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I’m flabbergasted, IR. Day after day you provide us with staggering examples of HELOC-abusing idiocy and thievery in our very own Irvine. Is there no limit to the stupidity?
I think the word “stupidity” isn’t exactly correct. The word I would use would be “greed”. As for the question if there is a limit on greed, the answer would be no.
I think this HOA/condo-dues problem has already hit Florida. You can get 1000 sqft condos in good school districts for < $30k. At that price, your PITI cost is maybe $200/mo, but your fees can be up to $250-300/mo (or more, one I checked was $286). And that’s just what they’ll tell you. The story of unpaid fire insurance has to somewhat resonate with FL. Imagine if there’s no hurricane insurance, and there’s a year like 2005 where there were at least 4 big storms that went through FL.
Some of the units in FL appear to me to be rental-to-condo conversions, which I would think the best course is for someone to buy all the units and convert them back to rentals.
This is also probably a reason why the GSE’s have requirements about % of a condo building owned by one person, or sold to paying residents. If you get tacked with a massive assessment, how much extra will you have to keep up with the GSE’s mortgage payment?
We are starting to see them hit condos in Orange County too. There are numerous complexes that will soon only be able to sell to all cash buyers because they are not financeable. IR and I spoke about this over 18 months ago; it’s only a matter of time. Many of these have already corrected as a result, however, still remain risky because it’s nearly impossible to tell if the correction is enough.
However, for some reason politicians are still proud of their policies that only plan for one step ahead and often make the problem worse. They need to start speaking with people that are in the trenches. I spoke to a guy yesterday that told me about some new Fannie and Freddie pilot programs that will make current bad policy sound genius. IR should be meeting with the source soon, hope he can bring them to light.
I think this HOA/condo-dues problem has already hit Florida. You can get 1000 sqft condos in good school districts for < $30k. At that price, your PITI cost is maybe $200/mo, but your fees can be up to $250-300/mo (or more, one I checked was $286). And that’s just what they’ll tell you. The story of unpaid fire insurance has to somewhat resonate with FL. Imagine if there’s no hurricane insurance, and there’s a year like 2005 where there were at least 4 big storms that went through FL.
Some of the units in FL appear to me to be rental-to-condo conversions, which I would think the best course is for someone to buy all the units and convert them back to rentals.
This is also probably a reason why the GSE’s have requirements about % of a condo building owned by one person, or sold to paying residents. If you get tacked with a massive assessment, how much extra will you have to keep up with the GSE’s mortgage payment?
The kitchen eating area addition has resulted in a very odd patched-in floor, complete with transition strip effectively visually cutting the island in two. There appears to be a dishwasher to the right of the sink; what’s missing to the left of the sink?
“what’s missing to the left of the sink? “
Thats your very own cubby hole! So now, you’ll have a place to put those pesky, rowdy children who misbehave, or have hyper ADD.
2nd dishwasher? Wine cooler? Probably trash compactor (for anyone who remembers those things).
Wine cooler seems the best guess. A trash compactor is narrower and that is definitely not a two dishwasher kitchen.
Seriously, who would patch a floor that way instead of removing planks and and fitting more in?
If they get the 659K price, they will likely break even after commisions/closing costs. If they put any significant money in for upgrades, it’s red ink time.
Two years later, there is something special about the Irvine market and other premium areas It’s time to try to understand the dynamics of high income earners and people with assets.
You can ignore it, but it won’t go away. Double digit pay increases are a nice thing.
What is the evidence that there has been a significant demographic income shift in the last few years in favor of these premium areas you speak of? Show us the numbers.
Not that it matters anyway. Clearly if demographics were the explanation, we’d have seen it show up in rents. Which we haven’t.
No one is ignoring the differential price stickiness. It’s just that some of us have explanations that make sense, and some of us have explanations that don’t.
Planet, keep dreaming that your average Irvine “premium area” homeowner gets double digit pay increases every year, especially in this economic climate. Most of these homeowners are upper middleclass and are very fearful of either losing their jobs or having their businesses go belly up. Don’t mistake some working stiff in Irvine with the Wall St. elite or the Silicon Valley wizkids…there’s a big difference!
Irvine *USED* to be filled with “middle class” people….about 20-30 years ago. While some of these have managed to survive and flourish in So Cal, most have cashed in and left. The new residents are primarily indeed DINKS, foreigners, and high income earners.
You have to be in order to afford the prices Irvine commands…..and it will get worse. If the new HOAG hospital that serves the upper elite class is any indication, there is no 4th floor in the hospital, thus indicating a HUGE influx of chinese who believe that the number 4 is bad luck.
There are so many foreigners, your local hospital doesn’t designate a Floor 4. Hellooooooo, anyone waking up out there?
