The only thing that he is probably adjusting to is living like a king in some Third World Country on his 1MM windfall.

If the Hope Alliance Program gets through Congress which I believe it will not, there is going to be major civil and criminal unrest, if not an outright Civil War, amongst the educated.

This economy and society are walking a very fine line right now.

Back off the street? Yeah, directly into someone else’s backyard!!! But someone’s been drinking the kool-aid again because this is listed as “back-up offers accepted” after only 5 days on Redfin.

At this point it becomes a personal/moral issue.

Would you, as a potential buyer, be willing to pay 1 penny of this poseur’s spending orgy?

Look for a 2000 rollback on this one; easily.

I didn’t weigh in yesterday about the pics.

But I do like them

This one is great for today’s post and I particularly liked the strawman one. 

Thanks for adding some visual humor to lighten up the dark side of real estate.

For this point you’re the best to know how he’ll give.  Luck !

Hello All -

What does the ‘Hope Alliance Program’ apparently being debated in congress now propose to do for the housing situation across the country?  Secondly, what would it mean for OC and Irvine?

Thanks,

BD

You’ve got to wonder if someone around here was smart enough to borrow that kind of money, invest it in the stock market which was up a significant percentage over that time and then flee with the principal and return of well over a million?  I’d be curious to hear if anyone did that or if they all just blew them on the Bentleys I see around here every day.  Every third car around here seems to be a $90,000 car.  Don’t know where everyone gets the money.

I would imagine 2 out of 100 cases of mortgage equity withdrawal was used wisely. If this borrower has any liquid assets, the lender can go after them because these are recourse loans. It would be difficult to invest the money wisely, keep the original million, and keep the investment returns. In all likelihood, this guy spent every penny of his borrowed money to pretend he was rich, and there is nothing for the lender to go after.

I like the photos too (I bet you’ve been saving Dr. Evil just for something like this).

Please keep it up and ignore the wet blankets who tell you to knock it off.

Something so outrageous to be not fraudulent. This case should be sent to the general media and Capital Hill for the legislation debate.

Since Northwood is a small paradise in Irvine, I’ll give it 5% increase compounded every year from 1997 price.

$620k in 2010.

No way in the world this house goes back to $500K.  You have zero understanding of Irvine real estate AZ.  At peak it would have sold for $1.2M probably…  It’s in a highly sought after guard-gated section of Irvine with access to the top schools of a top school district.

It’s worth $900K today and will float down to perhaps $700K, maybe high $600s.

that valuation (700K or so) sounds realistic… but ‘worth $900K today’??? Hate to be a pedant but it’s worth what someone is willing to pay. The asking price is $895K so if you’re right, shouldn’t this thing move fairly soon at that price?

I agree, $500K is never going to happen for a property like this one.

These people didn’t spend this equity to pretend they were rich. 

I toured this house in February while they were still living there…  Modest furnishings, modest landscaping, few upgrades, modest car, modest clothes, modest everything.  The place was a well lived in mess.  Not the style at all of AZ’s buddies the Jones’s.

The family had two young kids and they were trying to get a short sale with rent back option completed so they wouldn’t have to make their kids leave their school during the school year.  The bank wouldn’t bite on $825-850K back then though so they took the house back and now have apparently sold it for more.

Supposedly, the owner owned a business, business started going bad, and that is where all the equity went.

Forgive my ignorance: I’m not a regular on this blog nor an expert in these matters. When I read this post I thought “this guy was making a living from his house,” and that is exactly what you said. Given that, how is the $200,000 a year taxed? Are these straight-up capital gains, or can that be hidden under layers of debt?

This house would rent for $3600-3800 today so a 160 GRM would be $600K…

ROFLOL….

However, remember that some of us read the blog on cell phones and the pictures slow things down.

I call $350K!

