A mortgage servicer in Florida has given a house to the delinquent borrower. What were they thinking?
Irvine Home Address … 80 MODESTO Irvine, CA 92602
Resale Home Price …… $429,500
Well, I ain't been home to see my baby,
in ninety nine and one half days.
'Bout time I see her,
Wait a minute something's wrong here
The key won't unlock the door.
Jimi Hendrix — Red House
Wait, there's something wrong here. The key will unlock the door.
Perry Laspina was in the middle of foreclosure with the possibility of losing the house he owned in Jacksonville. Then the mail came one day in late January telling him that the house was his.
Despite the $72,000 mortgage that he barely paid anything on, despite the foreclosure … the house was his.
In the middle of foreclosures gone wild, of a system overloaded by sheer volume, judicial investigations and allegations of corners cut, Laspina ended up with the house.
Despite the fact that he didn't have an attorney in the foreclosure proceedings, the mortgage holder simply gave up and walked away.
If they are giving away free houses to delinquent borrowers, there will be a lot of happy people.
Guys like Darrel above are just the kind of borrower lenders should give a free house to.
Or perhaps we should give free houses to the hard working middle-class people below.
“I've never seen anything like this in my life,” he said.
It's a tale populated with many of the major players in the national foreclosure drama: The law firm of David Stern, the Mortgage Electronic Registration Systems (better known as MERS) and a mortgage packaged with others and sold into a securitized trust.
Here's how it happened.
Back in 2006, Laspina, a used-car dealer based in South Florida, had some extra money and decided to buy some real estate that he could resell quickly at a profit. It was, after all, the height of the housing boom with prices skyrocketing and mortgage money easily available.
“Since everyone else was making money flipping houses, I figured I would, too,” he said.
He wasn't familiar with Jacksonville, but his brother owned a house in Fernandina Beach and found the house on Oakwood Street in the Panama Gardens neighborhood of Jacksonville off North Main Street.
It's an old neighborhood where most of the houses are still well-maintained.
Laspina bought the house for $80,000, putting $8,000 down and taking out an adjustable rate mortgage with EquiFirst for the remaining $72,000 with an interest rate of 9.5 percent.
EquiFirst, based in Charlotte, N.C., was one of the nation's leading sub-prime lenders in 2006. But it soon fell victim to the housing and mortgage industry collapse and it closed in 2009.
EquiFirst kept few of the mortgages it wrote; most were packaged and sold to securitized trusts which were owned by investors.
Laspina wasn't worried about the interest rate.
“It didn't matter,” he said. “I figured I'm going to flip this house within six months, maybe three months.”
That plan sounds foolish today, but for several years during the bubble, people could buy houses at full retail price, hold them briefly, do minor cosmetic changes, and sell for a reasonable profit. Today, that is only possible for people buying at auction and obtaining a huge discount from resale. Appreciation isn't a realistic expectation.
He also figured he'd get about $120,000 for it after he did a bit of work on it, mostly tearing up the carpet and stripping the paint that covered the hardwood floors.
“But right after I put it on the market, the crash came,” he said. “I couldn't sell it, I couldn't rent it.”
Real estate is not liquid. People forget that inconvenient fact when times are good and prices are rising, a condition most believe is a permanent state.
Hang in there, Shawn. You may get a free house.
By 2008, the increases on his payments kicked in, going from an initial payment of $605 to $894 and then $1,058 in less than a year. He quit making payments, and in September of that year, a foreclosure notice was filed against him. The plaintiff was the U.S. Bank National Association, which was simply acting as the trustee for an unnamed trust that now owned the mortgage.
The court file says that Laspina lost his foreclosure case in February 2009. A sale date was set, then postponed and then canceled, all at the plaintiff's request, later that year.
But the next year, the plaintiff requested that it all be vacated – the suit, the judgment, all of it. In October, Circuit Judge Waddell Wallace signed the order.
Why would a lender vacate the judgment and give away the property?
In December, officials for MERS, which acted as the mortgage holder, signed and filed the documents saying it “has received full payment and satisfaction … and does hereby cancel and discharge said mortgage.”
Laspina had paid less than $1,000 toward the principal on his $72,000 loan.
That's what happened. But there are questions about why.
You think?
“This is crazy,” attorney David Goldman said as he looked over the files at the Times-Union's request.
“They won,” he said referring to the mortgage holder. “They're standing at the goal line, and they just need to sell the house.”
