Crazy Life ** Update 1 **

This property just reduced its asking price from $849,000 to $699,000. The lender is going to eat another one…

Living the crazy life: Wasn’t this the best part of the housing
bubble? People got to live well beyond their means as their house
served as an additional wage earner. In fact, it was even better than
having another wage earner because there were no taxes taken out with
the HELOC. It was literally free money. Today’s featured property shows
just how this works.

12 Capistrano Kitchen

Asking Price: $870,000IrvineRenter

Income Requirement: $217,500

Downpayment Needed: $174,000

Purchase Price: $840,000

Purchase Date: 4/02/2004

Address: 12 Capistrano, Irvine, CA 92602

Ricky MartinUpside, inside out she’s livin la vida loca
She’ll push and pull you down, livin la vida loca
Her lips are devil red and her skin’s the color mocha
She will wear you out livin la vida loca Come On!
Livin la vida loca, Come on!
She’s livin la vida loca.

Living La Vida Loca — Ricky Martin

Beds: 4
Baths: 3.5
Sq. Ft.: 2,600
$/Sq. Ft.: $335
Lot Size: –
Type: Single Family Residence
Style: Contemporary/Modern
Year Built: 2002
Stories: Three or More Levels
Area: Northpark
County: Orange
MLS#: P600579
Status: Active
On Redfin: 57 days

From Redfin, “Largest Alder Creek Model. Two master suites. 2nd master suite with french doors & bath. 4 bedrooms and 1 large loft that can be coverted to 5th bedroom. Beautiful dining room decorated with custom wallpaper, a spacious living room with custom hardwood floor. Upgraded kitchen countertop & stainless steel appliances. More trees than other comparable properties. Offering the best price among other similar properties for sale and in NORTHPARK! “

More trees than other comparable properties. What? There are no mature trees shading this house. Did they plant a bunch of saplings in the back? This is crazy.



This is not a rollback yet. Although, it probably will be before it sells. What makes this property really interesting is it clearly illustrates a HELOC implosion.

When this seller purchased the property back in 2004, they paid $840,000 and they borrowed $650,000 putting $190,000 down. So far so good. In December of 2005 they needed some kool aid for a Christmas party, so they took out a HELOC for $150,000. Fast forward one year, and in December of 2006, they threw another kool aid Christmas party and took out another $90,000. They now have a total of $240,000 on their HELOC and a total debt of $890,000 on their $870,000 house. Despite the large downpayment, they are now underwater and having a short sale.
This house provided them with the median income in Irvine for over two and one half years.

As I stated earlier, they actually did better than that. To clear $90,000 a year after taxes, you would need to make closer to $140,000 a year in salary. Their house was earning $140,000 a year!

Assuming this seller was employed, their house was likely earning more than they were. Graphix has done some great work on the problems with local employment figures, and others have noted the dropoff in income from non-W2 workers like realtors and some mortgage brokers. Another hidden impact on the local economy is all the houses that have been put out of work by declining prices. Calculated Risk has done extensive projections on the Mortgage Equity Withdrawal phenomenon. The charts and graphs are pretty and informative. However, it is seeing individual people with properties like today’s that bring these lofty concepts into sharper focus.

How many lost jobs, lost commissions, and lost equity extractions can our local economy take? IMO, we are already in a recession locally, and it will get much, much worse.



When I saw the street name Capistrano, I thought to go a different direction with this post. I just couldn’t get the Ricky Martin song out of my mind. For those of you who have different tastes, here is the song I didn’t use:

When the Swallows Come Back to Capistrano — Pat Boone

52 thoughts on “Crazy Life ** Update 1 **

  1. Mike Jenkins

    I like the blog, but here’s my peeve about the constant use of the term “rollback” for return to 2004 prices:

    I remember in 2004 people talking about how there was a real estate bubble in some parts of the country. There was talk about how it was risky to buy, etc.

    Now, if prices are back to 2004 levels, it looks like that talk was wrong. Prices went up and back to where they were 3 years ago. Buyers in 2004 have broken even.

    Where’s the commupence (sp?) for the speculators and mindless buyers? When are the rest of us gonig to get to feel some schadenfreude?

    2004 price levels are not acceptable. I want the prices to fall to 2001 levels, to teach those dumb real-estate-always-goes-up types a lesson.

