, the Miami Beach multimillionaire enclave and the 43rd most expensive ZIP code in the country, has a whopping 20.5% foreclosure rate, with 38 out of 184 active loans in default. Rosemary Beach, a posh planned community in the panhandle and the 69th most expensive ZIP code, clocks in at 9.9%, with 10 out of 104 homes in default.

Record numbers of foreclosures have translated into price depreciations of 50% or more in many parts of the state, pushing yet more underwater homeowners into foreclosure. “The rates in Florida have been among the highest for a very long time now so I think it’s emblematic of that,” says Herb Blecher, vice president of LPS Applied Analytics. A number of high-profile Florida owners have been among the state’s default ranks, including comedian Chris Tucker, who owes more than $4.4 million on a $6 million mansion currently assessed at $1.6 million, according to the Orlando Sentinel.

Walking Away

So why do the rich face foreclosures? Loss of income, of course, is the biggest reason. But analysts say they’re seeing a rise in the number of well-off property owners who stop paying their mortgages for calculated financial reasons. “Strategic defaults can be an even bigger issue with higher-end homes, where if you’re 25% underwater that could mean hundreds of thousands of dollars or more, because the borrowers may be more financially shrewd and consider it a financial decision to walk away from the home,” explains Daren Blomquist of RealtyTrac.

He also notes that foreclosures among high-end homeowners have been rising for some time: a study conducted by Realtytrac last year from January to October revealed that defaults on million dollar and higher loans has risen 335% from 2007 through 2010, compared with a 128% rise for all categories of loans at all price points. And LPS Applied Analytics data shows that trend holding steady through this year, with jumbo mortgage delinquencies remaining nearly 300% higher than 2008 rates.

Why are foreclosures ratcheting up in these expensive enclaves? When the reason is strategic default, it’s usually because wealthier people can’t necessarily qualify for a short sale or a loan modification thanks to too much income on the books, explains Chad Ruyle, co-founder of Youwalkaway.com, a Carlsbad, Calif.-based site specializing in strategic defaults. He says the company has helped a number of well-to-do clients since its inception in 2008. “Today we have had a couple celebrities that have randomly contacted us who want to foreclose,” says Ruyle, declining to disclose identities. “The stigma around default has really changed and people are starting to see it for what it is – a business transaction with the bank.”

Here are five of the wealthiest places in America that are riddled with foreclosures:

#5 Great Neck/Kings Point, N.Y. | 11024
50th most expensive ZIP code
Foreclosure Percentage: 7.2%
Number of foreclosures: 81
Total number of active loans: 1,120

Great Neck/Kings Point, N.Y. Donald Bowers/Getty Images

#4 Kilauea, Hawaii | 96754
90th most expensive ZIP code
Foreclosure Percentage: 9.4%
Number of foreclosures: 62
Total number of active loans: 658

Kilauea, Hawaii Courtesy of Susanna Kunkel

#3 Rosemary Beach, Fla. | 32461
69th most expensive ZIP code
Foreclosure Percentage: 9.9%
Number of foreclosures: 10
Total number of active loans: 268

Rosemary Beach, Fla. Jackie Hutcherson/MCT/Newscom

#2 Alpine, N.J. | 07620
Top most expensive ZIP code
Foreclosure Percentage: 10.1%
Number of foreclosures: 27
Total number of active loans: 268

Alpine, N.J. Emile Wamsteker/Bloomberg via Getty Images

#1 Fisher Island, Fla. | 33109
43rd most expensive ZIP code
Foreclosure Percentage: 20.5%
Number of foreclosures: 38
Total number of active loans: 184

Fisher Island, Fla. James Randklev/Getty Images