Monthly Archives: January 2011

Strategic default begins nearly one in four Nevada foreclosures

Strategic default has become common and accepted in Las Vegas.

Irvine Home Address … 260 DEWDROP Irvine, CA 92603

Resale Home Price …… $249,000

It's not right, but it's okay

I'm gonna make it anyway

Close the door behind you

Leave your key

Whitney Houston — It's Not Right, But It's Okay

I am emotionally conflicted about strategic default. It's not right, but it's okay. Do you know what I mean?

I understand the argument that says borrowers should be responsible to keep their word and pay their debts. They should. However, I also believe that families should not be burdened for decades by one poor financial decision.

There are times when our values and beliefs are in conflict, and to avoid hypocrisy, each person must evaluate which of their conflicting values they hold in higher regard. I side with the family. I can't condemn a family for relieving themselves of a financial burden they cannot handle, particularly when lenders abdicated their responsibility of making sure the family could handle the debt.

Strategic default the norm in Las Vegas

Unless you have spent time talking with Las Vegas residents, you can't fully appreciate how common and accepted strategic default is in that town.

First, there is no class distinction when it comes to walking away. I know a business owner who walked away from his $1.1M mortgage. He said when he saw a few comps in his neighborhood go for less than $500,000, he said continuing to pay seemed pointless, so he walked.

I know a mortgage broker who walked away from three properties. She had a condo she bought in the mid 90s and two properties she bought when the market “corrected” in 2007. In early 2009, she saw a comp for her condo go for less than its 1996 purchase price. She calculated that she had almost $400,000 in mortgages on about $175,000 in real estate, and prices were still headed straight down.

Basically, anyone who bought in the 00s is underwater or nearly so, and there is little hope of price recover while the rest of the city strategically defaults because they too are underwater. The excess debt will be purged in Las Vegas, and the excessive debt service payments will not serve as a drag on the local economy as it will here. That being said, the purging process is not pretty.

In Nevada, 23 percent who lost homes to foreclosure could afford payments

Officials say trend shows no signs of slowing

By Buck Wargo

Published Tuesday, Jan. 25, 2011 | 9:22 a.m.

Updated Tuesday, Jan. 25, 2011 | 3:06 p.m.

Nearly one in four people in Nevada who lost their homes to foreclosure have admitting to walking away even though they could afford their monthly payments, according to a study released today by the Nevada Association of Realtors.

The study said 23 percent of those surveyed described their own situation as a strategic default, meaning they decided to stop making payments on their debt despite having the financial ability to pay. Many of those who walked away from their homes said trusted confidants advised them that a strategic default was their best option, the study said.

Keep in mind that many of these borrowers probably could not really afford the payment long term. Those borrowers are merely accelerating the inevitable rather than truly walking away from an obligation they could comfortably cover.

The authors of the study said strategic defaults are a much greater problem in Nevada than the rest of the nation. It has less of a stigma here that it’s a shameful decision, and it’s becoming more popular as part of a snowball effect, they said.

“I believe the current trend upward. It could get worse,” said Joel Searby, SGS’s director of marketing and business development. “The cultural stigma is dropping, and it’s becoming more acceptable.”

The survey was conducted by SGS, a national research firm that has done similar studies in Florida and Pennsylvania. It held two focus groups in Las Vegas and interviewed more than 1,000 Nevadans by phone.

It was striking to see that nearly one in four Nevadans who lost their homes to foreclosure admitted they simply walked away from their mortgage,” said outgoing Nevada Association of Realtors President Linda Rheinberger.

Nevada has ranked No. 1 in the nation in terms of its rate of foreclosure filings since January 2007.

A report released today by California-based CoreLogic said foreclosure rates in Nevada increased in November to 9.49 percent of mortgage loans, up 1.71 percentage points from November 2009. The national rate was 3.48 percent in November.

In November, 19.65 percent of Las Vegas mortgages were 90 days or more delinquent, down from 19.70 percent in October. The statewide delinquency rate is 17.35 percent, CoreLogic reported.

It's difficult to imagine nearly 10% of mortgages in foreclosure and another 10% delinquent. It is difficult to keep a rate that high because after enough time goes by with a 20% delinquency rate, every mortgage in the area will turn over. The 20% in the pool from last year is a different 20% that is in the foreclosure queue now.

University studies in the past two years have suggested that between 17 and 25 percent of Las Vegas residents have considered or would consider walking away from their mortgage even though they could afford their payments.

Nevada had nearly 8,000 homes foreclosed upon in the fourth quarter of 2010, according to California-based RealtyTrac. If the survey is correct, that means more than 1,800 of those are people who did so strategically.

Searby said he was surprised with the findings of so many people walking away in Nevada. Anecdotal evidence in surveys in other states suggests the problem is “significantly worse” in Nevada, he said.

Nevada homes have taken one of the biggest price drops in the nation, and in Las Vegas prices have fallen about 60 percent from their peak in June 2006.

Cause and effect. Low prices are creating the circumstances leading to more strategic default. It is a classic downward spiral. The Las Vegas experience inspired the amend-extend-pretend dance to avoid a repeat in every housing market in the country.

Searby said a culture is developing in Las Vegas and the rest of Nevada that strategic defaults are OK, and there isn’t the stigma once associated with it. That’s creating a snowball effect that increases its popularity, he said.

Some websites are dedicated to encouraging people to walk away from their homes. The Las Vegas Sun and its sister publication, In Business Las Vegas, has written on the subject, and one prominent home builder, Richard Plaster, president of Signature Homes, has encouraged people to do a strategic default to spare their finances.

“It is about how they’re perceived by their peers,” Searby said. “One man in a focus group said growing up this would have been an act of shame. It’s not seen as something that brings shame on him now. There’s a subculture arising who don’t believe walking away from a mortgage is necessarily bad. This has become a financial decision for most of the families first and foremost.”

This is the argument I have been making for months. The needs and interests of the family outweigh paying the mortgage on an underwater property when it's cheaper to rent.

This dilemma is not new. If your family were starving to death, would you steal food? Most would. Anyone who valued survival more than personal property law would. In fact, many wars have been fought because one group lacked resources to survive, so they go to war to take those resources from another.