What I understand is that the $200,000 itself would not be taxed like income; however if the homeowner deducts the interest on those 2nd mortgages but does not use the proceeds to make improvements to the house, the IRS can disallow that interest deduction. I also understand that in practice, the IRS doesn’t usually go after people for this. If someone knows differently, please correct me…

It’s already in escrow.  At $895K it took four days to get under contract… 

Before it went back to the bank they had a bunch of offers at $825-850K, mine included but they wouldn’t budge off the $900K figure.

fascinating. Thanks for sharing. I wonder what kind of business it was, that hundreds of thousands of dollars could not keep it afloat. Imagine the stress of not only having a failing business, but also knowing that the house was on the line… talk about a double-down!

Homes in nice neighborhoods always go for a higher GRM because people think they will live there forever…so they don’t consider the cost of selling. I would say 200 GRM on 3600 rent or 720K. Still 20% more to go.

I’m so old I remember when bank robbery used to be illegal.

OK you were right

At a business meeting yesterday we were discussing the economy. While we disagreed about the general situation - some of the people present insisted that things wouldn’t be so bad if the media would just shut up about it, I thought that was a silly notion and that a lot of disposable income has disappeared from the economy due to the closing of the housing ATM - we all agreed that the wealthy will always have money.

Perhaps that’s the situation here - the home is in such a desirable location, and occupies a niche of the market where potential buyers are far less affected by the mortgage industry crash-and-burn.

With just a couple of full time employees it’s real easy to burn 100K/year more than revenue if things go just a little bad. I know from experience. So 200K/year is not unreasonable. For those that want some schadenfreude, they probably didn’t pay taxes over those years because of the business losses. So now they’ll have a really big tax bill for the debt forgiveness.

Does anyone know what the HOA dues are in this neighborhood?

The sniff test on this place puts it at slightly above median. SLIGHTLY.

Your median house prices are on course for 400K to 450K.  If this place is only slightly above median then I would expect to see it bottom between 500K to 550K.

$145.

The guy who pretended to be wealthy by spending his home equity just lost this house. The wealthy will always be wealthy because they don’t do stupid things like today’s borrwer. As long as those who want to pretend to be wealthy are attracted to Irvine neighborhoods, REOs will continue to be a problem taking down home values.

it would be fascinating to know what kind of business this owner ran.  That is a lot of money to waste on a failing business though.

It’s said that the way to make a small fortune in some businesses is to start with a large fortune. $1 million isn’t a large fortune nowadays, but I wish I had that much money.

Business goes bad?  What do you do? Sink your house at the same time.

Nice move!

in our rush to enjoy our smugness and schadenfreude, it’s good to remember (as we were reminded recently here) that there but for the grace of (God/Allah/Fate) go I. Ipoplaya reminds us that this was not a case of some schmuck cashing out his equity and then some in order to live large; he was trying to prop up a failing business.

I’m a sole proprietor and I’ve had both thick and thin times. I don’t know that I would have borrowed heavily against my home in order to stay afloat, but during the thin times I did indeed tap my HELOC (lightly), which was a far smarter choice than stubbornly refusing to use it to stay afloat and instead selling the house. It was a smart choice then and I would do it again now, up to a certain limit of course.

I can see something like this happening even to responsible people who would never dream of blowing that money on bling, vacations and cars.

What about the taxes. Refinanced basis should be showing a serious tax hit for the short.

That, bu the way, is $200K per year tax free, Almost $350,000 of taxable income in my neck of the woods nets one $200K

It’s on the redfin site.  $140+30 if I remember correctly

In theory, the borrower would need to pay some capital gains taxes on the sale of the house, even in foreclosure. Also, the tax exclusion for the foregiveness of debt only applies to purchase money mortgages. All the refinances are not exempt. He will be responsible for the income taxes on the $650,000 of forgiven debt. My guess is he will not claim it and see if the IRS catches him.

It’s well above the median.  It’s 2650sf detached 5-bedroom (although it really should only be four) on a good lot, on a nice culdesac, in a great guard-gated neighborhood, with access to great schools.  It’s located far from any freeways or major arterial roads and is relatively new construction as compared to much of Irvine.  This is a house for perhaps the top 20% of Irvine demographics.

