The closure of the Gallahan’s furniture store which became the largest in Spotsylvania County, Virginia in 2001 and even attracted buyers from the Washington, D.C. area has added another property to the area’s commercial foreclosures.

The 81,870-square-foot retail and office space which previously housed Gallahan’s Furniture will be auctioned off this August for Wachovia Bank which foreclosed on the property after owner Stone-Lee Partners LLC failed to pay the money it loaned to buy the building in June 1995.

The foreclosure of the retail building illustrates the situation of commercial real estate properties across the U.S. whose mortgages are not getting paid because of high vacancy rates, low rents, declining property values and difficulties in obtaining financing.

The failure of Gallahan’s Furniture also illustrates the difficulties faced by the furniture industry when home sales declined abruptly and fewer homeowners bought furniture. The rise in job losses worsened the picture as households shelved their home improvement plans.

Gallahan’s Furniture was founded in 1970 by Franklin Gallahan and went bankrupt in 1994. It was bought by Phil Kenneth of Stone-Lee in June 1995. About 3 years ago, Severegn Furniture Management acquired the business from Stone-Lee. It closed last year and Severegn failed to attract any new tenant.

Jim Shrawder, part owner of Severegn Furniture, said Gallahan’s could not reach his firm’s performance requirements despite efforts to cut costs and increase sales. Severegn held a large liquidation sale last year as it closed the Gallahan’s business.

The building became the target of some buyers, including the Spotsylvania Technology Center, but the center could not find a lender to provide a loan to buy the building, according to center director Bob Duffy.

Fitz Johnson, head of Johnson Realty Advisors in Fredericksburg, said the scheduled auction to be held by Walker Commercial Services for Wachovia Bank may not be able to sell the Gallahan’s property during the auction, but he is sure the auction will attract a good crowd because of the history of the furniture retail building.

According to real estate analysts in the area, commercial real estate foreclosures have not been as significant as residential foreclosures in Fredericksburg. But they are concerned about the impact of rising vacancy rates and declining rent levels on the commercial sector.

However, according to Phillip Baxter of Silver Companies, leasing activity has been rising in buildings and structures needed by the military and other federal agencies.

During the one-year period ended March 2009, Genworth has helped 15,406 mortgage borrowers nationwide avoid foreclosures. This number represented a 66.7 percent increase from the number Genworth helped during the prior year. In Virginia, Genworth helped 275 borrowers avoid foreclosure, an increase of 112 percent from the one-year period ended March 2008.

Genworth sells over $3 billion worth of mortgage insurance a year, helping stabilize banks if mortgage borrowers fail to pay. Genworth’s mortgage policies cover almost $160 billion worth of mortgages.

The insurance firm takes pride in the fact that the increase rate in the number of borrowers it has helped is even higher than the increase rate for foreclosures nationwide and in Virginia.

During the past one-year period ended March, Genworth has prevented foreclosures on over $2 billion worth of mortgage loans.

According to RealtyTrac’s studies, foreclosure filings in April increased by 32 percent nationwide while Virginia foreclosure filings increased by 47 percent from April 2008.

Chris Antonello, a mortgage insurance vice president at Genworth, admitted the workouts to prevent foreclosures helped also Genworth, but he reiterated that the workouts kept families in their homes and helped stabilize neighborhoods.

Genworth’s foreclosure prevention efforts have been supplementing other foreclosure avoidance programs, such as the Obama administration’s Making Home Affordable program and the Richmond-based nonprofit Housing Opportunities Made Equal. The nonprofit has been receiving about 350 phone calls for help every month.

Genworth executive Alan Goldberg said the most common workout done to help homeowners prevent foreclosures is loan modification. This workout is similar to refinancing because it typically adds total arrears to the total amount of loan owed and then lengthens the term of the loan to give borrowers more time to pay. It also reduces the mortgage rate so that the monthly payments are reduced, enabling borrowers to keep up with the payments.

Typically, Genworth takes the initiative to help homeowners in default when mortgage payment processors request for help in behalf of distressed homeowners or when Genworth employees examine mortgage lenders’ reports on defaulting borrowers.

Goldberg said that a workout usually just involves describing a homeowner’s financial situation, explaining the reasons for the missed payments and making some phone calls with mortgage lenders.

According to Goldberg, Genworth has been able to prevent foreclosures in approximately 90 percent of the workout processed it pursued.

The number of forfeited properties nearly doubled in the county of Bedford, from 42 homes to 82. This includes the expensive properties in Forest and Smith Mountain Lake.

