Land barons acquire multiple negative-cashflow properties with hope of profiting from appreciation. It is a foolish investment strategy guaranteed to fail when the Ponzi Scheme implodes. Today we see the self-inflicted suffering of one failed land baron.
Today's featured property belongs to a knife catching squatter who managed to close on the day that marks the beginning of the credit crunch.
Irvine Home Address … 10 BLUEJAY Irvine, CA 92604
Resale Home Price …… $720,000
Turn the key
Walk through the gate
The great ascent
To reach a higher state
A rite of passage
The final stage
A sacred home
Unlock the door
And lay the cornerstone
A rite of passage
Dream Theater — A Rite of Passage
A rite of passage is is a ritual event that marks a person's progress from one status to another. Foreclosure is a rite of passage. Bankruptcy is a rite of passage. Many view foreclosure and bankruptcy at the hell fires of destruction when in reality they are a cleansing baptism into a new life — a life unburdened by debt and obligation — at least for a while. Many return to their lives of sin and indebtedness.
Everyone facing the fire shudders at the prospect. Many people face their fears and walk through fire — I did it at a weekend retreat in August of 2007. The entire event happens in the first step; having the courage to face the fear of the unknown, the spectre of pain — facing those fears can allow you to do tremendous things.
Debtors who are hunkered down in their bunkers of entitlement are going to experience the purifying fire of foreclosure. They can either embrace this opportunity, or curse their bad fortune. Which attitude do you think will get them farther in life?
[Brenda Duchemin offers a small moment of comfort to her husband, Mohammad Ashraf, as he sorts through a maze of paperwork related to the foreclosure of their Diamond Bar home. > > > > Multimedia (Robert Gauthier / Los Angeles Times)]
Every morning at 6 a.m., Brenda Duchemin kneels down on two plush throw pillows in front of a carved teak shrine in her Diamond Bar home and chants.
In front of a cluster of oranges, a small teacup and a golden lotus flower on the shrine, the slight 53-year-old tries to expel the negative images: the two homes she and her husband, Mohammad Ashraf, lost to foreclosure auctions last month, the bankruptcy petition they were forced to file in 2009, and their ongoing battle to stay in their spacious and airy home, which is furnished with soft blankets, leather couches and Elvis commemorative plates on the walls.
Daily chanting helps her karma, Duchemin says, which is currently not in such a good state.
"We don't know what we did in a past life to bring this out," she said, a slight Boston accent tinting her speech. "I must have been a horrendous person down the line."
I think it is sad that she believes that. Her suffering has little to do with transgressions in her past life and much to do with her attachments to possessions and a lifestyle she cannot afford in this life. Her failure to realize this is causing self-recrimination in the wrong area.
Though signs of recovery in the housing market are emerging, thousands of people throughout the Southland are still in a precarious position on the brink of foreclosure, struggling with monthly bills and mortgage payments.
Duchemin and Ashraf are an extreme example because they've gone through foreclosures on two homes and are in danger of losing a third. They aren't alone: Flimsy lending practices mean that thousands of other borrowers face the prospect of repeated foreclosures, mortgage and foreclosure experts said.
… "It wasn't unusual to allow folks to buy not only two homes but three, four or five," said Sean O'Toole, founder of data-tracking firm ForeclosureRadar.
Because people thought the price of real estate would keep climbing, O'Toole said, they figured that the more homes they bought, the more they'd earn eventually.
"In a lot of cases, you had folks in this gold rush mentality: 'Real estate is going up, the more houses I buy, the more money I'll make.' "
Sean gets it. This is the second bubble he has cleaned up after.
Duchemin and Ashraf say they are anything but flippers. Had not both their health and the economy taken bad turns, they say, their finances would have been able to support their real estate investments.
Bullshit. Only continued appreciation and continued Ponzi Scheme borrowing based on that appreciation was going to sustain the empire they built. There actions, as revealed below, demonstrate that they were property flippers regardless of how they may view themselves.
The couple bought their Diamond Bar house for $550,000 in 2006, hoping to finance the purchase by selling their town home in Brea — a sale that never materialized, they say, because of the housing crash. The year before, they'd also bought a $340,000 home in Las Vegas as a retirement property, which they rented to a tenant until last year. At the time of the purchases, their only sources of income were workers' compensation insurance payments and Social Security, but that wasn't a problem for the lender.
Their health problems were an issue before they bought. How does the economy impact their income an ability to make payments? They were expecting the payment to come from borrowing against the properties themselves. That is the essence of a Ponzi Scheme.
"We don't know how much longer we can keep going," Duchemin said, stroking their white Maltipoo, Sugar, one of four dogs the couple keep segregated in various areas of their house because the pets fight.
Ashraf, a warehouse supervisor, was injured in 2003 and had to have three discs replaced in his back. The surgery went poorly: He was in the intensive care unit for six days and had a stroke during that time. He now takes fistfuls of medicine each day, and has been even more subdued since his father died in Pakistan in 2008.
Duchemin was hit by an 18-wheeler truck in 1994 and has suffered severe seizures since then, although she had a device inserted in her chest to stem the seizures.
