Postcard: Elk Grove

By Kristina Dell

The black bus rivals a greyhound in size but has an interior like a limo--and it gets a few curious looks as we wander into the dense neighborhoods of Elk Grove, Calif., a quiet suburb 15 minutes south of Sacramento. Five of us--a mortgage counselor, three investors and I--are looking at 10 recently foreclosed homes dubbed "excellent deals" by the O'Brien Co., the agency that set up the trip.

These "magical misery tours" are real estate agents' attempts to move their ever increasing inventory fast, as the mortgage crisis forces more and more homeowners into foreclosure. The idea originated in nearby Stockton last year and has migrated to other cities in California, Michigan, Florida and Massachusetts. Elk Grove alone has about 2,120 bank-owned houses for sale and 1,280 in pre-foreclosure, according to RealtyTrac, a real-estate-data website. The places we see vary from spotless to foul-smelling. One house, which appears to have been vacated in a hurry, has enormous stuffed animals on the windowsills and children's artwork still pasted on a wall. This three-bedroom, two-bath home is going for $210,000--about half the $400,000 it sold for in June 2005.

Like many communities across the U.S. that boomed during the housing bubble, Elk Grove is feeling the pain of the housing burst. For the most part, the trauma of eviction is hidden--the suburb has the occasional overgrown yard, although not as many as I'd expected, and FOR SALE signs dot the streets. But a funny thing happened on the way to Elk Grove's demise: it has started to come back. Over the past six months, investors and first-time home buyers have moved in, snapping up homes now priced at less than $250,000. Residents are working to make sure the neighborhoods they traded up to remain desirable, getting together to mow lawns of bank-owned homes, partner with the police and draft ordinances to hold landlords accountable for disheveled properties. "We've just changed our mind-set," says resident Phillip Stark. "It's no longer what can the city do for me, but what can I do for the city."

Home to soccer moms, strip malls and some of the best schools in California, Elk Grove was one of America's fastest-growing cities in 2005. Its population shot up from 75,900 to 130,874 (including a boundary extension) in five years, as families and Bay Area investors flocked in, lured by low prices and no-money-down mortgages. Seven years ago, developers carved a new district, Franklin Reserve, out of hunting grounds and dairy farms, building 7,000 homes in three years to satisfy an insatiable demand for California living. But the slowing market threatened to dismantle the neighborhood before it got off the ground.

Enter Susan McDonald. The 38-year-old, who moved to Franklin Reserve three years ago, was walking with her kids along one of the development's new foot trails and saw gang graffiti on a fence. "I thought to myself, This is it--I am done," says McDonald. She voiced her concerns on the town website. "I got 85 responses to do something," she says. She helped found the Franklin Reserve Neighborhood Association (FRNA), which today has 405 members. FRNA created a "good neighbor" letter to let absentee landlords know when their renters were causing problems, and organized a Sunday-afternoon lawn cleanup for 27 foreclosed homes. Its attentiveness also helped the police shut down 33 houses used to grow and distribute marijuana.

Elk Grove's government is getting in on the act too, attempting to attract new businesses to the town, notably large health-care providers. "In five to 10 years," says Cody Tubbs, Elk Grove's interim city manager, "we think we will be the medical hub of South Sacramento County." Those efforts, plus the sharp reduction in housing prices, have created a new surge of interest in Elk Grove. The last residence we see on our tour is a 2,067-sq.-ft. (192 sq m) A-frame with four bedrooms and three baths for $282,000, down from $510,000 in February 2006. By the time we get back to the agent's office, it has 12 offers.

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