Searby said what surprised him in the survey is that those who are walking away tend to be older, mostly 40 and over, rather than younger generations that might be perceived to be less financially responsible.

“They are looking at the last 30 to 40 years of their life and feel it doesn’t make sense to have that kind of debt hanging over their heads,” Searby said. “It’s about their quality of life and that all they are going to pass on to their kids is debt.

That scenario describes one Las Vegas resident who took part in the survey.

Lee, who didn’t want to use her last name, said she plans to walk away from her $1,700 a month mortgage even though she can afford the payment. Lee said the value of her home that she refinanced about six years ago for $235,000 plummeted from $270,000 to $80,000 today. Since then, she has retired from her federal job and had her husband leave her.

Interesting sob story, but at least she admitted to the HELOC abuse.

Lee said the Federal Deposit Insurance Corp. has taken over the bank that once held her loan and the lender now servicing the loan has been unwilling to work with her to reduce her payments. She said it’s prudent to keep the money for taking care of herself during her retirement.

“Why should I pay on something when it’s like losing $150,000 in the stock market,” Lee said. “The way I look at it is I’m 73 and never going to see this market come back. I don’t feel bad at all. They had a chance to work with me.”

Lee said she plans to rent a home from her girlfriend and isn’t worried that the lender will come after her for the first mortgage six months after foreclosing or for the second and third mortgages on the homes over the next six year as allowed under state law.

If that happens, she said, she will file bankruptcy.

In all likelihood, either the lender or a zombie debt collector will come after her, and she will have to declare bankruptcy to make the problem go away.

Most borrowers who walk away should declare bankruptcy. It's the only way to be sure the debt will never be a problem again. I can foresee many borrowers who walked away getting blind-sided by lenders several years from now when the borrowers have assets again.

Searby said those who walk away aren’t concerned that it would take them three to seven years to get another mortgage or that their credit might make it difficult to buy a car for a while.

That's because people don't have much reason to worry. The powers-that-be are determined to give everyone a pass.

The survey said most Nevada homeowners facing foreclosure weren’t aware of the federal and nonprofit programs designed to help them. Some 61 percent said they weren’t aware of foreclosure aid programs and only 3 percent said they used the state’s foreclosure mediation program or were helped by it in any way.

Many Nevadans experiencing foreclosure faced two or more life-altering events that increased their risk of defaulting on their mortgage, the study said. The report said the loss of a job and unexpected medical bills were the most common events triggering a foreclosure.

Homeowners statewide were far more likely to blame banks and lenders, at 46 percent, than the government, which polled 20 percent, for the foreclosure problem. Homebuyers got 13 percent of the blame, the study said.

Interesting. Lenders are getting their oversized share of the blame.

Short sales proved to be moderately helpful in avoiding foreclosures with the report saying 10 percent of those surveyed said it helped them.

NVAR President Mike Young said the study would be used as a basis with the state’s lawmakers to help address the problems with foreclosures. Besides advocacy and counseling, streamlining short sales could help stabilize the housing market, he said.

Short sales are those in which lenders allow the homes to be sold for less than is owed on the mortgage. Homeowners have faced hurdles in getting banks to approve that option.

Short sales are not the answer, and neither are loan modifications. More foreclosures are on the way.

What the foreclosed leave behind

I have found all manner of personal possessions left behind in properties. One of my competitors jokes about how he finds vacuum cleaners left in each property. I have only found 4 or 5 of them.

Some of the items left behind likely were beloved by their former owners. Mostly this is stuff like dolls or photographs, but on some occasions, it is much more.

Aren't these two cute?

They were a few days from starvation when we found them trapped in the back yard of a house the former owners. I understand owners abandoning their house. It's property. It's not alive. These owners abandoned their family pets. Disgraceful.

What goes through the mind of the former owners? Did they think someone like me would come along and save their dogs? What if we had waited another few days before taking possession?

We couldn't find any evidence of food left behind, although judging from these dogs appearances, they long since scavenged anything edible. After eating any remaining garbage and plant matter, they likely gnawed on that rubber tire.

Are these former owners such assholes that they left their dogs to die?

You'll be happy to know that we saved these two dogs from this fate and took them to a local shelter.

Should it really take two or more years to resolve a bad loan?

Today's featured property was originally posted April 26, 2007: More Jasmine Dew Drops in Quail Hill.

This was a flip gone bad. The owner put the property for sale about a year after paying $450,000 for a one bedroom apartment. He tried off and on selling the property for the next couple of years. He tired of the payments and quit paying sometime before mid 2008.

Foreclosure Record

Recording Date: 11/29/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 02/18/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/08/2008

Document Type: Notice of Default

They may have convinced him to pretend with a loan modification, but one bedroom apartments are still not selling for more than $450,000 six years later, so the owner doesn't see much point in remaining current.

When he bought the property, he used a $356,000 first mortgage, a $66,700 second mortgage, and a $27,300 down payment, so he does have some skin in the game.

I speculate he has other assets too. I further speculate this sale is being held up while the owner and the second mortgage holder agree to a settlement. I know none of these people, but it does explain why one property can be for sale for years while an underwater delinquent borrower continues to be on title.

Today's featured property should have been foreclosed on years ago and washed through the system. Here we are in 2011, and we haven't resolved bad loans from 2008.

