Former Housing Boomtown Hangs by a Thread

STOCKTON, Calif. -- A red, white and blue sign declaring Stockton an "All-America City" still adorns City Hall, but the building's crumbling facade tells the real story of the community's recent fortunes.

Since the sign went up nearly a decade ago, Stockton has twice topped Forbes magazine's list of "America's most miserable cities." And now another unflattering title could be headed its way: largest American city to declare bankruptcy.

The city of 290,000 that rode the wave of the housing boom in the late 1990s and early 2000s now finds itself littered with foreclosed homes, saddled with pension, health care and other obligations it can't afford, and unable to pay its bills.

The City Council voted last month to suspend $2 million in bond payments and begin negotiations with bond holders, creditors and unions. A new California law requires that cities begin a 60-day mediation process before filing for Chapter 9 bankruptcy, though city leaders can file at any time if negotiations stall.

The police union, upset over job cuts and a record murder rate, posted billboards tracking the city's "body count" and giving out the city manager's phone number. One blood-spattered sign read: "Welcome to the 2nd most dangerous city in California: Stop laying off cops!"

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The city's deficit now is $15 million -- a little more than 9 percent of its annual general fund -- and that could double in the next fiscal year.

"We are hanging on by our fingertips," said Mayor Ann Johnston, who has overseen three fiscal emergency declarations and hopes to persuade the city's creditors to forgive some debt.

Founded along the San Joaquin River during the Gold Rush, Stockton has much to boast. It's a gateway to Yosemite National Park and sits atop fertile soil that supports an agricultural industry that built the city and still is its underpinning -- the three-day annual Stockton Asparagus Festival draws 100,000 people. It's one of just two deep-water inland ports in California.

During the housing boom, people priced out of the San Francisco Bay area were trundling down Interstate 5, buying up homes in subdivisions built for commuters.

"We became affordable housing for the Bay Area," Johnston said.

City leaders believed the influx of residents and wealth would finally lift the community into its rightful place as a top-tier city. From 2000 to 2005, median home prices quadrupled to $400,000.

High Hopes

The downtown waterfront is a monument to the high hopes of the era. An extensive promenade leads past a 12,000-seat sports arena, a gleaming hotel that opened as a Sheraton and an upscale restaurant, much of it bought with city money.

Today, there are more Canada geese than people in this part of town. Residents say they avoid the arena because they don't feel safe at night. The Sacramento restaurateur the city lured with generous incentives has closed his doors-- though white tablecloths still adorn the sleek dining room-- and the Sheraton management has also left town.

A developer recently bought the hotel at auction and is refashioning the rooms into dorms for University of the Pacific students.

Though many communities across the country are struggling with their finances and some already have filed for bankruptcy -- Pennsylvania's capital of Harrisburg, Jefferson County, Ala., and little Central Falls, R.I. -- Stockton's litany of problems stand out.

20% in Poverty

The unemployment rate has doubled over the past decade and now hovers around 16 percent. A fifth of residents live below the poverty line.

The city has the second-highest foreclosure rate in the nation -- it alternates with Las Vegas for the dubious distinction of first place. Home prices have fallen to pre-2000 levels, and as many as half of homeowners owe more than their houses are worth.

The looming bankruptcy was a subject of discussion at Weston Ranch subdivision, where three unemployed neighbors passed a rainy afternoon drinking beer in lawn chairs. All three are underwater on their homes.

George Rios, 42, said his family would have left Weston Ranch already if the bank had not reduced their home loan by half.

"You're here because of your property," he said, gesturing to the three empty homes he can see from his lawn. "If you don't have a property, why are you going to stay?"

The housing bubble masked decades of sloppy bookkeeping, according to City Manager Bob Deis, including double-counting parking ticket revenue and overestimating the general fund.

"I've never seen anything like this, I've never heard anything like this, and it goes back a long time," he said.

Deis also faults the city's generous retirement plan, which includes free health care. Stockton expects to spend $9 million on health benefits for retired workers next year, more than it pays for current employees. The city's is carrying a $417 million unfunded liability for retiree health care over the next 30 years.