Ashraf is just a shell of the man he once was, Duchemin says. "This is a man who took pride in supporting me, making me feel like I was a queen — he was one of the strongest men I ever met," said Duchemin, who has voluminous brown hair and carefully sculpted eyebrows. "To see him go from that to an invalid. . . . " she said, trailing off.
Before we turn on the water works, let's take a look at what is sad and what is not. It is very sad that this couple has had personal accidents and injuries that has left them unable to earn the same amounts after the accident. When this happens to people, unless they have sufficient disability insurance, they will experience a decline in their standard of living. They suffer to the degree they cannot accept their new life.
The drop in their standard of living should have occurred years ago. It would have been sad, but it would have been over, and it would not have made the LA Times. It would have been an ordinary and unceremonious fall from entitlement.
This couple cooked up a Ponzi Scheme that worked for a while. They believed they had secured a style of life that was, in fact, an illusion. That is not sad. That is foolishness. These people developed attachments to an illusion, and this attachment makes their pain more intense and creates unnecessary suffering. That is sad.
If these people had not been lead to believe they could save their home and have a prosperous retirement on the appreciation of three houses, they would not now be suffering the loss of that dream — a dream sold to them by greedy lenders, mortgage brokers and realtors. That isn't sad. That is wrong, and it makes me angry.
Three houses is certainly capable of providing a comfortable retirement. It is part of my plan, but I intend to own them with no debt and live off the cashflow. That works. Owning three houses and milking them for appreciation by adding debt; that is a Ponzi Scheme. That doesn't work.
Many people have sad stories, and some people have foolish stories; this story is both. We need to be able to separate the two, or we will learn the wrong lesson. These people embarked on a foolish investment strategy. Land Barons all implode in the end, not because the economy turns, but because the investment strategy is foolish and the bad economy exposes that fact.
Should we all share our personal heartbreaks? This couple's sad medical problems have nothing to do with their investment Ponzi Scheme. Should everyone who has a sufficiently sad story get a government handout for their foolish investments that fail? If you can't separate sad from foolish, you might support helping people like this sustain their unsustainable and entitled lives. This report was designed to generate that sympathy, but when you see the truth beneath the story, you realize these people do not need or deserve any bailout assistance.
Ashraf's workers' comp payments were cut in half in 2008, hampering the couple's ability to pay any of their three mortgages.
Duchemin, who has worked as a teacher's assistant, a marketer for a chiropractic office and a locksmith, among other things, started looking for work last year but hasn't had any luck. Now she's applying for jobs that a high school student would be overqualified for, she says.
She's tired of hearing people say the economic downturn is ending. "There is no recovery," she said.
Though they were heartened by the news that the government was trying to help homeowners, the couple doesn't have much hope for mortgage help. They informed Washington Mutual in March 2008 that they were in trouble and asked for a modification on the Diamond Bar home, but tried to pay the mortgages on all three of their houses, missing a payment here, a payment there.
They received an initial boost of denial from one of the various government bailout attempts — notice the reporter doesn't bother to mention which one because they are all the same — and now that the denial has worn off, they are back where they started.
They eventually lost the Brea town house and Las Vegas home to foreclosure, and both properties went up for auction last month.
Duchemin and Ashraf say they are doing everything they can to keep their Diamond Bar house.
They filed for bankruptcy protection in July in the hope that it would enable them to keep the house. They've been to the U.S. Bankruptcy Court in Los Angeles three times since October to get their bankruptcy confirmed, but each time a problem has arisen. The next date is Monday.
They have been getting advice on how to game the system and prolong the misery. Do you think they are being helped? I think they would have been better off walking away and declaring bankruptcy months ago because then it would be over. All they are accomplishing now is prolonging their own agony; they are going to lose everything. The denial of their fate is causing suffering as is waiting for the inevitable foreclosure. When it is over, they can end to their suffering and rebuild their lives. Only their attachments are causing them pain.
To keep making payments on their home, they sold their Toyota Tacoma and family jewelry, including a gold anchor necklace Ashraf had since he served in the merchant marine. They canceled every service they could except for the Internet, which allows Ashraf to keep in touch with his family in Pakistan.
Duchemin rides her bike everywhere to save money on gas — when she goes out. Mostly they stay at home, worrying that the water or electricity will be turned off soon.
If they are forced to move, the two don't know where they'll come up with a deposit for a new place — filing for bankruptcy has ruined their credit.
"We can't afford to stay in our home, but we can't afford to move," Duchemin said.
This is what we want people to do. This is what HAMP applicants are supposed to do but don't. These people have cut everything to the bone, and they still can't make it. That doesn't mean they should be bailed out of their foolish Ponzi Scheme at your expense, does it?
Let's also remember their suffering is both self-created and relative to their level of entitlement. Others do not have it as good as they do.
They're entrenched for now: Board games are stacked up on tables, crystal figurines shine on display in a case, and the four bedrooms are packed full of stuff, including Duchemin's artwork and teddy bears bigger than a toddler.