Irvine Home Address … 260 DEWDROP Irvine, CA 92603

Resale Home Price … $249,000

Home Purchase Price … $445,000

Home Purchase Date …. 11/21/05

Net Gain (Loss) ………. $(210,940)

Percent Change ………. -47.4%

Annual Appreciation … -10.9%

Cost of Ownership

————————————————-

$249,000 ………. Asking Price

$8,715 ………. 3.5% Down FHA Financing

4.78% …………… Mortgage Interest Rate

$240,285 ………. 30-Year Mortgage

$50,274 ………. Income Requirement

$1,258 ………. Monthly Mortgage Payment

$216 ………. Property Tax

$153 ………. Special Taxes and Levies (Mello Roos)

$42 ………. Homeowners Insurance

$297 ………. Homeowners Association Fees

============================================

$1,965 ………. Monthly Cash Outlays

-$117 ………. Tax Savings (% of Interest and Property Tax)

-$301 ………. Equity Hidden in Payment

$16 ………. Lost Income to Down Payment (net of taxes)

$31 ………. Maintenance and Replacement Reserves

============================================

$1,594 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,490 ………. Furnishing and Move In @1%

$2,490 ………. Closing Costs @1%

$2,403 ………… Interest Points @1% of Loan

$8,715 ………. Down Payment

============================================

$16,098 ………. Total Cash Costs

$24,400 ………… Emergency Cash Reserves

============================================

$40,498 ………. Total Savings Needed

Property Details for 260 DEWDROP Irvine, CA 92603

——————————————————————————

Beds:: 1

Baths:: 1

Sq. Ft.:: 0830

$0,300

Lot Size:: –

Property Type:: Residential, Condominium

Style:: One Level, Contemporary

View:: Peek-A-Boo

Year Built:: 2003

Community:: Quail Hill

County:: Orange

MLS#:: L27347

—————————————————————————–

IMMACULATE LARGE SINGLE STORY 1 BEDROOM CONDO, BRIGHT KITCHEN WITH CORIAN COUNTERS AND BREAKFAST BAR OPEN TO A SPACIOUS LIVING ROOM WITH A FIREPLACE AND BUILT IN OFFICE/ MEDIA. SEPARATE DINING AREA, MASTER SUITE WITH HUGE CLOSETS. FLOORS ARE HARDWOOD THROUGHOUT LIVING AND DINING, CARPET IN THE BEDROOM AND CERAMIC TILE IN THE BATHROOM. PLANTATION SHUTTERS, A/C AND LAUNDRY INSIDE. THE COMPLEX HAS A POOL, SPA, GYM, BBQ AREA AND A CLUBHOUSE.

The realtor describes this place as LARGE and SPACIOUS. It's a one-bedroom one-bath condo of 830 square feet. The right word in realtorspeak is COZY.

IHB News 1-29-2011

Today we take a detailed look at rental parity in the neighborhoods of Irvine, California.

Irvine Home Address … 52 GRAY DOVE Irvine, CA 92618

Resale Home Price …… $1,099,900

There's more besides joyrides

A little house in the countryside

Understand, learn to demand,

Compromise, and sometimes lie

Get the balance right, get the balance right

Depeche Mode — Get the Balance Right

Patrick Killelea asked me not to post the links from Patrick.net, so if you were looking for that content, please go to his site.

Today, I am going to take a look at rental parity in Irvine, at least a snapshot of rental parity based on 2009 data. I was going to run this post during the week, but since the data has not been updated for more than a year, I moved it to Saturday. It is still interesting data. I wish it were updated more frequently.

I believe this data was compiled in 2009 from available data sources some of which may have only had data available from earlier years. In short, the data is probably not far off as not much has changed in incomes, rents, or prices since early 2009.

North Irvine

Some neighborhoods in Irvine have higher median home prices because they are inhabited by high income borrowers. The chart below shows the median income data for the northern half of Irvine. It doesn't show Woodbury, and the data on west Irvine is sketchy. That being said, the neighborhoods with the highest incomes are the most desirable on the map.

Based on the income numbers above and housing cost data, the map below shows the percentage of income people in each area are putting toward housing.

The debt-to-income ratios shown above all make the same assumption about equity and mortgage balances. In the real world, some of these neighborhoods will sustain a higher DTI, not because borrowers are borrowing more, but because the owners used a larger than standard down payment.

The map above shows the cost of ownership for renters in the same area. Comparing the two maps above reveals which Villages and neighborhoods in north Irvine are at or near rental parity and which ones are well above.

One of the first things I noticed was that El Camino Real was very close to rental parity. Since this is one of the least desirable neighborhoods in Irvine, it is not surprising that the aggregate lowest premiums would be found there.

The other item that stands out is the huge premium people are paying to own in Northwood. Don't simply dismiss this as Northwood is desirable. The desirability premium would be reflected in both rents and resale prices. There is a premium for rental in this area, but there is an enormous premium for ownership that defies explanation — other than kool aid intoxication and the belief that these prices are going even higher.

South Irvine

Some have speculated that when you factor out the college students and renters that the actual incomes in Irvine are much higher. The statistics below do not support that contention. The Irvine median income is around $90K, and if you look at the income distribution below, you see some above and some below just as you should. If you get down adjacent to the university, incomes fall off a cliff where the college students impact the results. Whatever impact college students have on the median income is isolated to this area.

Outside the loop in Woodbridge and University Park are both areas where the bulk of the housing stock is trading near rental parity. Inside Woodbridge Loop and in the south-central premium area of University Park as well as Turtle Rock is still inflated.

If you would like to check out this site in more detail, the maps can be found at H+T Affordability Index.

Million Dollar Mortgage

The owner of today's featured property paid $1,410,500. He used a $1,000,000 first mortgage, a $269,404 HELOC and a $141,096 down payment. For this he obtained his unique tract home that surely was going to hold its value in the bad times and appreciate like crazy when times are good. We all know how that is turning out. This is another 25%+ loss on a high-end property.

Foreclosure Record

Recording Date: 11/30/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/19/2010

Document Type: Notice of Default

Irvine Home Address … 52 GRAY DOVE Irvine, CA 92618

Resale Home Price … $1,099,900

Home Purchase Price … $1,410,500

Home Purchase Date …. 12/26/06

Net Gain (Loss) ………. $(376,594)

Percent Change ………. -26.7%

Annual Appreciation … -6.1%

Cost of Ownership

————————————————-

$1,099,900 ………. Asking Price

$219,980 ………. 20% Down Conventional

4.78% …………… Mortgage Interest Rate

$879,920 ………. 30-Year Mortgage

$222,075 ………. Income Requirement

$4,606 ………. Monthly Mortgage Payment

$953 ………. Property Tax

$475 ………. Special Taxes and Levies (Mello Roos)

$183 ………. Homeowners Insurance

$175 ………. Homeowners Association Fees

============================================

$6,393 ………. Monthly Cash Outlays

-$1248 ………. Tax Savings (% of Interest and Property Tax)

-$1101 ………. Equity Hidden in Payment

$401 ………. Lost Income to Down Payment (net of taxes)

$137 ………. Maintenance and Replacement Reserves

============================================

$4,582 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$10,999 ………. Furnishing and Move In @1%

$10,999 ………. Closing Costs @1%

$8,799 ………… Interest Points @1% of Loan

$219,980 ………. Down Payment

============================================

$250,777 ………. Total Cash Costs

$70,200 ………… Emergency Cash Reserves

============================================

$320,977 ………. Total Savings Needed

Property Details for 52 GRAY DOVE Irvine, CA 92618

——————————————————————————

Beds:: 4

Baths:: 5

Sq. Ft.:: 3383

$0,325

Lot Size:: 5,222 Sq. Ft.