The police union, the Stockton Police Officers Association, is fighting to stop the city from defaulting on its promises. The union bought the house next to Deis', a move President Steve Leonesio said was a coincidence.

With staffing down by 25 percent, the department can no longer man its main station, Leonesio said. Yellow caution tape fluttered around the building's entrance on a recent weekday. A vandal had smashed out the glass doors. Last year, someone shot at the building from a car, stippling the brick wall with bullet holes.

The crime-prone city saw a record 58 murders last year. Police no longer look for stolen cars or take reports for lower-level crimes.

Leonesio warned that Stockton might have to bring in the National Guard if it declares bankruptcy.

"We don't have enough officers here," he said.

'A Feel of Defeatism'

The city has a feel of defeatism, said Robert Benedetti, political science professor at University of the Pacific.

"Every time that Stockton seemed to be getting going, something bad happens," he said. "The citizens who live here don't understand exactly why things go wrong here as they do."

Sara Gonzales, 24, manages the Beach Hut Deli across from Stockton's 16-screen waterfront movie theater. An 11-year-old girl was shot in the ankle last summer while sitting on a bench here. Since then, people have kept their distance after dark.

Gonzales, a University of the Pacific graduate, had wanted to stay in town to be near her young niece. Now she is working on transferring to another of the sandwich company's California franchises.

"It's progressively gotten worse since I've been here," she said. "I don't want to leave because of my family, but I'm over Stockton."

Copyright 2012 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

Taking Inventory: Foreclosure Finds Across the U.S.
See Gallery
Former Housing Boomtown Hangs by a Thread

Location: Trenton, N.J. 
Average Foreclosure Discount: 67.8 percent

Price: $198,500
Beds/Baths: 3/2
Sq. Ft.: N/A

Trenton ranks No. 1 on RealtyTrac's list of cities with the steepest foreclosure discounts. This single-family, whose price was slashed recently, represents one of the killer deals you can find in the city. 

See more foreclosed homes in Trenton, N.J.

Dating back to the 1960s, this Cape Cod-style home offers three bedrooms and two baths. Judging by the average foreclosure discount of New Jersey, the home could be running as much as $150,000 below market value. 

Location: Atlanta 
Average Foreclosure Discount: 49.67 percent

Price: $3.75 million
Beds/Baths: 7/10
Sq. Ft.: 22,000

Foreclosed homes in Atlanta are selling for a staggering 50 percent off, according to data from RealtyTrac. This vacant Mediterranean mansion offers a rather excessive four kitchens along with amenities that include a home theater, pool, spa, steam room and elevator. 

See other foreclosed homes in Atlanta

With its gleaming double staircase, the foyer's richly finished, sparkling-clean interior contrasts with the scene at many foreclosed homes, which often show neglect. 

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At a whopping 22,000 square feet, the home's cavernous interior is distinctly palatial.

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Location: Houston
Average Foreclosure Discount: 48.14 percent

Price: $4.29 million
Beds/Baths: 5/9
Sq. Ft.: 12,129

It may be hard to believe that $4.29 million is a below-market price, but given that this stucco Mediterranean is bank-owned and Houston's foreclosure discount approaches 50 percent, odds are that the home could be quite a deal for a well-heeled buyer. 

See other foreclosed homes Houston.

The home has a stone exterior and tile roof, along with a courtyard, pool and outdoor kitchen. The interior stretches 12,129 square feet. 

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After weaving around columns and through arched doorways, you reach the home's library or its fully-contained suite, accessible through its own entrance. 

See other foreclosed home for sale in Houston

Location: St. Louis
Average Foreclosure Discount: 54.61 percent

Price: $89,900
Beds/Baths: 3/2
Sq. Ft.: 1,342

This brick-built home, which dates back to 1930, probably hit the market at a reduced price to begin with, but now is running even lower, having just undergone a price cut. The home offers stained-glass windows and wood flooring along with a spruced-up kitchen. 

See more foreclosed homes for sale in St. Louis.

Pictured here is the home's updated kitchen. The residence is even more of a deal if you factor in its purported HomePath Mortgage status. That means if you've got the right credit, you could snatch it for as little as 3 percent down. 