Unlike many of you, I believe both PR and IR can be correct. Irvine will maintain it’s pricing standards through the Elite Class, and Las Vegas will turn into a money making market due to extremely low rents. This is the way the banksters want it…to further divide those whom have, and those whom have not.
A new America is upon us, and the fear factor still dictates people’s minds. Hell, you still find people that believe the wars in Iraq and Afghanistan are just and about freedom…LOL!!!
Hi all, I am a long time reader of this blog and I need some advice. My husband and I want to buy a home. Here are the specifics.
annual salary: 78k (stable job)
current rent: 1650.00 FV
family: 2 aduts 2 children
house price: 395k
city: West Garden Grove 92845
down payment: 80k
left in savings: 30k
401K: 32K
college funds: 7k
rental price in area: 2100-2500
commute time: 10 minutes
additonal debt: 0
What do you all think? Should we go for it or wait? I don’t work but plan on getting a job next year. I want to buy soon so we qualify for an MCC, that will be funded in January, which gives an additional tax credit of 15% on interest paid for the length of the loan. Schools on the west side are good and comparable to their current schools.
Hi Shannon—- my email is Shevy@idealhomebrokers.com, if you want I can create an IHB report that will show you rental parity, the fundamental value, and will give you a clearer picture, please let me know and I will get the specific address if you have one and then we can meet and discuss the pros and cons for your specific situation.
I think you should go for it. Home ownership is great compared to renting. Also, think about the long term future. One day you could have no mortgage payment at all, I can tell you from experience its great. On the flip side I know people who still pay rent and they are older…than me, thats no fun. You plan on working forever?
Hi Shannon. Before you buy, please consider that maintenance costs about 1% of the purchase price annually. You also need to have at least 6 months’ worth of savings in case that stable job evaporates, or you’re unable to get a job that pays for itself. I’m concerned that you don’t have much saved up for retirement. If you use your savings for a downpayment you have absolutely no cushion.
Please wait - save up more money and eventually you’ll find a house that’s priced at 3 times your annual income, which is a sustainable debt level for most people.
Good luck!
Great points NorCal, when I first read it I thought it was IR.
Thanks for the great advice. We will still have 30k left in our savings after we use 80k for the down. I think we will start making low ball offers (370) on houses that have been on the market a long time and see who bites. I won’t fall in love with a house. To me I like the area and any house will do. This could give me a leg up emotionally when making offers. Since we are rentng I am not locked into a contingency. We are already pre-approved. My husbands work is very stable and going through an expansion. Also, i don’t work but will be looking next year. This should give us an opportunity to increase our savings. I’ll keep you updated.
IR,
I remember once that you did profiles on various neighborhoods of Irvine. How about doing a profile on various Irvine HOA? For example, you can inform your readers what to watch out for, what indicates proper reserve amounts, and what is considered serious HOA “gotchas.”
I wish I had more information on them, but the HOAs don’t make their reports publicly available.
How do you know the current owners made the improvements? Maybe Ms. Ponzi did.
I don’t care who made the improvements, I still would not offer then one nickel above what they paid for it. Screw them.
When an HOA forecloses on a delinquent property the proceeds from that sale are used to pay off the delinquent dues. So your “tens of thousands” of HOA dues are easily paid of with the sale of a single unit.
I don’t think it is that easy. At this point, as referenced in the blog, the HOA’s are at best 2nd, and generally 3rd in line so they get very little (or nothing if the loanowner is under water). An equity owner would have to be a complete idiot to get foreclosed on by his/her HOA before selling themselves. But….as we see here daily, no shortage of idiots.
“The proceeds of the sale”? The HOA is a JR. lien normally not even in 2nd position. When the 2nd forecloses, often over a year after the person stopped paying the HOA the lien is wiped off the property. If the property has equity, you are correct. However, a majority of these units that have back HOA’s have no equity, the first is underwater let alone the 2nd, possibly 3rd, and the HOA lien which is normally not even in 2nd position.
I have lived under two HOAs since 2007. In neither one am I aware of any back dues being recovered after foreclosure. Before the prices peaked, it did happen, but there were so few foreclosures during that time that those were simply people too stupid/lazy to sell after a job loss.
After the crash? Forget about it: the HOAs simply pray for new, dues-paying owners.
HydroCarbon- I believe that your experience is the most common. This is why many of the loan mod programs, the squatting, and the banks refusing too or claiming they are too busy to foreclose is unfairly hurting responsible homeowners in these associations.
The foreclosure process is in place for a reason to get those that don’t pay out and get paying people in. The moratoriums and mod programs serve to hurt the responsible and once again prove that our leaders are too near sighted to see more than one step ahead. Imagine if all of the owners in these condos understood that the politician that is promoting themselves as saviors that pushed for moratoriums or loan mods played a huge role in the additional $150 in HOA dues they are paying and $50,000 in lost value because as a result properties in their communities will now only sell to all cash investors?