In Lynchburg, 200 homeowners suffered the same fate when they failed to pay their monthly mortgage payments. The number of vacant properties in the city grew to 39 percent or 21 properties, mostly in low-income communities.

One of the factors attributed to the increasing housing crisis in Lynchburg is subprime lending. Subprime loans are given to borrowers who have questionable credit background or no income documentation. Lenders charged higher interest rates on subprime loans because of the risks involved.

However, mortgage originator Billy Woolridge believed that subprime loan was not a factor in the increased of foreclosures in Lynchburg. He added that there was no low-income population in the city that would need subprime loans.

Meanwhile, out of the 211 foreclosed properties in Lynchburg, 36 had undergone interest rate adjustments, with 17 homeowners taking their first adjustment a little after a year before forfeiture.

According to Clark Jefferson, a Lynchburg Community Action Group housing counselor, homeowners facing the threat of losing their homes come from various sectors in the community.

The U.S. Census data showed five foreclosure filings on Early Street, an area in Lynchburg’s Daniel Hills neighborhood where the median income per household is $22,000. In the Forest neighborhood in Bedford County, an area known for its expensive properties, 18 foreclosure filings have been reported in 2008.

Research firm RealtyTrac estimated that foreclosure filings in the U.S. increased by 50 percent for 2008, while 2007 registered 75 percent increased in filings than in 2006.

A report released by the Metropolitan Washington Council of Governments showed that between March 2007 and February 2008, 167 went through foreclosure in Arlington. It added that of the 167 foreclosed homes; more than one fourth were in the 3 relatively small neighborhoods of Claremont, Columbia Forest and Nauck. These neighborhoods are all located along Columbia Pike’s western border.

Claremont Civic Association’s president, John Garren, said that though there was only one foreclosed property that he knew of in his neighborhood, there are more than 10-12 houses that have been for sale but are not selling. He said that when one saw ‘For Sale’ boards sitting in front of houses for months, there was an issue.

Stephanie Britt, president of the Columbia Forest Civic Association also shared similar views. According to her there was lesser number of foreclosures in comparison to houses that were stalled, not finding buyers. She said that despite there being a few sales, more didn’t happen because homeowners still hadn’t come to terms with the Virginia foreclosure homes problem and the fact that prices needed to be dropped further.

An active member of the Nauck Civic Association, Alfred Taylor, said he knew of around ten homes that have been foreclosed in his ethnically diverse community. In his opinion most of them were on variable rates, a large number of homeowners being Latino.

A coordinator with the County’s program for home ownership, Doug Myrick, shared similar sentiments. According to him foreclosures were tilted more towards people of color; Columbia Pike’s western end, having housing that was amongst the most affordable. Homeowners, he said received loans with no documentation.

Arlington County’s Housing Department’s head, Ken Aughenbaugh, said that his office has started classes in English, Vietnamese, Korean and Spanish for potential buyers educating them about the risks and hazards of ‘no-document’ loans. The damage created by these in the overall Virginia foreclosure homes scenario, may well be done.

West Virginia, which has an increasing number of vacant properties, will benefit, as this gives a chance to home owners and veterans to continue living in their homes and work on getting their neighborhoods in order again.

Funding of billions of dollars for the Community Development Block Grant (CDBG) is part of the bill, being for states and local communities to buy properties that have been foreclosed, so that they can be leased or sold to the families again. Once the numbers of vacant properties go down, chances are that properties of homeowners will see their property values either increasing, or remaining the same.

The Act also provides housing counselors with extra funding in West Virginia. Foreclosure homes in Virginia will have newer options to refinance their subprime loans, allowing veterans more time to make mortgage payments and also relief in the form of no increases in interest rates for a year.

Secured government credit for the mortgage giants Fannie Mae and Freddie Mac has also been provided through the Act. They have spent over a billion dollars over the last ten years in West Virginia helping people own homes; this being the primary reason of West Virginia having a higher rate of home ownership than the national average.

Also, now borrowers will now be needed to given improved information in terms of refinancing or new mortgages, helping them decide in a more informed manner.

Tax relief provisions in the form of municipalities having increased bond authorities, a federal standard property tax deduction (for WV homeowners), a carryback in extending the NOL (net operating losses); and for the purchase of homes in foreclosure, a $7000 tax credit, are also included in the Act.

Finally, this will also help bonds that are funded and insured by the FHL banks making them tax-exempt. Virginia foreclosures are all set to see better times.