Until now, the foreclosure crisis was confined to a narrow niche of middle-class urban communities and outer-rim new housing developments where first-time homeowners and real estate speculators benefited briefly from favorable financing.

But increasingly there are signs that the foreclosure problem is spilling over into wealthier areas, where prime borrowers — and even high-end real estate developers — are rapidly falling behind on their construction loans, mortgage payments, property taxes, auto loans and credit cards at an alarmingly fast pace, according to industry analysts, economists and real estate brokers.

Jack McCabe, a real estate consultant in Deerfield Beach, Fla., said there will be more troubles for upscale flippers, high-end prime borrowers, developers and lenders.

“Upscale foreclosures are a growing trend,” said McCabe, pointing to the overflow of some 30,000 unsold beachfront Miami condominiums. “The wealthy are not insulated from foreclosures. In a lot of the bubble markets — like Miami, Palm Beach, San Diego, Las Vegas, Orange County and the Inland Empire in California — we are going to see an increase in the number of high-end foreclosures in relatively wealthy communities. This is just the tip of the iceberg.”

McCabe believes that delinquencies and defaults will rise not only among subprime borrowers, but among prime mortgages, Alt-A loans, teaser rate loans and low money-down loans as well, forcing homes valued at more than $750,000 into foreclosure. The rising trend of prime delinquencies among the wealthy poses a new threat to a battered housing market, which McCabe and others specialists claim is in a recession or heading towards one.

 “The next two years are going to be pretty ugly in South Florida,” predicted McCabe, saying that Florida real estate will drop by another 10 to 15 percent in 2009 and the market will flatten by 2010.

With so many foreclosures across the nation, the mortgage mess is finally hitting the rich and the ultra rich luxury real estate markets. Seven-figure foreclosures — once a rarity in 2007 — are starting to pop up with more frequency in some of the wealthiest communities nationwide. Already, there’s a glut of McMansions in the $500,000 to $1 million range that have been foreclosed by lenders — and many more are falling into foreclosure, according to an analysis of RealtyTrac foreclosure records in 2006 and 2007 (see graphic).

Even in the Hamptons?
In many popular coastal areas, the inventory of high-end foreclosures has swelled, putting additional pressure on home prices and inventories. Along the Long Island shore, John Brady, an agent in the East Hampton area of Long Island, N.Y., trolls the upper-end of the foreclosure train wreck, searching for million-dollar bank-owned listings.

“The high-end housing market is not immune to foreclosure,” said Brady, who handles bank-owned foreclosure listings. “Rich people lose their home to foreclosure too. But they prefer to lose their second home rather than their first home.”

Brady confirmed McCabe’s statements, claiming that a growing number of high-end Hampton homes are falling into foreclosure — although the analysis of foreclosure data from RealtyTrac shows New York foreclosure properties in the $500,000 to $1 million range increased just 7 percent in 2007, and New York foreclosure properties valued at more than $1 million actually decreased 24 percent.

Brady said the owners of high-end Hampton foreclosures tend to be “people who kept pulling money out of their houses for their business, using equity in their second homes to pay business debt, credit cards, buy cars, go on trips.” They used their homes, he said, to get cash and kept pulling equity out.

Defaulting on Desert Dream Homes
No state has been hit harder by the foreclosure crisis than Nevada. In Clark County, Nev., where Las Vegas rises in the desert sun, the metro area saw 4.2 percent of its homes enter foreclosure in 2007, with 59,983 foreclosure filings on 30,375 properties. That was up 169 percent over 2006. Sin City had the third highest foreclosure rate in the nation among the top 100 metropolitan areas, according to RealtyTrac.

In January, properties entering some stage of foreclosure in Las Vegas outnumbered the sales of new and existing homes for the first time, according to a comparison of RealtyTrac foreclosure data and sales data. And many of the Las Vegas properties in foreclosure are in upscale communities.

Consider the San Niccolo neighborhood, in one of the Las Vegas Valley’s newest master-planned communities, where two summers ago 3,000 square-foot homes were selling for $690,000. Today, a third of the 300 homes are for sale and investors can now scoop up many of the vacant bank-owned properties for $450,000.

In California’s Orange County, around a quarter of the listings are either foreclosed properties owned by lenders or properties owned by people trying to do “short sales” or sell for less than the amount they owe the bank, according to several agents.