Maybe they will let him keep it?
“One possibility is that they did it by mistake,” said Chip Parker, an attorney who specializes in foreclosure defense. “There are just so many cases out there.”
I think this is the most likely explanation. Someone manages the mortgage-backed securities pool that owned this bad loan along with many others. They probably have many cases pending against properties that get cured or sold, so they may vacate judgments filed on many such properties. This one was merely put on the wrong list.
The other possibility is deliberate mischief by a clerk or a manager who knowingly processed this paperwork to harm the MBS pool or the firm managing it.
One issue possibly complicating the case is that the plaintiff's attorney was David Stern, whose Southeast Florida law firm became the poster child for foreclosure mills. In 2009 alone, it handled 70,000 foreclosure cases, according to news reports, and employed more than 1,000 people.
But after questions were raised about the practice, the Florida attorney general announced an investigation of possibly fraudulent paperwork at Stern and two other firms. Fannie Mae and Freddie Mac, along with many banks, dropped him as their primary foreclosure attorney.
Stern's firm quit its foreclosure work at the end of March.
He made so much money, he probably doesn't care. It was a good run for him. If he hadn't become the poster child for this problem, he would still be adding to his fortune. Now someone else just like him is doing this same work. Perhaps the GSEs will add more vendors to its lists, but the foreclosures will grind on.
MERS itself has been the subject of plenty of controversy. The electronic registration and tracking system helps banks package, buy and sell mortgages without the time and money that used to be required to record each transaction.
MERS is named the nominee on these loans, but it now faces lawsuits across the country seeking unpaid recording fees that normally go to local governments, and several courts have rejected MERS' role in bringing foreclosures.
Parker also theorized that the mortgage owner simply made a business decision.
“The lender was faced with retaining new counsel,” Parker said. “Maybe it looked at the value of the property, realized it's way, way underwater and simply not worth it.“
That appears to be the case, though the mortgage holder provided few details when contacted.
An asset manager is not going to be concerned with any debt on the property. An asset manager is going to either keep the asset and manage it for cashflow or dispose of it and get whatever capital recovery he can. Any positive capital recovery is better than nothing. The house in question here clearly still has resale value. I doubt an asset manager determined is wasn't worth it to sell this property and get the money. 
The loan was being serviced by America's Servicing Co., a subsidiary of Wells Fargo.
“The investor on the loan, the bondholder on the trust, decided to write off the loan balance,” said a Wells Fargo spokesman, “because of the significant decreased value of the property.“
Fine. They wrote off the loan balance. That doesn't mean you give away the house. Is the cost of sale really going to result in a negative recovery? This makes no sense.
He declined to give more details or further explanation.
The home — two bedrooms, one bath and 1,120 square feet — is structurally solid, Laspina said. But many of the interior walls are covered with mold ever since the coils were stolen from the air conditioner.
It's appraised at $46,000 by the Duval County appraiser's office in a neighborhood that has inconsistent values.
The house next door sold for $65,000 in January after selling for $91,000 in 2003. A house across the street sold for $153,500 in 2008. But another a couple of houses away was purchased from a bank for $23,000 a year ago after selling for $140,000 in 2006.
A few commenters thought the North Las Vegas neighborhood from a recent post was suspect. Wait until you read this description.
“It's a good neighborhood,” said Jackie Painter, whose family first moved to Panama Gardens in 1958. She spent most of the past decade in Michigan, but when she wanted to move back south, she moved to the neighborhood where her younger sister and 99-year-old mother still live.
“Some of the houses were in really bad shape for awhile,” she said. “But people have come in and fixed them up. They're good neighbors. We get a little riff raff, a few prostitutes will walk down the street, but when they see us watching, they scatter.”
I wonder what she does to make the drug dealers scatter?
Goldman cautioned about anyone expecting to duplicate Laspina's good luck.
“I don't think it's representative,” he said. “Someone won the lottery here. There's a lot of people out there saying they can get you your house free, but they're just selling you something. It's a one-in-a-million thing.”
False hope is a fertile field for scoundrels and villains. Scam artists will use false hope to steal from individuals. The collective theft of false hope is borne by those who make oversized payments waiting for peak values to make them whole. Lenders are the beneficiaries of stories like this one because it serves to motivate the masses to cling to their properties in any way they can. Someday, they might own it, right?
As for Laspina, he plans to clean the mold, mow the lawn and try to sell the house.