But every day finds them on edge, waiting to see what happens next. They spend their days trying to appreciate the home they love, with its hand-laid brick walkway, fig and lemon trees in the yard and "Wizard of Oz" paintings on the walls, wondering what went wrong.
"I can't provide the way I used to provide everything for. . . . Excuse me," Ashraf said, breaking down. "For my family," he continued. "And I just — at this point, I don't know what I'm going to do."
It is not difficult to figure out what he is going to do. He is going to move out of his house into a rental and live within his means just like frugal and responsible people everywhere. He will abandon his dreams, and he will endure The Unceremonious Fall from Entitlement.
Is that sad?
I prefer to see these things from the perspective of a Phoenix, not the city, the mythical creature that rises from the ashes of destruction. Once this couple accepts their new lifestyle and standard of living, their suffering will stop, and their new lives will begin. It may not be the fairy tale they hoped for, but it is better than the nightmare they live today.
Today's featured property
Since I began writing for the IHB, I have advised people to rent, particularly in 2007 when there was no plausible scenario where people could benefit financially from owning real estate. Today's featured property was active in mid-2007, and one knife catcher picked the property up for $810,000.
Ordinarily, that would be an opportunity for me to say, "I was right, and the buyers were wrong," but this case is not so clear. Believe it or not, as late as 8 August 2007, lenders were underwriting 100% financing deals. This must have been one of the last because early August 2007 was when the credit crunch gripped mortgage lending. In short, these people bought at the worst possible time — or did they?
Since they did obtain the property with no money down, it was less expensive than moving into a rental. And since they quickly defaulted, and since they have been squatting in the property since they quit making payments in late 2008, their cost of housing has been much lower than mine during that time. And if I had been wrong and they had been right, they stood to make a fortune. Of course, now their credit is ruined, and they are facing foreclosure, but the squatting seems to go on with no end.
Recording Date: 07/24/2009
Document Type: Notice of Sale
Recording Date: 04/17/2009
Document Type: Notice of Default
Is frugality and self-restraint dead?
How do I advise people to do the right thing? I believe retiring debt is a positive, but the government goes out of its way to make debt positive — to the point of offering the possibility of free money through debt forgiveness. Is my advice old and outdated? Has the new permanent Ponzi Scheme mentality made my concern for the financial well-being of others quaint and endearing but not particularly helpful?
I am genuinely concerned about the system we are setting up. The incentives are all wrong. People are obtaining entitlements at the expense of others. People are gaming the system to stay in houses that do not rightfully belong to them. And the government has told our lenders this is OK because we will cover all the losses.
Perhaps it is better to game the system like everyone else? I would have enjoyed living in a nicer place rent-free for the last couple of years.
If 100% financing comes around again in the next cycle, it will be very tempting to take the money — and I am one of the people who think it's a bad idea. You know the spenders who don't care will be maxing out their HELOCs.
Our lenders are rightfully doomed, and we will pay dearly for the next bailout. Will you get your piece?
Irvine Home Address … 10 BLUEJAY Irvine, CA 92604
Resale Home Price … $720,000
Home Purchase Price … $810,000
Home Purchase Date …. 8/8/2007
Net Gain (Loss) ………. $(133,200)
Percent Change ………. -11.1%
Annual Appreciation … -4.3%
Cost of Ownership
$720,000 ………. Asking Price
$144,000 ………. 20% Down Conventional
5.11% …………… Mortgage Interest Rate
$576,000 ………. 30-Year Mortgage
$150,956 ………. Income Requirement
$3,131 ………. Monthly Mortgage Payment
$624 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$60 ………. Homeowners Insurance
$87 ………. Homeowners Association Fees
$3,902 ………. Monthly Cash Outlays
-$769 ………. Tax Savings (% of Interest and Property Tax)
-$678 ………. Equity Hidden in Payment
$289 ………. Lost Income to Down Payment (net of taxes)
$90 ………. Maintenance and Replacement Reserves
$2,833 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$7,200 ………. Furnishing and Move In @1%
$7,200 ………. Closing Costs @1%
$5,760 ………… Interest Points @1% of Loan
$144,000 ………. Down Payment
$164,160 ………. Total Cash Costs
$43,400 ………… Emergency Cash Reserves
$207,560 ………. Total Savings Needed
Baths: 3 baths
Home size: 2,257 sq ft
($319 / sq ft)
Lot Size: 4,050 sq ft
Year Built: 1976
Days on Market: 139
MLS Number: S596056
Property Type: Single Family, Residential
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
This is a must see now! Won't last long, very popular Woodbridge home. Motivated Sellers, Excellent value, priced to sell NOW! Elegant and Large 4BR home in Prestigious Woodbridge, with a Rose-Lined front yard, close to the lake, across the from the Park on a single loaded street. Very Quiet neighborhood, walking distance to all schools (award-winning Irvine Unified School District). Bright and spacious, vaulted ceiling, large family room plus living room. Mr. and Mrs. Clean live here! Big backyard, well maintained. Unique interior Patio, seen from different parts of the home. Schedule an appointment to see it now, it won't last long!
I am looking into Mr. Clean's toilet, and I am looking at Mr. Clean's toiletries.