“As far as condos go, about one out of every six condominiums listed in Orange County last year were either a short sale or a foreclosure,” says Veronica Hicks, a real estate broker in Newport Beach, Calif., who is marketing a luxury high-rise condominium unit in foreclosure for the price range of $950,000 to $1,150,000. “Today, that’s stepped up to one out of every 4.5 condo units.”

She expects more condo units will be foreclosed in the coming months. “I have one client that’s just going to give their unit back to the bank. It would cost them $200,000 to dig themselves out of debt. They don’t care if their credit is ruined.”

Trouble in Tinsel Town
Even in Hollywood, where celebrities trade houses like stocks, moving into large estates when their careers rise and scaling back when their fortunes fall, homeowners are not immune to life’s ups and downs. Compounding the risk for the rich is the nature of homebuyers at the higher end of the housing market, says Joyce Essex, a luxury-home real estate agent in Beverly Hills, Calif.

“High-end foreclosures are definitely increasing and as time goes on we’re going to see more,” predicted Essex. “It’s working its way to the Westside. The Westside is always last to get hit.”

Foreclosures are still rare, however, in Santa Barbara, Calif., an exclusive beachfront community and one of America’s wealthiest cities.

Steve Epstein, a Coldwell Banker agent in Santa Barbara, cast skepticism on the notion that Santa Barbara’s upper-crust were falling into foreclosure. “We have precious little foreclosures here,” he said.

Maricopa’s Millionaire Mortgage Meltdown
If Beverly Hills and Santa Barbara are too pricey, deals may be had in several other playgrounds of the rich and famous. Elsewhere, in markets where an explosion of cookie-cutter McMansions sprouted in the exurbs, there is a growing inventory of high-end foreclosures.

In some of Phoenix’s priciest neighborhoods — including Scottsdale, Paradise Valley and Chandler — high-end foreclosures are starting to pile up. Along the fringes of Maricopa County, about 13,000 homes are in foreclosure, more than six times the number two years ago. Homebuilders in Arizona, whose lavish incentives haven’t attracted buyers in the slumping market, are turning to the auction block as a last resort to sell empty houses, said R.L. Brown, publisher of the Phoenix Housing Market Letter.

“That’s an indicator of the stress on the upper end of the market,” said Brown. “Foreclosures are occurring across the spectrum because people are overextended financially. It was quite common a few years ago to buy a new home in a master-planned community and then buy three or four more as investment properties. Those buyers are upside down now and are just walking away.”

“The good news in all this is that now is good to time to bottom fish and buy in Arizona for a solidly financed individual,” added Brown, who is bullish on the Arizona housing market. “The investor that buys here and can hold it for three years or more is going to be rich.”

Brian Gaffney, a luxury home real estate agent in Scottsdale, Ariz., said the Valley is experiencing a “huge increase” in foreclosure homes priced in the $500,000 to $1 million range. But he said the upper reaches of the market are holding firm.

“You don’t see a lot of Scottsdale homes over $1 million dollars going into foreclosure,” said Gaffney. “But occasionally we’ll see people who shouldn’t have bought a million dollar home who are losing it to foreclosure.”

Beachfront Bubble Bursts
In Florida’s Treasure Coast, buyers for Palm Beach oceanfront properties are some of the wealthiest people in the world. Ever since the 1920s, when the Vanderbilts and Biltmores built palatial winter estates on the sunny beaches of South Florida, northern snowbirds have flocked southward to Florida.

“I’m working with several foreign buyers right now,” said Deborah Magraw, a Palm Beach, Fla. agent who is currently representing buyers from Germany, Canada and Spain. “One buyer is looking for Palm Beach foreclosures priced between a $1.5 million and $2.5 million.”

Magraw, who sells bank-owned properties in the upscale communities of Wellington and West Palm Beach, Fla., said the trend of expensive homes falling into foreclosure has accelerated the past year, and she estimates that their are 80 high-end Palm Beach properties that are in foreclosure.

Consider Veronica Hearst, the widow of Randolph Hearst and stepmother of 1970s kidnap victim Patty Hearst, whose 52-room oceanfront mansion in Palm Beach, Fla. just recently went up for auction and sold back to the foreclosing lender for $22 million.

The Hearst foreclosure is an extreme example showing that high-end foreclosures are a growing trend.

“It’s going to be nasty,” warned McCabe. “The subprime was only the tip of the iceberg.”