“I could certainly use the money,” he said.
roger.bull@jacksonville.com, (904) 359-4296
Well, maybe they won't want to own it…
Perhaps those HELOCs weren't a good idea
The debate in Washington is focusing on the terms of first mortgages, but the real problems in the housing bubble were the second mortgages and HELOCs. Subordinate loans were the free-money vehicle of choice for most.
The owner of today's featured property paid $298,000 on 1/25/2002. She used a $238,000 first mortgage, a $29,700 second mortgage, and a $30,300 down payment.
On 4/30/2004 she went Ponzi and refinanced with a $274,000 first mortgage and a $100,000 HELOC. She enlarged the HELOC to $185,000 on 8/24/2007. There is no way to be certain she spent that last $185,000, but she did stop paying the first mortgage.
Foreclosure Record
Recording Date: 04/04/2011
Document Type: Notice of Default
It seems likely this woman could afford the first mortgage without the second mortgage debt. However, adding to the first mortgage and piling on a huge HELOC put her over the edge. Now this will be a distressed sale.
Irvine House Address … 80 MODESTO Irvine, CA 92602 
Resale House Price …… $429,500
House Purchase Price … $298,000
House Purchase Date …. 1/25/2002
Net Gain (Loss) ………. $105,730
Percent Change ………. 35.5%
Annual Appreciation … 4.0%
Cost of House Ownership
————————————————-
$429,500 ………. Asking Price
$15,033 ………. 3.5% Down FHA Financing
4.87% …………… Mortgage Interest Rate
$414,468 ………. 30-Year Mortgage
$93,949 ………. Income Requirement
$2,192 ………. Monthly Mortgage Payment
$372 ………. Property Tax (@1.04%)
$100 ………. Special Taxes and Levies (Mello Roos)
$89 ………. Homeowners Insurance (@ 0.25%)
$477 ………. Private Mortgage Insurance
$352 ………. Homeowners Association Fees
============================================
$3,582 ………. Monthly Cash Outlays
-$359 ………. Tax Savings (% of Interest and Property Tax)
-$510 ………. Equity Hidden in Payment (Amortization)
$28 ………. Lost Income to Down Payment (net of taxes)
$74 ………. Maintenance and Replacement Reserves
============================================
$2,815 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,295 ………. Furnishing and Move In @1%
$4,295 ………. Closing Costs @1%
$4,145 ………… Interest Points @1% of Loan
$15,033 ………. Down Payment
============================================
$27,767 ………. Total Cash Costs
$43,100 ………… Emergency Cash Reserves
============================================
$70,867 ………. Total Savings Needed
Property Details for 80 MODESTO Irvine, CA 92602
——————————————————————————
Beds: 2
Baths: 2
Sq. Ft.: 1346
$319/SF
Property Type: Residential, Condominium
Style: Split-Level, Spanish
View: Mountain
Year Built: 2001
Community: Northpark
County: Orange
MLS#: S653991
Source: SoCalMLS
Status: Active
——————————————————————————
Bright and airy, large 2 Bedrooms, 2.5 Bathrooms condo in most desirable guard-gated, resort-like Northpark Community. Formal dining room. Seperate living room with over 12 feet high ceiling. Upgraded entry, kitchen and bathrooms floor with Slade stone. Custom window treatment with plantation shutters. Spacious kitchen with built-ins. Two large bedrooms upstairs each has its own bathroom. Balcony off the Master bedroom with hills view. Hugh patio outside of front door. Walk to the Del Mar Garden. Close to shops, school, Tustin Market Place and much more. ..
Seperate? Hugh patio?
Have a great weekend,
Irvine Renter
I think people did nominal improvements to flips during the bubble so that they’d feel better about their gamble. If they thought the price increase was from their effort, then they could ignore the bubble.
This guy, however, represents the worst of the bubble. Know-nothing (by his own admission) speculators. I mentioned my in-laws 20% street foreclosure rate. Half those foreclosures were property speculators. One was an early purchase by a couple that heloc’d and multiplied their property holdings, and the other was an investor that bought at the bubble, and then RENTED the home to the prior owner (obviously at a cost below the carrying cost of the home, but price appreciation cures everything).
If we’re going to require 20% down for owner-occupied homes, we should require at least 40% down for non owner-occupied homes. And if you’re found lying about it, you enter default and the note becomes payable in full. Tack on the fees and strip a good chunk of equity.
