Today’s property is a perfect example of how negative amortization loans given to people who can not afford the payments destroy property values.
In this one section of street in the Villages of Columbus there are three properties for sale: 27, 28 and 30 Desert Willow (links on the numbers.) Two of them are adjacent and the third is directly across the street. They are all of similar size and character, and the sellers paid similar amounts for them.
However, the seller of today’s featured property got behind on his payments and went into default. As a final effort to get out of this property, he put it for sale at a drastically reduced price. The neighbors can’t be too pleased.
Purchase Price: $1,286,863
Purchase Date: 5/3/2006
1st Loan — $943,629
2nd Mtg. — $251,634
Down Pmt. — $91,600
$/Sq. Ft.: $305
Lot Size: 7,800 sq. ft.
Year Built: 2006
Type: Single Family Residence
On Redfin: 14 days
From Redfin, “Incredible 5 Bedroom, almost new with many upgrades. To appreciate thi s home you must make an appointment to SEE IT IN PERSON. Near Schools, park and shopping. Perfect family home. Too many upgrades to list.”
As you can see from the financing details, this is a short sale, and it almost certainly will not be approved by the lender. It is not uncommon in these situations for the second mortgage holder to get wiped out, but rarely will the first mortgage holder take a loss. They would rather foreclose, buy the property for the amount of the first mortgage and go through their loss mitigation procedures. It is possible they think it will cost them less this way, but I doubt it.
Just for the sake of Schadenfreude let’s calculate the theoretical loss on this property: There was a closing on 5/3/2006 at which Lennar walked away with $1,286,863. If this house sells for its asking price, and a 6% commission is paid to a broker, there will be $799,000 left to pay off the various parties. That is a total loss of $487,863. First, the owner will lose $91,600, then the 2nd mortgage holder will lose $251,634, and finally the primary mortgage holder will lose $144,629.
This can’t be good news for the owners at 27 Desert Willow hoping to get $1,188,000 for their house, or the owners at 30 Desert Willow hoping to get $1,279,000? Once a similar property sells for $850,000, what chance to they have of getting their wishing price?
On Sunday’s post on Home Sales Data thru 7-16-2007, I posted this chart with the increased insurance premium lenders are being charged to insure the most stable subprime borrowers. The reason this insurance is becoming so expensive is because of situations like this one where primary mortgage holders are getting burned, and insurers are having to pay off claims.
This is also why mortgage interest rates are going to rise. Future borrowers are going to have to pay the increased insurance costs and make up for the losses on these loans made during the bubble.
It only gets worse from here.
I would like to thank EvaLSeraphim for pointing out this property and helping me with some property data.