If a business bleeds that bad, don’t you think he’d shut it down.
This dude pulled out massive amounts of money.
Can’t believe it all went to save his business.
There’s got to be more to the story.

In hindsight, yes it looks stupid; I am certain that if he had known in advance it would not have helped, he would not have done what he did.

On the other hand, would he have been smart to just give up? I would not be where I am today if I had simply given up when the odds looked long and people around me were trying to discourage me from attempting something difficult.

In response to the question about the “Hope Now” program, here are a couple of links:

http://www.whitehouse.gov/news/releases/2007/12/20071206-7.html

http://www.msnbc.msn.com/id/24261001/

Don’t trust the info on this listing…  Dues are not that high. 

The realtor shorted the square footage by 350 feet as well.  The house is 2650sf, not 2300sf.

Some lamea$$ REO specialist got lucky enough to score a premium property and is going make big and easy commissions…

Am I right that some lending officers at banks, mortgage brokers etc. made a nice packet on all the refis, 2nd mortgages, HELOCs etc.? Because this seems like a case where the intersts of the lending officer and the bank/provider of capital were very different, almost contrary.

Listings says 2300 sf. 5 bed in 2300 sf - a little tight, isn’t it?

OK - I’ll have to concede to you on that since you have seen it and I have only seen a picture of a kitchen (which seemed average at best).

If it is the case such that the top 20% wage earners will live in this neighborhood then I can see your high 600K to 700K estimate.

When consulting services ground to a halt as a result of the acqusitions of both JD Edwards and Peoplesoft a few years ago, the owners of my company sunk multiple millions into my company to keep it afloat.  Sometimes you need to spend money to keep from spending more, and you definitely need to spend money to make money.

Someone exacted a fee for every last one of those loans.

Why aren’t they being seen as opportunists as well?

The brokers’ eagerness to lend (and collect a fee) needs to be taken into account.  The banks that bought the multiple mortgages (doesn’t say how many are involved, but I’ll bet there’s more than one) didn’t do their homework, because the fees were looking too good, I’d wager.  After all, with bundling and all, the ultimate bottom line wasn’t the concern of any broker who facilitated the loans.

The desire to collect fees for each transaction needs to be taken into the account.

It stuns me this is not considered Fraud.

The actual square footage is 2650, not 2300.  The listing realtor is a moron…

He will be responsible for the income taxes on the $650,000 of forgiven debt. My guess is he will not claim it and see if the IRS catches him.

Two questions:
1. I understand what you’re saying is that the $650,000 (or whatever the owner netted from the refinancings above the purchase price) is taxable as ordinary income. Is that correct? What if some proceeds of refinancings went to interest payments; is it deductible then?

2. I’m guessing that bankruptcy is in this family’s near future, unless the business suddenly turns around now. In that case, who is the senior creditor, the IRS or the bank? Never having been a homeowner myself, I’ve heard that these HELOCs and such are secured only on the home, so the bank should have no more claim on the family after the sale goes through. Is that right?

With the new bill passed (debt relief act of 2008), debt forgiveness is not taxed at the federal level.  At the state level, it isn’t if it is a result of insolvency.

Check your local bankruptcy attorney for confirmation.

legal disclaimer: I am not a practicing attorney.

Whoever is making fees from all those refinancings and Helocs got wealthy.

Thanks for the Finance 101 lesson, Prof. Ipop
This guy’s business was no where near that level.
He probably owned a small business not Western Digital.

awesome pic for the post

Well, I think your argument is presenting a “false dilemma” being

Either:

1.) I take money out of my house and put it into the business.

or:

2.) I give up.

Are these REALLY the only alternatives?  Most likely not.  The home equity money was just the “quick and easy path”.

First of all, what is a picture of my kitchen doing up there? There will be consequences!

And speaking of Home Equity Lines of Credit, around here (Moosehall) we call them HELOC-Davidsons.