  2. lee in irvine

    It looks like another family being displaced by stupidity. This problem of home equity extraction is just getting started here in Orange County.

    BTW, this particular case is somewhat tame compared to other circumstances that I’ve seen.

  3. Mr Vincent

    That’s a very nice detached condo. Oh, Im sorry, the listing says its a single family residence. How could that be with a lot that is so small.

    They “mistakenly” forgot to provide the lot size, but the overhead pic gives us a clue.

    For 870k I should get enough land for a pool and tennis court. Actually, for 870k, it should already have these things.

  4. shark

    Because you have a HELOC doesn’t necessarily mean you have used the HELOC. A HEL or a 2nd is a different story.

    Most lenders will not issue a HELOC subordinate to another HELOC. This is why you see assending HELOC values with the multiple refinancers – the earlier HELOC is retired and wrapped into the new, higher value credit line. I would guess that the owner of this house did not max out the original $150,000 HELOC, and refinanced into the smaller, $90,000 HELOC with better terms (lower rate, longer I/O period). Still, your point is well taken, and as Lee said, there are WAY more egregious examples of HELOC abuse out there.

  5. Alan

    Could you clarify this further…

    I opened a HELOC keep a low interest credit line for a rany day.

    The amount of credit I have available is on the order of $400K (nice for show, I don’t need that much, that’s the limit on my line with the bank) but the amount I a currently owe on my HELOC is 0… I’m not using it right now.

    Would you blog show that I owe an additional $400K on my property because that’s my credit limit or 0, the amount I’m actually using?

  6. tenmagnet

    Not a big fan of the front door opening directly into the dining room, that’s just me.
    However, the kitchen looks nice and spacious. Looks like they spent some of those Heloc withdrawals on goodies like the flat screen t.v with surround sound. BTW, never heard of Pat Boone, so props for going with Ricky. This video rocks, nice to see hot women throwing themselves all over him. The makeout scene in the rain is classic. Thanks IR! I’m ready to conquer the world now.

  7. IrvineRenter

    The second HELOC is for $240,000. I used the $90,000 to refer to the difference in the balance between the first and second HELOC. I can see no other reason than consumptive spending to take out two HELOCs totally $240,000 over two years. The fact that this is now a short sale strongly suggests they no longer have the money.

  8. tealeaf

    At the risk of being a stickler, this property is in Northpark Square, not “NORTHPARK,” as quoted in the listing. Homes behind the gates command a premium over those in Square.

    We are in Woodbury and have a couple of neighbors that regret leaving Northpark as there is a huge difference in traffic, door-to-door salesmen (who buys artwork from a soliciter?!), and miscellaneous unknown teenagers zooming from stop sign to stop sign.

    I know this issue has been discussed on forums before (ie max number of homes to allow gates, etc.), but I thought it was sketchy to boldly state “we have the lowest price in NORTHPARK” when the property isn’t even behind the gates.

  9. rickhunter

    Lee – “This problem of home equity extraction is just getting started here in Orange County.”

    You and others always post this statement. The problem isnt just getting started. It started years ago. I think you mean “House prices have just started to go down and will keep going down”.

    Tealeaf – NORTHPARK SQUARE has the gates and the homes are really nice in there. I thought about buying the Saratoga plan back then. Northpark isn’t as nice. I dont know where the above featured home is though.

  10. hb

    8 Capistrano is also listed on Redfin for 899K, and 3 Capistrano at 925K, all listed at the same sq ft.

    The pictures explain the virtues of bigger trees–it screens the tiny back yard somewhat from all the other houses looming over it.

  11. Lost Cause

    It is hard to even imagine the price being cut in half, and it still being worth it. Nice looking, but the lot size and location really sux.

    Sort of like a prositute, all dolled up, ready to extract some cash, but lacking any other virtue. Give it the red light.

  12. tealeaf

    “NORTHPARK SQUARE has the gates and the homes are really nice in there.”

    Partially true. There are only a few select communities within Northpark Square that are indeed gated with ‘remote-style’, follow-the-car-in-front-of-you gates. These are in the center of Square. Campanile and so many others in Square are completely, utterly exposed. Northpark is 100% guard-gated.

