Safe Haven Markets are Really a Squatter's Haven

The housing markets that have not crashed are the areas where squatters abound.

Irvine Home Address … 15 TROVITA Irvine, CA 92620

Resale Home Price …… $819,900

I wanna be consequence free

I wanna be where nothing needs to matter

I wanna be consequence free

Wouldn't it be great, if the band just never ended

We could stay out late and we would never hear last call

We wouldn't need to worry about approval or permission,

we could – slip off the edge and never worry about the fall

Great Big Sea — Consequence Free

I am shocked by the squatting. I really am. It never occurred to me that lenders would simply give away homes to people. Do lenders really believe they can do this without dramatic long-term consequences on borrower behavior?

Back in 2004 to 2007 I was very confident the market would crash. The Option ARM was an obvious Ponzi loan, and it was only a matter of time before the market imploded. To me, it seemed like a really foolish time to buy because I knew the decline in value would put me underwater. If I had known that I could borrow 100% of the money, possibly get some HELOC booty, then squat indefinitely while the lenders denied there was a problem, I might have made different choices.

The most foolish and imprudent borrowers are the ones getting most rewarded by the banks amend-extend-pretend policies, particularly those in the jumbo loan neighborhoods. There have been almost no foreclosures over $800,000 since the crash started because lenders know there are so few buyers to absorb all the product. They have bulldozed homes in a virtual sense by simply pretending the houses are not there.

The moral hazard this creates is obvious and pervasive. If you are a distressed borrower, why are you making payments? Lenders will not foreclose on you, and with little effort, you can gain a year or more of free living. There isn't much incentive to struggle. Also, for those of you who didn't participate in the madness, why wouldn't you next time around? You know when lenders do this again, you will be given the same free pass as your predecessors. Why not borrower imprudently and squat when the Ponzi scheme collapses? I think it's wrong, but I also can't think of a compelling reason not to do it.

Shadow Problem: Home Price Declines May Land in Cities That Largely Avoided Them

By Nick Timiraos

Housing markets that have escaped the brunt of home-price downturns may not be home free.

A new report shows that the “shadow inventory” of homes, with delinquent mortgages that have yet to go through the foreclosure process, is growing fastest in areas that have so far avoided the biggest home-price declines, according to a report by ratings agency Standard & Poor’s.

The areas where prices have not crashed yet are the areas without many subprime loans and subprime foreclosures. The alt-a and prime loans, particularly interest-only and Option ARMs, that are blowing up now are not going through foreclosure, and the owners are being allowed to squat.

Mortgage companies could be forced to reduce their prices on these foreclosued homes as they work through that supply, and as more of those homes sell, that could continue to put pressure on prices. At the top of the list: the New York City area, where at the current rate it would take 103 months to clear the shadow inventory of loans that are more than 90 days delinquent or in foreclosure. That’s nearly 3.5 times the national average.

“The big problem of course in the New York metro area is that we have not had the re-pricing that the West Coast has had,” says Daniel Alpert, managing partner at Westwood Capital LLC, an investment fund. “This is very similar to what happened in the early 90s where the crisis moved regionally from one area to another.”

I guess we have seen this before.

After the New York region, Miami has the largest backlog with a 62-month supply. But unlike New York, Miami’s shadow inventory has fallen from its March 2008 peak of 129 months. New York’s backlog has held at more than 100 months since early 2008.

Indeed, cities that avoided the worst of the housing downturn so far—and which have seen fewer distressed sales—are now seeing a bigger increase in shadow inventory, as prices adjust in some of those late-to-the-party markets. Phoenix and Las Vegas, which have had the sharpest price corrections, also have among the lowest levels of shadow supply, at 18.5 and 21.4 months, respectively.

The biggest increase in shadow inventory came in Dallas, which had a 43-month supply, up from 19 months in September 2008. Other cities with big increases in recent months include Atlanta, Boston, Denver and Charlotte. Shadow inventory has remained elevated, but hasn’t increased much, in both Seattle and Portland.