See more foreclosed homes for sale in St. Louis.

Location: Lansing, Mich. 
Average Foreclosure Discount: 44.31 percent

Price: $124,900
Beds/Baths: N/A
Sq. Ft.: 2,228

Squeezed into a condo community, this historic home stands out in the neighborhood because of its stately portico. The home has a long residential tradition, but could go commercial if the buyer so chooses: The house can serve as an office, according to the listing. 

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The home's portico gives it a tinge of the pastoral era in which it was built. The classic was constructed in 1855. 

See other foreclosed homes in Lansing, Mich.

Location: Grand Rapids, Mich. 
Average Foreclosure Discount: 43.45 percent

Price: $289,900
Beds/Baths: 4/4
Sq. Ft.: 4,339

You get a lot of bang for your buck if you buy  this four-bedroom contemporary. Located on a cul-de-sac, the home spans a generous 4,339 feet and offers a three-car garage. At under $300,000, that makes it an affordable luxury residence.  

See more foreclosed homes in Grand Rapids, Mich. 

Along with its expansive interior, the home also boasts its own heated greenhouse, along with a theater and office. 

See more foreclosed homes in Grand Rapids, Mich. 

Location: Flint, Mich. 
Average Foreclosure Discount: 21.55 percent

Price: $109,600
Beds/Baths: 4/3
Sq. Ft.: N/A

Purchase a foreclosed home in Flint and you're likely to enjoy the benefit of more than 20 percent off. While the city's foreclosure inventory doesn't offer deals quite as striking as those found in some other cities wracked by the housing crisis, the town's average foreclosed-home price still falls far, far below the national median (which hovers above $200,000). Flint's average foreclosed-home price is just $60,578. This well-landscaped home demonstrates how far just $110,000 gets you. 

See more foreclosed homes in Flint, Mich. 

The home may be a bit bare-bones now, but as the listing asserts, the home has "lots of potential." It comes with a pool, a deck and a two-car garage. 

See more foreclosed homes in Flint, Mich. 

Location: Tampa, Fla. 
Average Foreclosure Discount: 24.97 percent

Price: $143,900
Beds/Baths: 6/4
Sq. Ft.: 2,920

At just $49 per square foot, this cheery home in Tampa, Fla., a city that took has taken a real shellacking from the housing crisis, offers of six bedrooms. 

See more foreclosed homes in Tampa, Fla.

The bank-owned property spans nearly 3,000 square feet and boasts a well-equipped kitchen with cherry-stained cabinetry and marble countertops. 

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Location: Easton, Pa. 
Average Foreclosure Discount: 41.17 percent

Price: $29,900
Beds/Baths: 3/1
Sq. Ft.: 1,556

Alright! A listing description that levels with you. "This is a property that needs some work," it states. The home is not without its virtues, however: It offers ample space, three bedrooms and an attic. Furthermore, buyers can acquire 3 percent buyer's assistance if they make an offer by the 31st of this month. 

See more foreclosed homes in Easton, Pa.

One thing buyers should watch out for if they think about shelling out for these digs is that, as with many other foreclosures, there is no seller disclosure for buyers interested in this home. That means, unless you pay for a thorough inspection, you could discover hidden flaws after purchasing the place. 

See other foreclosed homes in Easton, Pa. 

Location: Chattanooga, Tenn. 
Average Foreclosure Discount: 40.39 percent

Price: $129,000
Beds/Baths: 3/2
Sq. Ft.: 1,456

This staid but cozy home is running for $129,000, about $40,000 over the average foreclosed home price in Chattanooga. The home offers a nice porch and decently finished interior. 

See more foreclosed homes for sale

Pictured here is the home's open dining-kitchen area. The place seems to be in pretty good shape for a foreclosed home. Many fall into poor condition, succumbing to insect infestations or other symptoms of neglect. 

See more foreclosed homes in Chattanooga, Tenn.


See also:
Strategic Default: Would Half of Homeowners Walk Away?
Foreclosure Starts and Sales Spiked in January, Report Says

Millionaire Foreclosures on the Rise

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