    You made my point, though — there is a difference between Northpark and Northpark Square. I happen to believe the opposite: Northpark is much more walkable, has closer access to Hicks Canyon trail, is further from the High School (bonus on traffic and noise), and has access to both the existing and new shopping at Orchard Hills. It is much more expansive behind the gates, as well.

  13. No_Such_Reality

    3 Capistrano’s back yard is just as exposed. It’s a better camera angle that hides it a bit. 8 Capistrano really shows the exposure when in the back yard.

    Overall, the thing with photos that really jumps out at me is how harshly the sun is blazing through the windows on on all three properties MLS photos.

  14. Chuck Ponzi

    It’s ruined by the fact that Ricky’s gay.

    Oh well, the fantasy was good while it lasted.

    Chuck Ponzi

  15. Alan

    I had a HELOC with Wells Fargo with a limit of 50K for a rany day. I needed to fund a transaction for a short term and needed a little higher limit so asked Wells Fargo to increase my limit to 100K. They had my line at nearly 8% and gave me crap over the increase. Citibank came in for free and gave me a much lager credit line at 1.5% lower rate so I closed the HELOC at Wells Fargo and went with Citibank. Turned out I only needed 50K and paid that back already. This only illustrates there are other reasons people change HELOCs, in this case I got a much better line, these owners probably did the same.

  16. T. Luper

    Stop all this crazy talk about rolling back to XXXX year prices! πŸ˜‰ The market must adjust to whatever price buyers are willing and able to bear. Sadly, most buyers, lenders, real estate agents, brokers, in the 21st century didn’t have a very good concept of the word ‘able’. Hence the bubble.

  17. CK

    Did anyone else see the last picture on Redfin of the owner (I assume) and her puppy? Kind of funny, but also kind of sad to see the person who got themself in to this situation…..

  18. Iblis

    Irvine is for people who want to pay $800,000 for a place to live, but still be close enough to their neighbor to hear him piss every morning.

  19. ipoplaya

    I’m with you tealeaf, NP is way nicer than NP Square. Lot sizes in both pretty much suck universally, but NP has better and more amentities and looks nicer as well. We’ve looked hard at a couple of NP homes over the past few months, but the prices have stayed quite sticky there. People in NP just don’t seem as aggressive in terms of prices drops… Maybe that’ll change. I wouldn’t mind buying into NP in the Spring after another 10% off.

  20. ipoplaya

    The front room was not really intended to be a dining room. I believe it has always been modeled as a sitting/living room. This plan has been built in a couple of other developments as well.

    I think many people who bought this plan eventually found that the nook area near the slider was too small to support any kind of decent-sized table and ended up converting the front room to be a dining room. Most of these that I have been in have used the front room as a living or office…

  21. buster

    Mike –

    Has this house sold? No? Well, then I guess their 2004 price doesn’t cut it. Will a 2003 price? 2002? Who knows. Take a glance at today’s Register marketplace section. Who’s going to finance a potential buyer’s Jumbo?

    Just because the bubble got bigger up until 2006 doesn’t mean there wasn’t a bubble in 2004. Besides, no matter how big the bubble is (2004, 2005 or 2006) they all pop down to the same size. Blow a little soap bubble and pop it. Now blow a big soap bubble and pop it. Which one is bigger after they both have popped?

  22. awgee

    Wow! I just read some of Lanser’s blog. Those folks are really upset. But why? What are they so ticked off about? Are they frustrated mortgage holders or is their really some sense of moral outrage that IR wrote that there was a HELOC attached to this property? I have my guess? What do you think?

  23. Ochomehunter

    The $240,000 HELLOC probably went to another knife catching property investments that may be bleeding as well. I dont see any reason for extracting equity unless you are going to invest into proterty or stocks. If they went into stocks (which I highly doubt) they must have doubled their investment…… If in property, you know what happend then.

  24. tealeaf

    I’m not an attorney, but my understanding is there have to be actual damages in order for a libel or slander suit to have any merit. I suppose there could be something to be said for punitive damages. The question then comes in the details of the financing, whether or not the HELOC itself is a draw or a line – and how would one know? And even then, what damages are there for speculating? There’s nothing there, IMO.

    The other half of the alleged “suit” proposed by Ethical/Stay@Home involves use of the MLS images and the Wal*Mart ‘rollback’ logo without permission.