Go ahead, ask the man who owns…I mean, is paying for one. If you dare!

Ref: “if someone around here was smart enough to borrow that kind of money, invest it in the stock market which was up a significant percentage over that time and then flee with the principal”

That would be me, except I didn’t “stiff” anyone, just sold to a bozo who had 100% financing (sold at the top of the market, which I agree was somewhat-lucky).

Cash went into TheCheetoFund (don’t look for it on the web) which returned 66% in 3 years

Extremely unlikely I’ll ever own again. I’m a happy (so far) IAC renter…

Of course this was fraud. Not fraud on the banks part but on the loan originators part. Methinks the owner used the same company over and over again or was in the biz to begin with and ran the deal around to different banks.

Me: in the lending business for 22 years. All things are possible, but not all things are right. Someone should have said “No” and this house of cards would not have grown like this.

If I am anything, I am an educator!

The name of the owner is pretty easy to find. Appears to be a Tech/IT person. The laundry list of lenders is: Long Beach (sub prime), New Century (sub prime) DiTech (2nd) Wells Fargo (twice) WMC (sub prime) First City and a couple of other names I’ve not seen before. Ahhh the days of stated stated cash out…now come and gone.

With no insult or disrespect intended towards Az’s other posts but the pictures are priceless.  Great work!

And thanks for the daily chuckle.

I was hopin’ for frickin’ laser beams.

We’re using a pretty low bar to determine “value” here aren’t we?  It may have sold for $895 this week but who wants to bet it holds that value over the next 24 months?

Cash only bets please.  Put up or shut up.

I’m not defending the $500K valuation only pointing out that buying price right now isn’t all that meaningful.  It could very well be in 12 months that this sale will have gone south as well when this buyer finds their $895K purchase is only valued at $800K (or less).

At that time, what will the justification be?

Oh come on, David.  I’d like to see you argue the value of a house you’ve never seen with the guy who almost bought it.  Surely you know better than ipop what the house is worth.

People should own houses that they can afford in both good and bad times. Not that this applies to all the houses profiled on the site, but it seems a lot of people buy whatever they can eek out in optimal employment/market conditions.

If more people bought smaller houses and less expensive cars, they’d have more to save for bad times. I know, I’m naive and the So Cal market is different. But there are a lot of people who simply buy a lifestyle they can’t afford, which makes small bumps in the economic cycle harder to survive. That in turn forces people to get second loans and HELOCs.

Ipop,

Earning a technical certificate along with your career in HVAC maintenance hardly qualifies you as an educator. (Insert Smiley)

Lots of small business owners use their home equity to start up and fund their businesses.  It’s easier to get than a business line of credit (which often has to be personally guaranteed anyway).  In many ways, this is commendable.  They are truly betting everything they have on themselves, their skills and their dreams.  It’s that kind of appetite for risk that has made America great, and it’s folks like that who deserve a second chance when things don’t work out.  Thanks, ipop, for sharing what you know about this family.  They have my sympathy and best wishes as they get started on the next phase of their lives.

I’m not a tax lawyer, but I’ll give you 2-to-1 odds that the IRS is always the senior creditor!

The fact that its gone into escrow means nothing. What would would really impress me is if this house CLOSED escrow.

You probably got some eager buyers still thinking they can get 2006 financing combined with a very desperate relator. (I wouldn’t be surprised if the relator is fibbing that its in escrow to try to stimulate buyers) If this is legitimately in escrow, I’ll bet you their financing will fall through.

I like the pictures too!  Unfortunately, everyone keeps talking about the straw buyer pic, but it was broken for me when I looked.  I feel like I really missed out. : (

I’m assuming that “Don’t know where everyone gets the money” was rhetorical.  This whole blog is about where everyone gets the money. : )

It’s on the Internet/MLS, it must be true…

You mean we have to live within our means?  What’s a foreign concept for us Americans.