Nationally, foreclosure timelines have swelled over the past two years as lenders deal with rising piles of delinquent loans and as they are under pressure to modify those loans and avoid foreclosures. But so-called “judicial” states that require banks to get a court order in order to foreclose, including New York, New Jersey and Florida, have seen foreclosure timelines grow even larger.

In the post There are 36,000+ Distressed Properties in Orange County, I pointed out the huge disparity between delinquency rates, currently running at 8.4%, and foreclosure rates, currently running at 2.37%. There are 3 times as many borrowers delinquent as there are in foreclosure. The supposed health of our local real estate market is an illusion created by lenders and enjoyed by squatters.

What will cause a change?

Realistically, there is only one thing that will force this to change: strategic default. As long as lenders are permitted to avoid foreclosure and fail to liquidate their properties, and as long as the struggling borrowers continue to struggle until their implosion, this situation will persist. The banks benefit because they can slowly liquidate their inventories without drastically reducing prices, and delinquent borrowers benefit by squatting and avoiding housing payments. The prudent borrowers, the struggling borrowers who continue to make payments and ultimately the US taxpayer are the ones who are hurt. In other words, most of the readers of this blog are the ones being screwed.

The nightmare scenario for lenders is a sea change in borrower attitudes. As the reality of squatters becomes more widely publicized, and as struggling borrowers see the benefits others obtain by stopping making payments, widespread accelerated default could force a change. The only reason borrowers keep making payments, particularly struggling borrowers, is because they fear foreclosure. Once that fear is gone, why would anyone keep paying? They won't. That is what would force a change in lender policies.

It's still a cartel

The lenders are acting in unison right now because they are all enjoying the benefits of restricting inventory to bring up prices. However, not all lenders are equally healthy, and the weaker lenders have a stronger incentive to liquidate than they have to hold on to their REO. Once they feel they have reasonable pricing and available volume, they will step up their liquidation efforts, and the cartel will weaken its grip. Once the cartel starts to crumble, some lenders may speed up their liquidation to get out while they still can. If things get really out of control, we could see a stampede for the exits.

Transition to short sales

One phenomenon we are witnessing in the trustee sale market is a dramatic decline in NODs and NOTs. As Sean O'toole from points out, “Given the staggering number of delinquent home loans, foreclosure activity should be rising, not falling as we found again this month” says Sean O’Toole, founder and CEO of “We have recently witnessed a number of cancellations where the owners have vacated the property and are clearly not working to modify their loan or complete a short sale. The most telling statistic that we present today may be that it takes lenders two months longer to foreclose then it did a year ago.”

This is surprising because earlier this year, lenders were planning to increase their foreclosure activity. Since the foreclosure backlog is enormous, the losses are less in a short sale, and the new HAFA program facilitates short sales by paying everyone off, banks are making a concerted effort to push more people through the short sale process. Ultimately, I believe we will see the foreclosure notices pick up again because short sales alone will not clear out the inventory. A short sale requires a participating owner, and many properties with delinquent borrowers are empty, or the owners are simply squatting without bothering to contact the lender. The only way to clear out squatters who do not communicate with the lender is through foreclosure. The banks are not going to give homes away… at least I don't think so. If they are, I want one too.

The broken chain of Ponzis

The collapse of the lending Ponzi scheme only reflects on the bagholder. However, there were many who played the Ponzi game and got out before they became the greatest fool.

  • The owners from the 90s started with a $375,000 first mortgage on 9/22/1998.
  • They took out a stand-alone second for $79,400 on 4/28/2000.
  • On 10/15/2001 they refinanced with a $593,750 first mortgage.
  • And on 7/5/2002 they obtained a $40,571 stand-alone second.
  • The owners from the 90s extracted $259,321.

Do you think those owners suddenly became frugal when they sold for $1,050,000 on 7/23/2004? I doubt it.

  • The foreclosed owners paid $1,050,000 on 7/23/2004, and they used a $787,500 first mortgage, a $175,000 second mortgage, and a $87,500 down payment.
  • On 4/12/2006 they refinanced with a $750,000 first mortgage and a $240,000 stand-alone second.
  • Total property debt was $990,000.
  • Total mortgage equity withdrawal is $27,500.
  • Total squatting at least 13 months.