I don’t like the actions of speculators. Especially th eones that lived large and went as ponzi with as little total equity as possible. The ‘hoods that saw the most ponzi were the new construction coming online in 2006/7. That was where the speculators were pushing each other out of the way. Whatever I think of speculators, it was the banks that enabled them, and who deserves the most blame, and whose rules should be changed to prevent this from happening again.
If I were him, I could still flip the house by selling it at $30k and get the hell outta Dodge.
And he probably will. His best course of action is to take the money and run.
70K, a drop in the bucket for the taxpayer.
Hmmm, the story raises suspicions of hardball tactics and underscores the power in personal anonymity when banks displace families from their homes. Loss of residence is a serious situation over which some would resort to credible violence as a negotiating tactic.
Is it implausible the defaulted owner may have gotten to someone at the bank and made them an offer they can’t refuse?
Theoretically any employee in the chain of the processing the default could be compromised to make an “administrative error,” especially if they could be bribed, blackmailed over sex, drugs, excessive debts, broken thumbs, the usual stuff.
Have I been watching too many movies? Or is this why the DoD investigates contractors and employees for all this kind of potential compromise?
That’s an interesting possibility I didn’t consider. With as strange as this case is, anything is possible.
Patrick.net has links today to dire headlines; increased suicides, landlord/kidnapper collecting rent at gunpoint, clamor for prosecutions in banking’s upper echelon.
It’s logical that more financially motivated homicides would be in the news along with the reported increase in financially motivated suicides –unless news is just another manipulation to suppress popular activism
In NY Times podcast today one headline is that Bernanke colluded with the Fed to slow down criminal prosecutions for the sake of not undermining economic stabilization in the US.
“… someone’s sneakin’
’round the cor-ner,
could that some-one,
be Mack the Knife?”
you may have unwittingly exposed a new tactic, ‘cash for keys’ no more, it’s ‘sex for keyholes’
On the flip side…the county I grew up in does its foreclosure auctions online. One sale I saw today was for $12k to a third party bidder on a home that would easily sell for $300k. The owner’s address is listed as out of state, and the only mortgage outstanding was a heloc for $60k. Foreclosure judgment was for $11.5k.
What are the odds that the third party is not the out-of-state owners? How would the home not have been bid up higher? There is a HOA lien, but that is maybe $5k. I couldn’t pay cash for a $300k home, but could easily write a check for $20k, and I imagine there are plenty more people who could do the same. Is there a catch?
If a HOA forecloses and there is outstanding mortgage debt, what happens to the mortgage debt? Would the mortgage holder want to buy the home at auction?
It was likely the $12K sale was a second mortgage. There is probably a $250,000 first mortgage on the property, and the $12K was taking the property subject to the first mortgage. If there is any equity above the first mortgage, it’s another way to play the auction market.
HOA liens vary by state. In California, HOA liens are wiped out in a foreclosure. In Nevada, HOA liens survive, and collection companies rape auction buyers for several times the outstanding debt.
Shoddy search missed the first of $624k. If the second forecloses, and the auction shows a sale of $12k, where does the first sit?
Can HOAs foreclose on their liens? What happens if they’re the ones bringing the foreclosure?
When a second forecloses, the highest bidder at auction takes title to the property. Subordinate liens — any 3rd or 4th mortgage and certain other claims — are wiped from the property. However, the first lien holder remains, so the new owner is subject to the claims of the first lien holder.
If I follow your example above, the first lien holder has a debt claim far in excess of the property’s value. The new owner paid $12K to be hopelessly underwater. The good news is they have no obligation to pay the first. The bad news is when the first does foreclose, the $12K is gone along with any claim to the property.
The second lien holder may be purchasing the property as a rental. If they can hold it long enough, they could get their $12K back plus profit. It’s a gamble based on how long they think the first lien holder will let them get away with it.
HOA’s can and do foreclose on liens. Their lien priority varies by state, so some states HOAs are aggressive, and it others, like California, they are not.
If an HOA forces an auction, they will get paid out of the proceeds based on their lien priority. If HOAs are subordinate to a big first, they usually won’t bother because they will never collect on an underwater property.
Thanks. I figured there was not a whole lot of easy money being left in SoFla foreclosures.
LawyerLiz said that she too had NTS cancelled in a David Stern case, so I suspect that the large servicers are evaluating Stern’s foreclosure mill product and making a financial judgement about whether it is worth it to invest in the legal services to correct the foreclosures legally.