What other choice does an HOA have?
I don’t know? Maybe cut spending like the rest of us. These HOA’s are like little governements who spend what they don’t have. Then they scream “raise dues” its not fare. I think these higher dues hurt homes values as well.
Most HOA officers are elected by owners, so you need to perform due diligence when you vote. Additionally, a lot of expenses are mandated by law. Until you’ve seen your associations reserve report you don’t really know how extravagant the HOA is being.
And it’s hard to say how exactly the HOA fees affect property values. High fees for a well-maintained place could well be better than low fees for a dump.
Does it affect the HOA’s lien status if the HOA has been diligent in suing the debtor for unpaid fees?
How does this Nevada law work on short sales?
By not wiping out HOAs and allowing add-on collection/legal fees… I think this makes it a barrier to buy distressed/foreclosed property in Nevada.
You just offer less at auction. If you think the place is worth 150K and it has a 5K claim on it, don’t offer any more than 145K. Shouldn’t matter if you are paying cash. The only ones it would affect are people trying to 100% finance who can’t scrounge up a few grand.
Yes, I simply lower my offers at the auction site because I know I will need to pay the fees later.
Why not go ahead and foreclose if you are the HOA? 1) you get rid of the person who isn’t paying HOA fees. 2) Bid on the property at auction since the likelihood of someone else bidding and taking the property subject to the mortgage is next to nothing, or cover your HOA delinquency if someone does purchase. 3) Lease the property out to a renter who can at least cover your HOA fees (below market rent baby!). 4) If the bank does foreclose, great, now they can resell it to someone who can afford the property and the HOA fee.
Sure, the renter under the above scenario runs the risk that a bank foreclosure will force them out of the home in a couple of months (with what is likely a nice cash for keys payment to the renter), but a below market rent (covering the HOA fees) might entice renters and maybe even start generating extra revenue for the HOA.
Unless the debt encumbrances and tax liens on the property are 15% less than the value, there is nothing for the HOA to go after.
The HOA is last in line at the lien trough. Since virtually all non-dues-paying debtors are underwater anyway, there is no reason for the HOA to bother.
I’m not saying there is anything to go after other than a way to legally evict the non-fee paying homeowner. Even if the HOA is 14th in line, why not foreclose on that interest and evict the homeowner? You will take the property subject to the senior liens, but if the bank isn’t interested in foreclosing, why not rent the property out in an attempt to recoup HOA fees that are otherwise down the drain?
Take the Korean Towers, for example. Evict a non-HOA paying owner and take the property subject to the senior lien holders. Rent the property out to someone for $1,000 a month (or, if you are ambitious, $1,500 a month). You cover your HOA fee that otherwise wouldn’t be paid. If the bank comes to actually foreclose (how many of these have gone to auction in the last 3 months?), the renter will still have time in the unit until the bank can secure an eviction. Does it suck that the renter can be ousted? Yes. Are there some renters that would make that trade for drastically reduced rent? I’m sure there is. Especially when they could probably just float from unit to unit in this building…
An interesting idea. Does the HOA have the standing to evict someone from a property to which the HOA does not hold the deed? My own HOA is a co-op, so there’s explicit group ownership of every unit, and the HOA does indeed have the power to evict. Perhaps that’s why we have few unpaid dues. But I don’t think North Korea Towers can evict someone who holds the note, or whose bank holds the note, until that bank decides to act.
Corner office, I think that this is a good and valid option and point. I recently read some court cases in Florida in which the banks were forced to pay HOA dues. I’m pretty sure that IR wrote about that in a post a few months back as well.
I know of a few instances in which investors have acquired the property through foreclosure by the HOA at and took possession and either leased it out or moved in. The deals like this that I have seen still had solid return for the person that acquired it this way because the banks are taking so long to foreclose.
I have also heard of people acquiring through HOA foreclosure subject to sr. liens and then moving in and not paying these knowing the banks will take months or years. I know of one in N. Tustin that the guy acquired the property through foreclosure when the HOA brought it to sale. He’s been living in a million dollar plus property for the cost of the back HOA dues when he acquired it and likely he’s keeping those current but nothing else because it’s in foreclosure. However, to delay the process he had it listed as a short sale. Likely he will live in the house for over a year for less than 1k/month.
“Now if one studies history one finds out that the Federal Reserve was formed to prevent speculative panics, to maintain the value of the dollar, to preserve the purchasing power of the consumer, and to responsibly manage the nations money supply. Has an organization ever strayed as far from accomplishing its goals as the Fed?”
Walter Zimmerman - Senior Analyst at United-ICAP
Dollar is strong and house prices/economy are bouncing back.. Mission accomplished FED.
Famous words: “Mission Accomplished”
I’ll see your “unintended consequences” and raise you “negative externalities”. That’s the true title of this debacle.