Foreclosure Record

Recording Date: 07/10/2008

Document Type: Notice of Sale

This property was purchased by Aurora loan services on 5/20/2009 and either rented or left empty for the last year. I guess they believe prices are firm enough to dispose of this inventory. Either that or they believe they better get out while the getting is still good.

Irvine Home Address … 15 TROVITA Irvine, CA 92620

Resale Home Price … $819,900

Home Purchase Price … $1,050,000

Home Purchase Date …. 6/23/2004

Net Gain (Loss) ………. $(279,294)

Percent Change ………. -21.9%

Annual Appreciation … -4.0%

Cost of Ownership


$819,900 ………. Asking Price

$163,980 ………. 20% Down Conventional

4.84% …………… Mortgage Interest Rate

$655,920 ………. 30-Year Mortgage

$166,689 ………. Income Requirement

$3,457 ………. Monthly Mortgage Payment

$711 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$68 ………. Homeowners Insurance

$144 ………. Homeowners Association Fees


$4,380 ………. Monthly Cash Outlays

-$839 ………. Tax Savings (% of Interest and Property Tax)

-$812 ………. Equity Hidden in Payment

$304 ………. Lost Income to Down Payment (net of taxes)

$102 ………. Maintenance and Replacement Reserves


$3,136 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$8,199 ………. Furnishing and Move In @1%

$8,199 ………. Closing Costs @1%

$6,559 ………… Interest Points @1% of Loan

$163,980 ………. Down Payment


$186,937 ………. Total Cash Costs

$48,000 ………… Emergency Cash Reserves


$234,937 ………. Total Savings Needed

Property Details for 15 TROVITA Irvine, CA 92620


Beds: 4

Baths: 3 baths

Home size: 3,033 sq ft

($270 / sq ft)

Lot Size: 5,564 sq ft

Year Built: 1980

Days on Market: 4

Listing Updated: 40337

MLS Number: U10002570

Property Type: Single Family, Residential

Community: Northwood

Tract: Cc


According to the listing agent, this listing is a bank owned (foreclosed) property.


ALL CAPS and stock phrases.

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

31 thoughts on “Safe Haven Markets are Really a Squatter's Haven

  1. winstongator

    I have to agree with the geographic component. Foreclosures have not been slow, or missed the ‘safe havens’ in SEFL. Prices have fallen on many of those very expensive properties. It puzzles me that Irvine props would be so slow to get foreclose. From what I’ve seen, many toxic loans were originated out of Irvine. If the bank foreclosure operator, based in Irvine, sees a dq loan in Miami or Irvine, which would he be more likely to push through quick, and which will he drag his feet on?

    CA has to adjust its property tax law. You have to increase the tax value to the appraisal used for a cash-out heloc/refi, or at least a maximum 1.25X loan amount (don’t want to punish someone who takes a loan from 10% LTV to 20% LTV).

  2. scottinnj


    I suspect the above is going to become a fairly common disclaimer in listings for properties with a long history of squatting.

    I’d also add following the article posted above today that while I think most in California/FL/AZ are aware of housing problems in their markets the rising problems elsewhere aren’t on the radar. I’m in NJ and when I mentioned to people that NJ is 3rd in the country for delinquent mortgages (after FL/NV) the reaction is that I am making it up and am delusional. I’m not even sure I can say we are in the denial stage – you have to be aware of an issue to deny it and I don’t think that is even the case.

    1. lowrydr908

      I live in NJ, and know exactly what you’re talking about. The thing is that there are many parts of NJ where homes are relatively affordable; however the rest of the state is made up of the McMansion pretenders who believe they’re special.

      NJ is a RECOURSE state. This mistakenly leads people to believe that there won’t be any problems with housing, since it’s not as easy to walk away from your mortgage. In this case you bank goes after you for their loss, you claim bankruptcy, and the problem is solved.