    Anyone besides me willing to take a digital camera to some of these properties? The bulls might not like what comes out of this: an unfiltered view of the listing for all the world to see.

  25. IrvineRenter

    I stopped by and had a little fun with them. It will be interesting to check back and see their heads explode.

  26. lendingmaestro

    Well, at least we know one thing. A shitload of people are reading the IHB.

    I just want one of these blowhards to show me concrete proof that Real Estate should and must appreciate by double digits every year. Please show me historical numbers over the past 50 years, indicating values have never decreased.

  27. Major Schadenfreude

    “…their house was likely earning more than they were.”

    Don’t you hate it when those undocumented workers stop working?!

  28. IrvineRenter

    I would have to think posting truthful public information is a pretty good shield against any lawsuit.

  29. lawyerliz

    Are you quaking in your boots Irvine Renter?

    Just who would they sue? A blog isn’t a legal entity that can be sued, as far as I know. And everybody uses handles.

    This is truly amazing, but I looked for a post from you and didn’t find anything.

  30. IrvineRenter

    There are two mortgages recorded on this properties with balances in excess of the asking/sales price. This is by definition a short sale.

    It may turn out that the seller has the money or it was never borrowed from the bank. In either case, it will be settled at the closing table when the house sells.

    In the event the seller has borrowed and spent the money, they will owe the lender the difference. Of course, most of these people walk, but with a HELOC, the lender can go after personal assets.

  31. caliguy2699

    Yes, truth is a pretty good defense. You should also check out some media law – you can see just how well-protected the media is, even if they mess up and don’t tell the truth by mistake. To get an unfavorable ruling, someone has to prove reckless disregard for the truth – meaning, that they were aware of the truth, but decided to print obvious lies instead. Not an easy thing to do – in fact, next to impossible. Mistakes don’t get you in trouble, as long as you’re willing to retract. Of course, the retraction never has quite the power of the original article.

  32. Rocker

    actually, Bloggers have rights and they can get legal advice and support from the Electronic Frontier Foundation:

    Bloggers can be journalists (and journalists can be bloggers)

    Bloggers are entitled to free speech

    Bloggers have the right to political speech

    Bloggers have the right to stay anonymous

    Bloggers have freedom from liability for hosting speech the same way other web hosts do

    more info.:

  33. rastaman

    not being a HELOC specialist, I don’t know if what the angry poster on Lansner’s blog (who must be the current bagholder for this property) is true: that this blog cannot possibly know whether these HELOCs are tapped.

    my question is: is it true that it is impossible to know from public records whether a HELOC is tapped or not? But I now how I treated mine: took every dollar and bought a BMW, the ex-wifey bought an SUV with her share.

    I don’t feel bad about it: that is our culture and whether it is shallow and materialistic, that is how we live here: in Orange County, one should roll on some nice wheels. left just 5K for some house painting.

    so if it is true that you cannot know whether they spent their HELOC dough or not, it is probably a 95% sure bet here in the land of milk and honey.

  34. Formerbanker

    The Deed of Trust will show the full amount of the credit line as the lien amount. There is not a way to know what the balance on the line is looking at public info…but the Notice of Default is a public document -i.e. the notice that would be filed if either 1st or 2nd position loan is in default and is beginning the foreclosure process for nonjudicial foreclosure. I don’t beleive that doc shows the outstanding balance, but i could be wrong. Anyone could (pay to) run a date down title report on this property to see if an NOD was filed – if one was, may be a higher likelihood that the HELOC is actually in use. At a foreclosure sale, a 2nd lien holder interested in protecting its position might credit bid the amount owed to it plus the 1st DT…so you could ‘figure out’ what the HELOC balance was.

    To echo other commenters, think use of HELOC’s varies. My spouse and I have increased our HELOC at least three times since we bought our current home (Jan-02)…there was always an offer from some bank to increase the HELOC with no fees, so why not ? We consciously increased it in early ’06 thinking the bubble couldn’t get any worse, so we wanted to maximize the potential before the market tanked. Since the HELOC is >$700M, one might assume by looking at a title report that we’re leveraged to the hilt. We’ve never used our HELOC. For us, it’s a safety net in case some unforeseen major emergency occurs. I have to think there are others like us…maybe we’re not the majority, but we’re here!

    Keep up the good blogging, IR and other commenters!

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