IR,
This is off topic but I thought you might want to profile this one if you do off-Irvine properties in the future.

A WTF prize candidate?

http://www.redfin.com/CA/Stanton/11063-Kibbins-Cir-90680/home/3630422

They want 449,000 for a 2 bed, 1 bath 870 ft condo. They are not even drinking Kool aid anymore. They are now smoking kool-weed.

AR

The realtard sucks so bad she can’t even spell the address correct on Redfin…3 Green Holw…WTF!?! Another HS dropout turned RE Pro.

Quote from the post: “How can I get a lender to give me $1,000,000 that I don’t have to pay back?”

Sorry I’m new to this. Can someone please, explain this to me? Does he owe money he was loaned? How is it that he doesn’t have to pay it back?

That was my thought exactly. When reading through the refi history I was thinking about how much money loan officers made off of this guy.

But it’s in Stanton.  Surely that counts for something.

Yeah, when ipo told this guy’s story, I didn’t feel bad for him, at all. If his business really was failing, and that is why he kept pulling money out, then he was lying big time on his application. Do you know how much income he would have had to state he was making from his self employed business to qualify for those loan amounts? Lenders should have looked at the refi history on this guy and realized that his stated income was BS, I bet he was stating he made 50k a month on his 1003. But then again, gardeners and house cleaners with no advertising were stating 12k a month and qualifying for 500k loans, no problem.

I’m afraid AZ Dave’s got the upper hand.
The fact that Ipop almost bought this place is a huge strike against him and his self-worth.
Not to worry, the old Ipop is gone.
Since I came along the new Ipop has since raised the bar for himself and his family.
“Northpark or Bust” has become his new mantra.

Disclaimer: Based on other comments, the following does not appear to be the case here.

I have heard, but cannot personally confirm, that people have used HELOCs/refis to hide assets from estranged spouses, business partners, etc.  It is something I think about whenever I see very large seemingly unexplainable withdrawals.  I’m not sure that it would actually work very well, but I can see why someone would try it.  Take out the cash without the other party knowing and hide it in some sort of LLC, etc.  I have also been told that there are websites that explain how to do this, but I don’t have the stomach to seek them out to confirm.

Modest everything but the house.

If this family had bought something for $500K, they might still have their home AND their business. I have a feeling that part of the reason the guy was having business problems was that he was taking too much money home to service house debt. He probably believed that the house would make him better returns than the business.

Now he knows better.

Boy, you really are new to this…

The $1,000,000 represents the sum total of the value of the home equity withdrawals (HELOCs - google this).

I have to go with tenmagnet on this one. I have a hard time imagining a guy would have bet this heavily on a losing business.

I am not an attorney, so this may be incorrect, but my understanding is as follows:

HELOCs, like all recourse debt, is secured by whatever assets the borrower has. Only non-recourse debt from purchase-money mortgages are limited to the value of the home. It gets a bit more complicated than that with judicial versus non-judicial foreclosure, but in this case, the debt forgiveness of $650,000 would be taxable. Also, even with the foreclosure sale of $900K and the $250K exemption, he would also have a capital gains tax on about $150K.

I was thinking the same thing when I read through the property records. I was thinking he may have been a mortgage broker. Somebody made some major fees.

He technically does owe the bank repayment on all this money. Since his only real asset was likely the house itself, it is unlikely the bank will ever collect.

Same weak argument offered on this blog many many months ago.  It’s BS.  90% of Irvine escrows result in a closed sale…

All you need to do is look here for the empirical evidence:

www.ipoplaya.com

Your conclusions are completely baseless.  Irvine buyers are putting over 25% down typically and lenders are still more than willing to lend to buyers with less than 80% LTV.

Banks don’t accept offers from poorly qualified buyers.  They normally want to proof of 20+% down payment before they will even counter.  Get a clue Chris… 

This place will sell

Indeed, you are correct ten.  I got a call before this listing hit the market last week inquiring as to my desire to re-offer.  I declined.  I have seen the Ten Light.