      At least in NJ, there’s some effort to crackdown on fraud:

      Feds arrest 20 in alleged N.J. mortgage-fraud operation

      Defendants in N.J. mortgage fraud ring tried to take more than $5M …

      Man, mother are convicted in mortgage fraud scheme

      Owner of N.J. title search company accused of $2.7M mortgage fraud

      I love the one about the title search company owner – “Cichy and Nowak, who has dual U.S. and Polish citizenship, used the proceeds from the alleged scheme to run his construction business and pay for a Mercedes Benz, furniture, clothing and trips to Aruba and Poland, authorities said.”

      See how Real Estate can facilitate living the American dream!!! Ballin’!

    2. wheresthebeef

      For 819K, the property should be ready to move in and ready for renovation. I have a feeling we are at the tail end of this RE dead cat bounce. Buyers were brought forward due to the gimmicks and the economy is not improving. In a sane world, a property like this would probably go for 600 to 650K. Hopefully sanity will return.

  3. ozajh

    Another implication of this squatting is that people are still living in the “jumbo loan neighborhoods” who should by now be looking to either buy or rent in lower-priced areas.

    This in turn is discouraging genuine “move-up” relocation by adding an extra, artificial, amount to the natural location premium.

    At some point this will probably revert to the mean, and in fact if financial factors were all that mattered (and I acknowledge this is NOT the case) you might see some folks attempting to capture the artificial premium. Possibly by selling and renting in the premium area while buying and letting in the beaten-down area, intending to reverse the process later.

  4. lowrydr310

    Alan Greenspan is opening his trap again:

    Greenspan Says U.S. May Soon Reach Borrowing Limit

    Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said.

    Did you read that, Planet Reality? Think low rates are here to stay permanently for the next decade or two?

    Then again, Alan Greenspan hasn’t exactly had the best track record lately when it comes to making economic predictions.

    1. steve

      Sure the rates could go up, that is a really good way to kill off what little recovery there is , followed by another recession and they drop again. The only way you’re going to see them go up is when the demand for credit exceeds the supply and the economy improves enough to raise them. Not sure when that is going to happen, but I have not seen any serious indication of it. Anyone seen hoards of consumers beating down doors to buy things? Anyone seen unemployment dropping as all those businesses hire new employees to handle all that demand? Did not think so…

      The current problems with the Euro simply drive’s down the rates in the US as investors move into Treasuries and drive down the yields. So if you want interest rates in the US to go up, the Euro has to solve their problems and bring back investors. Like that is going to happen any time soon. More likely the Euro is going to self destruct over the next year or so. Whatever is left over is not going to be all that stable and attractive. You could by the “new” German Mark and help to drive up that currency, thereby killing their export market, but that is about it. No way it can absorb all those dollars.

      Maybe you are counting on the Chinese to solve the problem, like letting their currency rise and stop buying treasuries so that the dollar will drop and punish us for being bad debtors. That is a pretty good way to kill their export market and create millions of angry unemployed Chinese. That sounds like lots of fun, but not going to happen either.

      So get used to cheap money and pretty much free debit for the foreseeable future. As the recession moves in to the future there is simply nothing on the horizon that is going to overcome these conditions.

      1. lowrydr310

        I agree with you there.

        One positive thing that came out of this whole financial/economic mess was the cost of my education, and the cost of paying the loans back. I locked in the tuition price before the giant college tuition bubble, then when it came time to pay those loans back rates were ridiculously low. I consolidated my federal loans at 3.25%, and my private loans (which are adjustable rates) have been hovering around 3%.

      2. matt138

        a) there is no recovery currently
        b) recession/depression does not guarantee rates will go down
        c) treasuries are the next bubble to pop
        d) china wont buy treasuries forever, and if they do, they will demand much higher returns
        e) a rising chinese currency means the chinese can buy what they make instead of loaning us money to buy it
        f) if your neighbor bought a house in 2004, heloc’d the money out to buy fancy cars and vacations, just got a pay cut, and came to you to borrow money, would you lend it to him at 3%?