Property Type:: Residential, Single Family

Style:: Two Level, Contemporary

Year Built:: 2006

Community:: Portola Springs

County:: Orange

MLS#:: P761552

Source:: CARETS

——————————————————————————

Gorgeous home in Portola Springs. This lovely home features 4 Bedrooms, one on the main floor with a separate entrance. All bedrooms have private baths. A nice size bonus room upstairs. Gracious Master suite w/ Office. Beautiful hardwood floors downstairs. Formal living room and dining room. Chefs kitchen w/ granite counter tops, vegetable sink in center island, glass front cabinets, breakfast bar and nook. Adjacent to the kitchen is a spacious family room w/ fireplace. Good size rear yard w/ upgraded hardscape and young softscape, great place to entertain family and friends. Additional features include a 3 car garage, mud room, upstairs laundry room, plantation shutters, recessed lighting, and crown molding throughout.

Notice of Default irregularities: new false hope for loan owners

Distressed borrowers scan news reports for false hopes of a cure for their financial illness. For this news cycle, the savior is an irregularity on the Notice of Default.

Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620

Resale Home Price …… $339,900

Breaking the law, breaking the law

Breaking the law, breaking the law

So much for the golden future, I can't even start

I've had every promise broken, there's anger in my heart

you don't know what it's like, you don't have a clue

if you did you'd find yourselves doing the same thing too

Breaking the law, breaking the law

Breaking the law, breaking the law

Judas Priest — Breaking The Law

Last month I wrote about How attorneys enable squatters to game the system. The American Banker has picked up on the issue because it directly impacts banks.

New Point of Foreclosure Contention: Default Notice

American Banker — Friday, January 21, 2011 — By Kate Berry

Last year's robo-signing scandals delayed tens of thousands of foreclosures in the 23 states where the process is handled in court. A new controversy could complicate foreclosures in the other 27 states.

At issue is the notice of default, the first letter that a mortgage lender or servicer sends to a homeowner who has fallen behind on payments. The notice typically starts the formal foreclosure process in nonjudicial states such as California, Arizona and Nevada.

Every notice of default has a signature on it. But just like the infamously rubber-stamped affidavits in the robo-signing cases, default notices, in at least some instances, have been signed by employees who did not verify the information in them, court papers show. In several lawsuits filed in nonjudicial states, borrower attorneys are arguing that this is grounds to stop a foreclosure.

In the case I documented last month, the former owners got an attorney to threaten a lawsuit because the Notice of Default in the county records did not have the address printed on it. Part of the process is that the house must be physically served papers, usually they are taped conspicuously to the door. The person serving the house certainly knew the address. And so did the person who served the Notice of Trustee Sale.

If the copy entered into the public record didn't have the address written on it, should we give the former owner a free house?

Anyone who claims they didn't know the house was in foreclosure is not being truthful — and many holdover occupants, both renters and former owners, feign ignorance if it's to their advantage.

“Whoever signs the NOD needs to have knowledge that there is in fact a default,” said Christopher Peterson, an associate dean and law professor at the University of Utah.

The suits also argue that the default notices are invalid because the employees who signed them worked for companies that did not have standing to foreclose.

In a lawsuit against Wells Fargo & Co. in Nevada, an employee for a title company who signed default notices admitted in a deposition this month that he did not review any documents or know who had the right to foreclose.

“They are starting foreclosures on behalf of companies with no authority to foreclose,” said Robert Hager, an attorney with the Reno, Nev., law firm Hager & Hearne, representing the borrower in the case. “The policy of these companies is to just have a signer execute a notice of default starting foreclosure without any documentation to determine whether they are starting an illegal foreclosure.”

Although not a part of a recent Recon Trust and Bank of America lawsuit (Nevada court blocks Bank of America trust foreclosure), these suits occasionally find a legal wrinkle where a few plaintiffs gain some benefit, and a few law firms make a fortune.

The Recon Trust lawsuit in Nevada did cause a huge number of last-minute auction postponements yesterday. The list in Las Vegas was nearly 1,000 properties. Even with over 900 of those being postponed or cancelled each day, it usually takes four or five hours to call the whole list. Yesterday it was finished in about an hour. Or course, the other trustees are expected to pick up Recon Trust's slack just as they did during the brief moratorium last fall during robo-signer.

The Nevada nonjudicial foreclosure statute requires that the company signing a notice of default have the authority to foreclose, Hager said.

In a deposition on Jan. 4, Stanley Silva, a title officer at Ticor Title of Nevada Inc., said he “technically signed” default notices for clients, which were often acting as agents of other parties, which in turn worked for others.

“The person at the bottom of the chain, by executing the document, has taken an action on behalf of all of them through their various agency agreements,” Silva said. In one case, for example, he said he had signed “on behalf of Ticor Title of Nevada, who is agent for LPS Title, who is agent for National Default Servicing.”

“Who is agent for Fidelity National?” Hager asked. “Apparently, yes,” Silva replied.

“Which is a servicer for Wilshire?”

“Apparently.”

The attorney has exposed the inner workings of MERS, and it's ugly, but does it violate some standard of law? How much knowledge of events does a signer need to have? What is the signer attesting to? Could a trained monkey sign the papers? Could a barely legally responsible adult with minimal education and experience be given the responsibility of signing foreclosure documents? Why not?

Silva said under oath that he never reviewed any documents or knew what company was the holder of the original note at the time he signed the notice of default. He said he signed about 200 default notices over a four-year period.

