High-end shadow inventory clearance

Lenders are beginning to clear out the high end inventory lurking in the shadows.

Irvine Home Address … 29 ANTIQUE ROSE Irvine, CA 92620

Resale Home Price …… $1,014,000

I thought things had changed

I thought things looked plain

I thought I could see the light

But now, now I know

I saw the distant glow

I heard a distant whistle blow

Whitey — The Light at the End of the Tunnel Is a Train

Back in 2009 and 2010 when the combination of tax credits and federal reserve supports engineered a false rally, and many people believed the housing crash was over. They thought they could see the light at the end of the tunnel.

Of course, the housing crash was not over, and the crisis in the housing market still has not been resolved. The problem everyone wanted to ignore (besides valuation) was the huge inventory of delinquent borrowers squatting in shadow inventory. Without this overhanging supply, perhaps the market would have bottomed in 2009, but with an abundance of homes waiting for a spark of demand, prices are more likely to go down than go up, particularly at the high end.

High end shadow inventory coming to light

Observers of the high end market often see what they want to see. Most homeowners in these price ranges truly believe the reason their prices haven't decayed to date is because everyone is rich and there is little mortgage distress. Nothing could be further from the truth.

High end home prices have benefitted from a lack of inventory. Lenders have been unwilling to foreclose on high-end homes because the losses are too large for them to absorb. It's easier for lenders to go after the low hanging fruit and clear their files by foreclosing at the low end first.

The hopelessly overextended pretenders who often borrowed more than $1,000,000 to buy high end homes have been allowed to squat. Rather than being the safe haven of the rich, high end homes have higher delinquency rates than their more modest bretheren.

Banks have been extending the mortgage limbo for high end squatters to delay taking write downs and to manage MLS inventory. Banks can't let the squatting go on forever. Eventually, they will need to foreclose on these properties, throw the squatters out, and resell them to recoup what they can of their capital.

Think about it from a bank investors point of view. People invest in banks so banks can loan money and make a profit from the interest. If banks stop doing this and instead simply give away the investor's money, won't the investors revolt? Do you think the poor performance of banking stocks may reflect that fact? Imagine if I were to tell my fund investors I was simply going to allow squatters to stay in the properties I purchased at auction. Would they be happy? I don't think so.

Banks are also getting more desperate for capital. Bank of America is cutting costs and ramping up its foreclosure activities because it needs the money. They can no longer afford to subsidize the squatters living in the bank's houses.

Today's featured property is an example of the bank's desperation. They bought this house last October, and they held it off the MLS through the prime selling season, and they are only now listing it for sale — at the worst time of the year to find a buyer.

The sordid past

The orginal buyers were hopelessly overextended. They paid $1,434,000 on 11/3/2005 using a $1,145,000 first mortgage, and $145,000 HELOC, and a $144,000 down payment. Since you can't deduct the interest on a loan over $1,000,000, the only people who borrowed more than $1,000,000 did so because they had to.

They refinanced again on 1/4/2007 with a $1,293,750 Option ARM, a $86,250 stand-alone second, and a $250,000 HELOC. They quit paying sometime in mid 2009.

Foreclosure Record

Recording Date: 12/04/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/02/2009

Document Type: Notice of Default

The got to squat in luxury for about a year and a half before the servicer, Wells Fargo, foreclosed on them on 10/12/2010. I can't be certain why Wells Fargo didn't immediate sell the house, but the most likely reason is MLS managment. They didn't feel there was a market for this property then. Of course, the market has continued to slide, and now the recovery on this bad loan is going to be even less. Perhaps the prospect of continuing declines is prompting them to sell now before things get even worse.

For whatever reason, this property is now for sale at the worst time of the year, and the loss is going to be enormous.


This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707



Irvine House Address … 29 ANTIQUE ROSE Irvine, CA 92620

Resale House Price …… $1,014,000

Beds: 5

Baths: 6

Sq. Ft.: 3900


Property Type: Residential, Single Family

Style: 3+ Levels, Tuscan

View: Mountain

Year Built: 2005

Community: Northwood

County: Orange

MLS#: S675997

Source: SoCalMLS

On Redfin: 1 day


Must see with a great value. Upgraded home in desirable Northwood Arbors tract. Gated with incredible HOA amenities. 5 bedrooms – bonus room upstairs and 1 bedroom/bath plus powder room is downstairs, Gourmet Kitchen with Marble Countertops and center island. Very desirable floor plan. Upstairs balcony overlooking large front yard. Large backyard with professional landscape – firepit, custom water feature, outdoor kitchen/barbeque area, and gazebo type patio cover. There is a two car garage plus a one car garage (total of 3).


Proprietary IHB commentary and analysis

Resale Home Price …… $1,014,000

House Purchase Price … $1,651,495

House Purchase Date …. 10/12/2010

Net Gain (Loss) ………. ($698,335)

Percent Change ………. -42.3%

Annual Appreciation … -47.8%

Cost of Home Ownership


$1,014,000 ………. Asking Price

$202,800 ………. 20% Down Conventional

4.03% …………… Mortgage Interest Rate

$811,200 ………. 30-Year Mortgage

$210,847 ………. Income Requirement

$3,887 ………. Monthly Mortgage Payment

$879 ………. Property Tax (@1.04%)

$325 ………. Special Taxes and Levies (Mello Roos)

$211 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$145 ………. Homeowners Association Fees


$5,447 ………. Monthly Cash Outlays

-$1009 ………. Tax Savings (% of Interest and Property Tax)

-$1163 ………. Equity Hidden in Payment (Amortization)