You might want to modify that to Northpark, Woodbury or Bust.  Lots of potential trophy places on the market in WB and none moving…

That’s a nice looking house AZ.  Needs a 3-car garage though…  That is one prob with Green Hollow, lack of 3-car garage to hit the toys!

That is just what I heard.  I can tell you the cash for sure wasn’t spent on furniture, finishings, upgrades, etc. as the house did not appear to have any cash put into it since the 2000 purchase.  This was not a show house at all.  No plasmas on the walls, no distressed wood flooring, no stainless…  I don’t think this was a case of conspicuous consumption.

My years at DeVry have served me well…

He can just go BK and wash that all away…

Given a $1m + debt and payments in the $8k per month range, you’d have to state a $20kpm income and state a $100k bank balance assuming no debt. Clearly a serial refinancer flag should have gone up. It’s possible that some of the loans were business loans instead of standard helocs. I’ve seen 1st, 2nds, with a business loan 3rd behind them all. There is always a greater fool than the one that came before the 1st lender.

If the owner experienced his business problem during a time of decreasing home values (like right now), then he would not have been able to take the gamble to save his business.  He would be living with regret because he would be thinking “what if I could have funded my business just a little more.”  Now he absolutely knows that his business realistically couldn’t make it.

The story illustrates the new economic climate we are entering because small businesses that do just need that extra cash infusion will not get it and will die on the vine. 

Tough times ahead.

Nice article on Ladera (probably better off in the forums).

http://tinyurl.com/5oa6ap

I don’t know the legal particulars, but I do know this: If he is legally liable to pay back his loans, you can bet your bottom dollar that someone will go after him.

I’m guessing there will be a new industry of “Equity Extractor Bounty Hunters” who will buy up bad loans at a discount and then pursue these people.  There will be an abundance of employees familiar with the industry looking for work, i.e., loan officers who originally sold the loans!  Heck, I heard that Indian call centers are now being used to track down deliquents and work out payment plans!

Where there is a source for money, there you will find people working to get it.  This maxim will always be true.

The Manleys, for example, can afford to snap up a house that was out of their reach just a year ago

That’s good news.

if only they could get out of their current place.

That’s not a problem. Just set the right price.

Manley won’t slash his price, he says, “out of respect for the neighborhood.”

Oh… that is very manly of him.

I know these people, and IPOP is completely correct.  He tried to start his own business, and the money disappeared.  (It’s a hell of a lot, I realize.  I was shocked to see this today!) They both drive cars which were made in the 90’s.  Poor kids.

Ultimate probably not one thing, just too much of this, which i got off of a bloomberg article linked thru patrick

The Las Vegas housing-market crash represents a turnaround since 2003, when the local economy and real estate were booming.

``If you had anything on the ball, you could make it happen in Vegas,’’ said real estate agent Donna Marie Gold, 62, who built a $4.5 million fortune buying and selling properties over six years.

After failing to complete a single sale last year, Gold said she fell $22,000 short each month on payments needed to maintain 14 properties. Now two to four months behind on some mortgage payments, she’s lost access to a $250,000 Wells Fargo & Co. equity credit line.

`New York Minute’

``The whole thing was upside down in a New York minute,’’ Gold said. ``There needs to be some forgiveness in this climate with regards to credit and rebuilding one’s credit.’’

there needs to be some forgiveness, i was a $4.5 million big shot,

puh-leeze, I mean what can you say?

Ding ding ding!  We have a winner!

I also seem to remember in the IRS rules (and this is before the relief act) that debt forgiveness is not taxed if you can show that you are insolvent. In that case, he probably would have been better off just spending the money and having a good time rather than trying to be a productive member of society.

Work hard, invest in education, make money, get taxed at highest marginal tax rates.

Sit on butt, wait for house value to go up and sell, no taxes for first 500K. Just to make sure, withdraw equity every year so that you have something to live on and don’t worry about prices going down.

Who is the idiot?