When asked by Hager if he signed notices of default “without verifying the accuracy of the information,” Silva replied: “Correct.”

What level of verification is required of the signer? How are they to verify? What are the penalties for failure to verify properly? Does the response imply that the signers were doing things knowingly inaccurate? Wouldn't whoever was signing look to others to properly prepare the paperwork? Shouldn't they be able to rely on the bank's internal system of checks and balances to know the paperwork they are signing is correct?

For as much as I malign banks, they do know how to accurately keep track of who they loaned money to and how much they are owed. If a loan holder is not paying them, they know it, and they know where that borrower lives. The idea that somewhere in that system banks get lost and start randomly foreclosing on people for no reason is silly.

Representatives for Wells Fargo did not return calls seeking comment. The intermediaries that Silva mentioned in his testimony either did not return calls or declined to comment.

Walter Hackett, a lawyer with Inland Counties Legal Services, in San Bernardino, Calif., and a former banker with Bank of America Corp. and Union Bank, has filed several cases contesting notices of default, on the grounds that the employees signing such notices were working for companies that are not the noteholders — or even their appointed agents.

“A huge percentage of notices of default and notices of trustee sales are legally questionable and probably void,” Hackett said. “Nobody with the authority to trigger the nonjudicial foreclosure process is triggering it — only third parties who claim they have the right to do so are triggering it.”

This is the MERS defense. The third party claim to ownership of the note is being called into question. Its wrong.

After a notice of default is sent to the borrower and filed at the county recorder's office, a notice of sale is typically published in the local newspaper and the sale of the property often takes place without the borrower even knowing the home has been sold to another party.

That is ridiculous. Most of the homes I have purchased at action still had the notices taped to the front door. The colorful masking tape and bright white paper stand out at street level. Someone living in a neighborhood where one of these is posted will notice the next time they drive buy. These notices are that conspicuous.

O. Max Gardner 3rd, a consumer bankruptcy attorney at Gardner & Gardner PLLC in Shelby, N.C., said the default notice is “the key legal document that is sent to the borrower” before a notice of sale.

Thousands of judicial-state foreclosures were halted last year after several banks including Ally Financial Inc.'s GMAC Mortgage and Bank of America Corp. admitted that employees had signed affidavits without reviewing the documents. In several judicial states, including New York and Florida, sloppy paperwork by servicers has led courts to require that companies verify they have all the proper documents, including proof they own the mortgage before foreclosing.

This month, in a closely watched case, the Supreme Judicial Court of Massachusetts (a nonjudicial state) rejected claims made by U.S. Bancorp and Wells Fargo that the banks, as securitization trustees, did not have to prove their authority to foreclose on two separate homes.

Peterson, the law professor, said one difference between the notice of default cases and the widely publicized robo-signing incidents is that in the latter, affidavits are given to judges whereas the notice of default is not strictly a legal document.

But consumer lawyers said homeowners face a bigger legal burden in nonjudicial sates because they have to file a lawsuit against the holder of the note to bring any action in court.

“Because there's no court reviewing anything in nonjudicial states,” abuses are “probably even more rampant,” Gardner said. “This is just another example of robo-signing in a different context.”

Those poor abused loan owners. They were victims of rampant mortgage process abuse in nonjudicial states like California. Not.

Two and a half years in the foreclosure process

Amend-extend-pretend is used by banks to buy time. They are hoping if they drag out the process long enough prices will rebound and they will get out without taking a loss on their oversized loans. Today's featured property was served a Notice of Default on 4/21/2008 which means they missed payments in April, March, February, and probably January of that year.

Prior to the housing bubble, lenders would customarily wait until customers were 90 days late with a payment before issuing a NOD. It's also likely that this borrower was delinqent long before then and the bank let them slide 180 days or more before issuing the NOD. Shadow inventory is stuck in the limbo between delinqency on the mortgage and the Notice of Default.

The previous owner of today's featured property was a peak buyer. He paid $509,000 on 9/16/2005. He used a $356,300 first mortgage, a $152,700 second mortgage, and a $0 down payment. By late 2007 he had already given up.

The bank bought the property at auction last July for $431,484. Apparently, with more than three years seasoning, this foreclosure is fully baked and ready for consumption on the Irvine MLS.

Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620

Resale Home Price … $339,900

Home Purchase Price … $431,484

Home Purchase Date …. 7/19/10

Net Gain (Loss) ………. $(111,978)

Percent Change ………. -26.0%

Annual Appreciation … -40.2%

Cost of Ownership

————————————————-

$339,900 ………. Asking Price

$11,897 ………. 3.5% Down FHA Financing

4.78% …………… Mortgage Interest Rate

$328,004 ………. 30-Year Mortgage

$68,627 ………. Income Requirement

$1,717 ………. Monthly Mortgage Payment

$295 ………. Property Tax

$111 ………. Special Taxes and Levies (Mello Roos)

$57 ………. Homeowners Insurance

$241 ………. Homeowners Association Fees

============================================

$2,420 ………. Monthly Cash Outlays

-$280 ………. Tax Savings (% of Interest and Property Tax)

-$410 ………. Equity Hidden in Payment

$22 ………. Lost Income to Down Payment (net of taxes)

$42 ………. Maintenance and Replacement Reserves

============================================

$1,794 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,399 ………. Furnishing and Move In @1%

$3,399 ………. Closing Costs @1%

$3,280 ………… Interest Points @1% of Loan

$11,897 ………. Down Payment

============================================

$21,975 ………. Total Cash Costs

$27,500 ………… Emergency Cash Reserves

============================================

$49,475 ………. Total Savings Needed

Property Details for 2100 TIMBERWOOD Irvine, CA 92620

——————————————————————————

Beds:: 2

Baths:: 1

Sq. Ft.:: 1270

$0,268

Lot Size:: –

Property Type:: Residential, Condominium

Style:: Two Level, Contemporary

Year Built:: 2000

Community:: Northwood

County:: Orange

MLS#:: P765390

Source:: CARETS

——————————————————————————

Like new! Immaculate two bedroom + loft townhouse built in 2005 located in the desirable Collage complex. Unit features include brand new paint and carpet throughout, fireplace, one car garage, patio with pool views, walk-in closet and storage room. Complex is equipped with beautifully manicured landscaping, pool, spa and secure gate access. Property will be sold with washer, dryer, stove/range and dishwasher.