  5. RahRahGrl

    How exactly do these “analysts” come up with the number of months of inventory? The article listed says that “Miami has the largest backlog with a 62-month supply. But unlike New York, Miami’s shadow inventory has fallen from its March 2008 peak of 129 months.”

    So somehow in the last 27 months (since March 2008), 67 months worth of inventory has cleared. Either I don’t understand time or this “statistic”.

    1. IrvineRenter

      The months of inventory calculation is the total inventory divided by the sales rate. For instance, if a market has 1,000 homes in inventory, and they are selling 10 a month, they have 100 months of inventory. The calculation is very sensitive to changes in the rate of sales, so it can fluctuate wildly in a thinly traded market.

      I used this calculation in the recent posts I did on distressed inventory in Irvine and Orange County.

      1. RahRahGrl

        Yeah, I get it. But more generally I question the utility of a metric that is off by such a wide margin. Is claiming that we have 127 months of inventory so helpful if, in reality (because apparently this actually has happened), the inventory can be cleared in half the time? In my opinion, not so helpful.

        I’m going to make a mental note to ignore this statistic from now on.

        1. IrvineRenter

          I don’t use it very often for the reason you described. Steve Thomas from Altera Real Estate uses it often, and the OC Register picks up on it in their capacity as real estate shills.

          The calculation has some value in the resale market where sales figures are more stable, but it isn’t anything I would read much into.

          1. awgee

            IMO, it is fairly good indicator when one uses SALES as you are referring to. Steve Thomas does not used closed sales. He uses homes in escrow or as her refers to them, “deals”. Using homes in escrow miscounts by a factor of at least 200%, therefore his monthly inventory calculation is misleading at best and most likely an intentional fabrication, LIE.

          2. IrvineRenter

            I didn’t realize that. The only reason he would use escrows rather than sales would be to intentionally deceive. I can’t imagine another purpose for using escrows which is subject to frequent cancellations other than to make the denominator larger and make the number of months of inventory look smaller.

          3. awgee

            Check it out for yourself on Lansner’s blog. At first Thomas called them sales until a few folks pointed out that his “sales” were incorrect by huge numbers. He then admitted that he used pending sales and now refers to them as “deals” in his matrix. I have personally compared his “deals” with sales and properties in escrow when he applied his calculations to specific areas and found that his “deals” matched the total number of homes in escrow, not accounting that the properties are in escrow each time he counts, therefore he is counting each time as a deal. Nor does his use of deals account for the numerous times short sales are in and out of escrow.

          4. awgee

            And check out the esculpatory language Lansner uses to distance himself from the results.

        2. phil

          Another assumption is the first 10 sales and last 10 sales are created equally (i.e. a Linear function). That simply isn’t true especially in the Jumbo range market.

  6. newbie2008

    Two edge sword of the short seller.
    In a non-recourse state as CA, the seller may be better using a FC with no other recourse than using a short sale. The short sale contract may have clauses to reimburse the banks at a latter date for the shortness of the sale. Best to read over the contract with a fine tooth comb and have a RE/contract lawyer also look it over.

    As for the rate of FC on Dq’s by lenders. Who would your forclose on first, your neighbor or some one 1000 miles away? As a bankster, who would you rather foreclouse on, your co-worker with a 2 million HEW withdraw and 2 years Dq or Joe six pack with a 20% down who’s behind 6 months Dq?

    How’s your FL and the Great Depression blog coming along?

  7. ICNIC

    We visited this house.

    It is empty. It needs total re-build = paint, all windows, all floors, all bathrooms and kitchen. Everything needs to be redone, including roof and garden. The sweemingpool is very small and the whole back yard is a mess. But there is no evidance to an intentional damage by the former occupants of the house. It is only old and neglected. Never been treated. One more thing – It doesn’t look like a 3000 sqf. Maybe they count the garage which is a very large 3 car garage. The neighborhood is nice, and the comperables are around 830-860. Given the house’s condition, one must count 80-100k for renovations.