$285 ………. Lost Income to Down Payment (net of taxes)

$147 ………. Maintenance and Replacement Reserves


$3,707 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$10,140 ………. Furnishing and Move In @1%

$10,140 ………. Closing Costs @1%

$8,112 ………… Interest Points @1% of Loan

$202,800 ………. Down Payment


$231,192 ………. Total Cash Costs

$56,800 ………… Emergency Cash Reserves


$287,992 ………. Total Savings Needed


I hope to see you tinight at JT Schmid's Restaurant & Brewery, 2415 Park Avenue, Tustin, CA 92782, (714) 258-0333.IHB Presentation Night

15 thoughts on “High-end shadow inventory clearance

  1. jon

    i am one of the squatters living in a million+ home. It’s been over 2 years of squatting. very nice. saved myself at least 120K of mortgage payment and property tax. for those people who has feel morally obligated, i say to you that you have great moral, but you are one stupid idiot.

    1. gepetoh

      Good for you Jon! It takes a real man to admit he’s an a@%hole. Because you could have just given the house back to go along with not paying, but you decided to take the low road and squat. Scumbag, but smart. Unless of course, the lender decides to sue you for recourse and IRS comes after you for earned income. Both of which are perfectly in their rights, if I recall correctly.

  2. we bid on this house

    We submitted an offer on this house. Apparently the former “owner” stayed in the house after foreclosure due to lawsuits so its up as soon as banks got him out and fixed the property. The former owner is(was) a prominent RE agent and apparently knew how to game the system. And he wanted to stick it to the bank and took all the doors.

    I thought this was shadow inventory as well but my conversation with the listing agent proved differently.

    1. FlipFunds

      “took all the doors”

      my mama always said
      ‘foreclosures are like a box of chocolates
      you never know what you’re gonna get.’

  3. *

    [quote] of America is cutting costs and ramping up its foreclosure activities because it needs the money. [/quote]

    Bank of America is furiously raising cash.

    * $1.5B for sale of its HCA shares.
    * $8.3B for sale of Construction China Bank shares.
    * $5B savings from 30,000 employee layoffs
    * $5B from Warren Buffet
    * Unknown amount from increased notice of defaults issued.

    For a total of almost $20B raised since August 2011.

    10/12/2011 Bank of America Sells Back 15.6% HCA Stake for $1.5 Billion
    8/29/2011 – Bank of America Sells Stake in China Construction Bank
    [quote]Bank of America announced on Monday that it would sell about half of its China Construction Bank holdings to a group of unidentified investors, in a deal expected to raise $8.3 billion.[/quote]
    8/25/2011 –Buffett Invests $5 Billion in Bank of America

  4. Widjet

    @jon, I do not disagree with you, but you do realize that it is just a matter of time before BofA (or whoever your bank is) in their furious rush to raise cash will start coming after people like you (strategic defaulters with assets). I am making a small assumption that you did something more than a purchase money mortgage but that is probably a safe guess. I haven’t seen a statistic on it but I’d bet good money that people who’ve strategically defaulted are almost always in recourse situations.

  5. Alan

    Listing address must be messed up on Google Maps:
    “Upstairs balcony overlooking large front yard.” What I can spot from the front photo and aerial view, is literally about a “yard”.

    Then again, it’s only $1 million, can’t expect too much.

  6. Swiller

    gepetoh and awgee sound like the same person. I’m assuming they are both religious and attend church to take such a high moral ground and judge others.

    jon is excersizing his contract. When one of the good repugnantcans here BK their business, everything is just fine, because the “business” couldn’t survive under the debt load, but when you need debt forgiveness in your PERSONAL life, well, you suck and are a scumbag. This mentality is why we are where we are. Take a look at WHY people are occupying the streets in protest.


    1. winstongator

      To say that every BK or every person not paying their loan is making the same moral decision is ignorant. Take the owner of a company that is insolvent but still with a couple months of cash-flow. That owner extracts as much out of their business for themselves as possible – the technical term is looting, and it is a problem with failing banks. The right thing would be for when the end is known and inevitable that the owner step aside, or at least give up control, to remove the conflict of interest.

      Excessive squatting is different than a mere strategic default. Especially if litigation to keep yourself in the home is involved. I would be careful to check your documentation about the banks ability to sue for fees incurred evicting you from the home. Could they sue you for the legal fees incurred processing the foreclosure?

      I’m not against strategic default or an over-moralizer, or a republican (I gave enough to Obama to be known online). But there is a lot of gaming the system going on. You’d think the anti-Occupy-Wall-St crowd would be really upset about this. I would imagine that most squatting in $1M+ homes are the republicans, not those that are upset by it.

  7. IndyLew

    Do conventional lenders really require, as a condition of mortgage grant, that the applicant have move in money and $56,000 provable separate liquid cash or assets in reserves? Also, what percent of potential buyers of that home pictured, have the perfect credit to get that lowest interest rate on a conventional first position deed of trust? What’s the payment then for those with let’s say, run of the mill not so good credit?

    Six baths and five bedrooms in 3900 feet? It must be what we called a cut up “rabbit warren”, is there a basement with more footage?

  8. Aramintha Grant

    The banks are not foreclosing on the highend mortgages for yet another reason; these mortgages are not federally insured and the banks must take the entire loss. In many ways the small homeowner is being cooked several times over because the numbers illegal fees and other charges are added on to the outstanding balance at foreclosure and these illegal charges are added to the outstanding balance which is then reimbursed by Fannie Mae or Freddie Mac. The banks are making a killing on Mr. and Mrs. Main Street!

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