High-end home prices are falling in Orange County

An Irvine home owner loses more than 25% on his multi-million dollar Irvine property.

Irvine Home Address … 12 MONTIA Irvine, CA 92620

Resale Home Price …… $1,650,000

Have you ever thrown a fistful of glitter in the air?

Have you ever looked fear in the face

And said “I just don’t care”

It’s only half past the point of no return

The tip of the iceberg

The sun before the burn

The thunder before the lightning

The breath before the phrase

Have you ever felt this way?

Pink — Glitter In The Air

In recent posts I established that Orange County home prices too high for incomes or rents, and Orange County home sales are falling with prices to follow.

Sellers of pricier O.C. homes up discounts

January 26th, 2011, 8:30 am — posted by Jon Lansner

Orange County’s high end takes the heaviest discounting, according to a slightly different view of the Orange County real estate market from HousingTracker.net.

This website tracks trends in asking prices from brokers’ MLS system of homes for sale. In addition, HousingTracker breaks down its data into a pair of neat markers — the 25th and 75th percentiles that let us see how the market’s upper crust and more modest abodes are faring.

From the January report we see …

  • At the 25th percentile — the median of the lower half of the price spectrum of local homes for sale — the selling price was $294,950; that is down 1% vs. the previous month and down 1.7% vs. a year ago. Over two years, there’s been an 1.8% dip in prices set by sellers of more affordable local homes. This is the 5th consecutive month-to-month cut in asking prices for these more “affordable” homes.
  • At the 75th percentile — the median of the upper half of the price spectrum of local homes for sale — the selling price was $640,873; that is down 1.1% vs. the previous month and off 11.5% vs. a year ago. Over two years, there’s been an 11.9% tumble in prices asked for higher-end housing. This is the 7th consecutive month-to-month cut in asking prices for these less “affordable” homes.
  • The gap between these two price points was 117% this month vs. 118% the previous months and 142% a year earlier. The gap peaked at 167% in June and July 2009.
  • The overall Orange County median listing price, by this math, was $418,975 for January — that is off 1.1% vs. the previous month and off 6.6% vs. a year ago. Over two years, there’s been an 3% decline.

Realtor Aaron Zapata of Prudential California Realty commented: “I call this the sandwiching effect. The upper end is being pressed down by lack of demand, while the lower end is climbing because of great demand. The difference between the high and low end gets smaller.”

I recently explored the question With people leaving Orange County, who will buy our overpriced homes? Right now, nobody is, so prices keep falling, inventory keeps building, and sales slowly limp along.

HousingTracker.net data and charts

Orange County's data can be found here. The trend at the high end is distinctly downward.

As I demonstrated in yesterday's post, the pressure has been building at the high end due to low sales rates and excessive inventory.

It was inevitable that high end prices would continue to go down. If inventory continues to rise, prices will likely fall.

We are seeing the same buildup of inventory here in Irvine where much of OC's high end resides.

What will happen to pricing and volume here?

I believe new home sales will continue to do well, although the price increases and sales volumes will not meet the Irvine Company's expectations. The dreamers still clinging to bubble values will continue to see erosion of their perceived value. Asking prices will keep falling and the bubble clearance sale will finally get started.

Losing more than 25% after owning in Irvine for more than 5 years

Buying a high-end property in a prestigious neighborhood does not ensure prices cannot go down. The laws of supply and demand in the housing market do not bend to the will of high-end home owners.

This property is not suffering from any malady. It is a huge home in one of Irvine's most exclusive neighborhoods. The back yard is a fantasy resort pool, and the interior is immaculate. The only problem with this home is the price tag attached. This high-end home sale will lose someone half a million dollars. Apparently, even the high end properties are subject to the laws of supply and demand.

Banks know from experience in Irvine that if they force an expensive property to go to auction, the auction price is about half of peak asking price (How to Lose $2,650,000 in Irvine Real Estate). Since the auction is all cash, it gives some indication of what these properties are worth without the lender air that inflated high end properties.

To get an idea what I mean, remember back to a bygone era when loans over $1,000,000 simply didn't exist. Okay, perhaps a few were around, but for the most part, if you saw a neighborhood where transactions were occurring over $1,000,000, you knew that significant savings or ported equity made up the difference. People didn't gain access to those neighborhoods through borrowing alone. People had to save money to be one of the chosen ones.

Fast forward to the housing bubble when stupid loans of every kind where given out to anyone who wanted one. The neighborhood of $1,000,000 homes is accessible to anyone with a high income or a convincing liar loan application. The influx of new buyers sends prices skyward, and by 2006, those formerly $1,000,000 neighborhoods are all listed for more than $2,000,000.

With the credit crunch in August of 2007, credit for jumbo loans dried up. Very few loans have been underwritten in the last three and a half years because no government program insures them. With proper risk pricing and its associated higher interest rate, buyers can't afford a big mortgage. With big mortgages gone, the support for high end prices was removed with them.

Bottom line is that the air has been abruptly removed from the high end of the market, but it has been allowed to slowly gliding downward in a controlled descent.

The owners of today's featured property paid $2,100,000. They used a $1,680,000 first mortgage, a $420,000 HELOC, and a $0 down payment (it is possible they were merely approved for the HELOC and actually put money down.)

On 4/3/2007 they refinanced with a $1,720,000 first mortgage and a $212,000 HELOC. The smaller HELOC and lower combined balance suggests these owners had put money down. However, the larger first mortgage suggests they took out some money in the refinance. No matter the case, having $1,932,000 in debt gets hard to maintain. The stopped paying the mortgage back in May of 2010.

Foreclosure Record

Recording Date: 12/16/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/15/2010

Document Type: Notice of Default

The bank is assessing its options. If it forces a foreclosure, they will take a big loss. If they try to negotiate a short sale, they will dance with the sellers for months as the sellers hide assets and claim poverty. The threat of foreclosure will loom over the negotiation, but if the borrowers are already resigned to their fate, the bank has limited leverage.