    We were told that there are offers for 750-785k, and thought it is much too high for the risk of this house. Unfortunately, as long as there are buyers out there that give that kind of money, the prices won’t come down. At least if that house will be sold for 785k, it will be a new lower comperable, still not low enough though.

    As to the question if and when to buy – We pay 45K/year for rent (though we don’t pay taxes, HOA exc.), and we don’t get tax discount for our renting payment like we would for our mortgage payment. We also have very nice downpayment from our old house (overseas, and from many years of hard work and saving,(we are not so young any more) always paying the full credit statment at the same month. so it makes sense to buy, even if the house price will fall 35k/year. The thing is – no one knows how low it will fall, and as I said before, as long as there are people who pay, the prices won’t fall. We are still waiting.

  8. irvine_home_owner

    IR, you wrote:

    “The areas where prices have not crashed yet are the areas without many subprime loans and subprime foreclosures.”

    Does Irvine fall into that category?

    If not, why are many prices at peak levels and how is TIC able to raise prices each phase for their new homes?

    If so, wouldn’t banks be foreclosing faster in Safe Haven areas since price retention is better?

    1. IrvineRenter

      Yes, Irvine does fall into this category. We did not have much subprime here.

      Prices are near peak prices in select neighborhoods because some people are willing and able to pay peak prices there. In neighborhoods where the squatters haven’t been pushed out, there have been few distressed sales. A quick look at foreclosure radar shows how much visible distressed inventory there is, but these sales are postponed over and over again.

      The entire Irvine market is about 20% below peak prices.

      The Irvine Company raises prices with each phase because that is what builders do to create a sense of urgency to sell homes. They have been selling houses for under market prices until just recently in order to maintain positive price momentum. They are smartly taking advantage of the lender’s policies of squatting to sell a few homes into the restricted supply conditions.

      I think banks would be wiser to foreclose and get what they can in areas where prices haven’t crashed yet, but they have another view. They seem to believe they can make prices go up by removing all the supply, then they can meter it out slowly once prices are back at the peak. I think this policy will fail as the cartel weakens. Only time will tell who is right.

      1. irvine_home_owner

        Yes, Irvine does fall into this category. We did not have much subprime here.

        That’s how I feel, but I think many readers of this blog think that Irvine is the capital of subprime lending. Many of the lenders may have been HQ’ed here but that doesn’t mean the majority of the buyers in Irvine used them.

        1. Rocker

          they used Option ARMs and HELOCs, and the HQs are in Irvine for a reason: a talent pool of employees that know the mortgage industry.

          1. matt138

            do they “know” the mortgage industry on as superior a level as the Mortgage Bankers Association?

      2. newbie2008

        There’s also no HOA for the first year plan on the new condo’s at Teller. Good to have the HOA start on a good footing — at least the first year’s budget will not be shot with squatters and the paying members making up for the units not sold.

        If the govt allows bank borrowing from govt at near zero percent, 4% down on purchases and unlimited squatting, the cartels can keep the prices up until the govt removes the support. I’m getting discouraged from the freebies the govt is giving the ilresponsible borrowers and banksters and all the libaility coming my childrens’ way.

  9. Chris

    “I am shocked by the squatting. I really am. It never occurred to me that lenders would simply give away homes to people. Do lenders really believe they can do this without dramatic long-term consequences on borrower behavior?”

    Sadly, this is what’s currently happening. All that talk late last year about Option ARMs blowing up and a few months ago where BofA is going to increase foreclosure processes have not panned out. We’re still not seeing massive increase in short sales, NODs, NOTs, and regular sales by folks cashing out while the going is good.

    I said a few months ago that patience is virtue. Well, that virtue is starting to dry out.

    Sad….just sad….especially for folks who are **actually** paying rents.

  10. oc bear

    There’s one other option. Banks go under when there’s no one to save them. Once the mortgages are in the hands of another private entity (not the government of course) there will be no reason to pretend and there will be action. A change of attitude in Washington could come from anti bailout candidates.

    1. Buy short sale

      Ya i totally agree with your statement every one is stuck now by there own magic created to increase the nation economy.

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