Also, remember that the mold issue in FL is a big problem. That house will have to be gutted to the studs, the studs remediated, and then rebuilt.
How much will the servicers invest in a property that may sell for $75k?
I see their walking away as a reasonable business decision.
Am I missing something here? It’s obvious why they gave him the house free and clear, the entire structure, walls, floor, ceilings, was infested with mold, and unsellable and unrentable as an asset (at least legally). A house on that same street sold for $30,000 and didn’t have mold all over the house.
The cost of a complete mold remediation for the entire house, and the cost of repairing the house to a livable condition after the remediation would probably cost twice the recent comp of $30,000.
Sure he gets a free house, but unless he can get it to pass inspection, how will he sell/flip it for profit? I say this house eventually gets abandoned and torn down.
If this house truly has no economic value, then you are probably right. Many houses in the Detroit area are worth less than zero because they are uninhabitable, and the cost to bring them up to standard exceeds their value.
Acting out of my conviction that battered Midwestern burgs will see stunning revivals in the next couple of decades, I toyed with the idea of buying some $10 Detroit houses, mostly beautiful brick shells that have suffered fires and abandonment, that could be gutted and made into lovely, solid small homes. I reasoned that if we could restore an entire discrete neighborhood of, say, a couple hundred homes, and zone for small “neighborhood”-type retail, like grocery stores and dry cleaners and small retail spaces to be rented cheaply, the neighborhood could “weigh” enough to be a successful, safe enclave where moderate income buyers could find attractive houses at prices about equal to the price of a new car.
I was working on pulling a bunch of investors together, but while working up the business plan, discovered that the liability insurance for an abandoned house, especially in a city with Detroit’s crime profile, is astronomical, especially if it’s an entire neighborhood of abandoned houses. The whole thing fell apart on this one little detail- there was no way we could justify the insurance costs of sitting on these vacant properties, even if we got them as gifts, and paying the costs of owning them such as liability coverage and property taxes.
The cheaper the property, the more hidden costs there may be, and gut rehabs and mold remediation may be the least of them.
thanks for this writeup, learned alot!
Thanks for the idea and info, Laura. We speculate a lot in my house about how to revive/rescue Detroit, and hadn’t gotten as far as liability insurance. But even if you could get together a band of people living in a revived suburb, where would they work? I think that’s the problem with Detroit these days. The people who have jobs there already have their pick of newer houses that don’t have to be rehabbed, and there’s nothing to draw new population/professionals there. Unless you know of something, of course!
I happen to be from Detroit, and one of the angles is to buy up entire neighborhoods and bulldoze them for parking in the bridge ramp areas or remaining industrial areas.
The value really is in the land. 🙂
Nope, you aren’t missing anything. The house was worth less than zero dollars, so the bank was happy to get rid of it. Nothing more complicated than that.
That 1st picture of the moldy walls has me rethinking going to lunch.
Yuck.
“We get a little riff raff, a few prostitutes will walk down the street, but when they see us watching, they scatter.”
My, that does sound like a “good neighborhood”!
“If this house truly has no economic value, then you are probably right…”
I beleive that this neighborhood may have achieved a durable floor
“Hugh Patio” !!
AZDavid we need you!
SB
“A few commenters thought the North Las Vegas neighborhood from a recent post was suspect. Wait until you read this description.”
on that… the SW seems to be turning into a major focal point for LV urban designers. the recent widening of blue diamond along with the construction going on the 15 are suggest that this is slated to manifest into the next summerlin. lots up for grabs in mountains edge.
As for homeboy, I’m sure there’s something here we’re missing, like during the BPO they found that the entire house was infested with black mold, or some shit.
-dig your blog
Irvine Renter
I recommend you have a “Price is Right” contest on a future post for a WTF priced property. Allow people to “bid” what they feel will be the actual selling price of the home.
So for example, let’s take a look at 47 Midnight sky in Woodbury. For a mere 854,750, you can get a 3 br /2.5 ba tract home (with no granite in the kitchen) at $439 a square foot!
I will start the bidding, I think this house will eventually sell for $649,900
If I were to buy this house near its asking price, I would be paying $2500 more a month, to have 500 less square feet of home, 1200 less square feet of lot, and less amenities than the current home I am renting.
That would be a fun contest/poll. I agree with your estimate too. The house specs would be around 500-550k, and then add the schools/parks/low crime/jobs aspect of Irvine to be “worth” another 100k (just my personal opinion), so 600-650k for me.