Irvine Home Address … 12 MONTIA Irvine, CA 92620

Resale Home Price … $1,650,000

Home Purchase Price … $2,100,000

Home Purchase Date …. 10/6/05

Net Gain (Loss) ………. $(549,000)

Percent Change ………. -26.1%

Annual Appreciation … -4.4%

Cost of Ownership

————————————————-

$1,650,000 ………. Asking Price

$330,000 ………. 20% Down Conventional

4.78% …………… Mortgage Interest Rate

$1,320,000 ………. 30-Year Mortgage

$333,143 ………. Income Requirement

$6,910 ………. Monthly Mortgage Payment

$1430 ………. Property Tax

$283 ………. Special Taxes and Levies (Mello Roos)

$275 ………. Homeowners Insurance

$190 ………. Homeowners Association Fees

============================================

$9,088 ………. Monthly Cash Outlays

-$1516 ………. Tax Savings (% of Interest and Property Tax)

-$1652 ………. Equity Hidden in Payment

$601 ………. Lost Income to Down Payment (net of taxes)

$206 ………. Maintenance and Replacement Reserves

============================================

$6,728 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$16,500 ………. Furnishing and Move In @1%

$16,500 ………. Closing Costs @1%

$13,200 ………… Interest Points @1% of Loan

$330,000 ………. Down Payment

============================================

$376,200 ………. Total Cash Costs

$103,100 ………… Emergency Cash Reserves

============================================

$479,300 ………. Total Savings Needed

Property Details for 12 MONTIA Irvine, CA 92620

——————————————————————————

Beds:: 5

Baths:: 5

Sq. Ft.:: 4350

$0,379

Lot Size:: 10,000 Sq. Ft.

Property Type:: Residential, Single Family

Style:: Two Level, Other

Year Built:: 2000

Community:: Northwood

County:: Orange

MLS#:: S630641

Source:: CARETS

——————————————————————————

Magnificent And Dramatic Arbor Crest Estate, Resort Like Living, Ideal For Executive Buyers. Fabulous Backyard w/ Boulderscape Design Pool, Spa, Waterfall & Slide, Oversized Bar, Palapa, Built-in BBQ And Refrigerator. The House Features 5 Bedrooms-4.5 Baths, Fully Loaded With Top Of The Line Kitchen Appliances(Sub-Zero. .. ), Center Island & Large Eating Area, Travertine Floors Throughout Downstairs, Surround Sound, Soaring Ceilings & Plenty Of Windows and much much more. Custom Builtins Library/Office And One Bedroom W/ Full Bath Downstairs. Four Bedrooms Upstairs Plus A Bonus Room W/ Quality Carpeting, Extensive Wrought Iron Staircase, Water Filter System etc. .. Professional Interior Designer Touch And Ideal for Entertaining. No Need To Preview.

Home Sales hit 13-year low; unemployment drags on recovery

A combination of him prices and a depleted buyer pool push home sales to 13-year low. The recovery is expected to be sluggish.

Irvine Home Address … 195 GROVELAND Irvine, CA 92620

Resale Home Price …… $469,000

Don't you want to see it come soon,

Floating in a big white balloon

Come give her your own silver spoon

But you never looked hard enough,

It's never gonna give itself up

All you ever wanted to be,

Living in perfect symmetry,

Nothing is as down or as up

Don't you want to see it come down?

There for throwing your arms around

And say “You're not a moment too soon.”

Coldplay — Low

Last August I noted that Existing-Home Sales Sink to Lowest Level Ever Recorded. I'm not talking about some minor slowdown in sales or softening in prices. The current sales rates are very low no matter how it is spun.

Before the Irvine Company cheerleaders claim I am crazy, let me point out they did stop building homes for two years followed by a very slow market testing year before building a modest production run this year. I'm glad they sold them. I hope they build more. I'm delighted to see people in the building industry go back to work. As an Irvine resident, I appreciate the product the Irvine Company builds and the communities they leave behind.

Some contend I am anti-Irvine or some such rubbish because I point out the house prices are too high by historic measures. The results can be seen daily here with the cost of ownership of the individual properties that I profile. Some are at or near rental parity, but the nicer properties are still prices far above. That is the state of the market.

I report current market conditions and analyze how these may impact prices moving forward. I don't set out to be bearish, but the facts are what they are, and beyond faith in the California real estate market gods, there isn't much reason to be bullish on appreciation, and with prices still high in coastal markets, there isn't much reason to be bullish about rental income either.

Home sales hit 13-year low; slow recovery ahead

Source: Associated Press/AP Online

Publication date: January 20, 2011

By MARTIN CRUTSINGER

WASHINGTON – The number of people who bought previously owned homes last year fell to the lowest level in 13 years, and economists say it will be years before the housing market fully recovers.

High unemployment and a record number of foreclosures are deterring potential buyers who fear home prices haven't reached the bottom. Job growth is expected to pick up this year, but not enough to raise home sales to healthier levels.

“We built too many houses during the boom, and now after the crash, it will take us a long time to get back to normal,” said David Wyss, chief economist at Standard & Poor's in New York.

The National Association of Realtors reported Thursday that sales dropped 4.8 percent to 4.91 million units in 2010. That was slightly fewer than in 2008, which had been the weakest year since 1997.

Those are national statistics, but what about California?

California is a big state. Is Southern California having better sales? No, looks about the same.

Irvine is different, right?

The poor year for sales did end on a stronger note. Buyers snapped up homes at a seasonally adjusted annual rate of 5.28 million units in December, the best sales pace since May and the 12.8 percent rise from November was the biggest one-month surge in 11 years.

Gains in mortgage rates may have spurred some fence-sitters to buy homes in December before rates moved higher, analysts noted.

What analysts noted that? Some urgency analyst working for the National Association of realtors? That statement reads like NAr copy.

The increase was an encouraging sign after a dismal year for home sales, said Mark Zandi, chief economist at Moody's Analytics. But he cautioned against raising expectations for a rapid recovery in housing.

The job market is still very weak, and unemployment is very high. Until we get more jobs, people will be reticent about buying homes,” he said.

The housing market cannot recover until the economy does. People without jobs don't buy houses… anymore. With NINJA loans dead, the housing market will not see a new influx of buyers until people get stable incomes. Realistically, even then, it is two years before a new hire qualifies for a loan.

Zandi said home prices would fall another 5 percent this year. Sales of previously occupied homes would likely exceed 5 million. That's a slight improvement from last year, he said, but it will probably take until 2013 or 2014 for sales to reach a healthy level of 6 million units a year.

Home sales will benefit from an improved hiring market. Many economists predict employers will double the number of jobs added this year compared with 2010. A reason for more optimism is a decline in the number of people applying for unemployment benefits over the past four months.

A reason for more optimism? I thought I was reading a news story, but I was really visiting my therapist. I guess internet news is the therapy of the unemployed.

Last week, applications fell to a seasonally adjusted 404,000, the Labor Department said. That followed a spike in applications in the previous week, which is typical after the holidays end and employers let temporary workers go. Even with the holiday bump and this past week's decline, the latest figures were only slightly higher than the 391,000 level reached last month – the lowest in more than two years.

Fewer than 425,000 people applying for benefits is considered a signal of modest job growth. Economists say applications must fall consistently to 375,000 or fewer to substantially reduce the unemployment rate.

Still, the unemployment rate is not expected to fall much below 9 percent this year. And the housing market cannot fully recover until the glut of foreclosed homes is cleared.

Those are the two issues overhanging the housing market. There is (1) a great deal of pent up supply in the form of foreclosures and shadow inventory, and (2) a lack of buyers available to absorb the known supply. The supply and demand imbalance will be problematic until the demand picks up and the supply is absorbed. That will take years, perhaps decades in some markets. If you look at the sales rates and inventories at the high end, the disaster in the making is clear.

Last year, a record 1 million homes were lost to foreclosures, and foreclosure tracker RealtyTrac Inc. predicts 1.2 million more will be lost this year.

Foreclosures or distressed sales such as short sales – when lenders let homeowners sell for less than they owe on their mortgages – are forcing home prices down in many markets. That has made it difficult for some potential buyers looking to upgrade, because they would have to accept less money to sell their current home.

Even historically low mortgage rates have done little to boost the sales.

Low Interest Rates Are Not Clearing the Market Inventory. Low Interest Rates Will Not Create Demand.

The average rate on a 30-year fixed mortgage rose to 4.74 percent this week, Freddie Mac said Thursday. That's up from a 40-year low of 4.17 percent in November. The average rate on the 15-year loan, a popular refinance option, slipped to 4.05 percent last week. That's nearly half a point higher than the 3.57 percent rate in November – a 20-year low.

For December, sales rose in all parts of the country, with the strongest gain a 16.7 percent increase in the West. Sales rose 13 percent in the Northeast, 10.1 percent in the South and 11 percent in the Midwest.

The median price for a home sold in December was $168,800, down 1 percent from a year ago.

Double dip.

The banking cartel members are all in agreement that pushing REO through the system right now would be a bad idea because there is not enough volume to make a difference, and the effect on pricing is devastating. However, each of them will have a different opinion as to when the market has turned and it is safe to process their REO. We will not see that phase of the cartel collapse until volume picks up enough that buyers are available for the lenders to fight for.

Peak buyer gives up after five years

How low do you wait for the market to come back? For many the real question is “how long can they sacrifice and continue making payments while they are underwater?” Perhaps it was an adjusting ARM, or perhaps he simply lost faith in appreciation of Irvine real estate, but for whatever reason, this loan owner is selling short after owning a little over five years.

He paid $643,500 back on 10/20/2005. He used a $514,550 first mortgage, a $64,300 HELOC, and a $64,550 down payment. His asking price wipes out his down payment, the HELOC and part of the first mortgage.

If this property could transact at this price, it would be at or below rental parity. In all likelihood, this property will get bid up higher as the short sale process limps along.

Irvine Home Address … 195 GROVELAND Irvine, CA 92620

Resale Home Price … $469,000

Home Purchase Price … $643,500

Home Purchase Date …. 10/20/05

Net Gain (Loss) ………. $(202,640)

Percent Change ………. -31.5%

Annual Appreciation … -5.7%

Cost of Ownership

————————————————-

$469,000 ………. Asking Price

$16,415 ………. 3.5% Down FHA Financing

4.78% …………… Mortgage Interest Rate

$452,585 ………. 30-Year Mortgage

$94,693 ………. Income Requirement

$2,369 ………. Monthly Mortgage Payment

$406 ………. Property Tax

$307 ………. Special Taxes and Levies (Mello Roos)

$78 ………. Homeowners Insurance

$274 ………. Homeowners Association Fees

============================================

$3,435 ………. Monthly Cash Outlays

-$387 ………. Tax Savings (% of Interest and Property Tax)

-$566 ………. Equity Hidden in Payment

$30 ………. Lost Income to Down Payment (net of taxes)

$59 ………. Maintenance and Replacement Reserves

============================================

$2,570 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,690 ………. Furnishing and Move In @1%

$4,690 ………. Closing Costs @1%

$4,526 ………… Interest Points @1% of Loan

$16,415 ………. Down Payment

============================================

$30,321 ………. Total Cash Costs

$39,400 ………… Emergency Cash Reserves

============================================

$69,721 ………. Total Savings Needed

Property Details for 195 GROVELAND Irvine, CA 92620

——————————————————————————

Beds:: 3

Baths:: 3

Sq. Ft.:: 1950

$0,241

Lot Size:: –

Property Type:: Residential, Condominium

Style:: 3+ Levels, Contemporary

Year Built:: 2006

Community:: Woodbury

County:: Orange

MLS#:: P765561

Source:: CARETS

——————————————————————————

This gem of an end unit has a bright open floor plan with beautiful Cherrywood floors and cabinets and Tile flooring in the kitchen. The bedrooms have upgraded wall to wall carpet. Crown molding and window Shutters add their own elegance. Woodbury is one of the nations finest communities with seven pools, sport fields, tennis and basketball courts, many parks and award winning schools. Walk to the mall with both nationl chain stores and boutique shopping.