Category Archives: House Flips

Profiles in Squatting: Ladera Ranch, California

Money Magazine takes a detailed look at the housing debacle and the squatting phenomenon.

Irvine Home Address … 32 COLUMBUS Irvine, CA 92620

Resale Home Price …… $799,000

I am the Astro-Creep

A demolition style

Hell american freak

I am the crawling dead

A phantom in a box

Shadow in your head

White Zombie — More Human Than Human

Is shadow inventory all in your head? Is it real? Are there really debt zombies roaming the shopping malls spending the money they should be putting toward their mortgage?

Home ownership in California means you gorge on HELOCs when times are good, and squat in luxury when your creditors cut you off. Its a great system for Californians. They get to spend as they please and pass the bills off to the rest of America in taxpayer bailouts. I see no reason to believe it will not happen again soon.

Welcome to Zombieland: Ladera Ranch, California

By Pat Regnier, assistant managing editor — December 7, 2010: 4:10 PM ET

ORANGE COUNTY, Calif. (MONEY Magazine) — Joshua and Irene Vecchione are cleaning the dinner dishes one evening in October when Joshua's cellphone rings. It's Rhea from the Chase collections department, and she wants to know if he has $123,000 today. That's what it will take to get the Vecchiones current on their mortgage.

Rhea is a new caller, but Joshua has been talking with Chase reps a lot since February 2009, when he and Irene stopped making the $8,000 monthly payment on their five-bedroom spread in Ladera Ranch, Calif., an upscale development in south Orange County.

After a few months, they were allowed into a trial mortgage-modification program, which let them pay less than half as much and kept Joshua on the phone as Chase requested more and more documents.

In July, though, the bank decided the couple didn't merit a permanent "mod." The Vecchiones, who own the toy store in Ladera, began negotiating with Chase to do a short sale, in which the lender allows the debtor to sell for less than what's owed and walk away. So what Rhea says troubles Joshua: They're still listed in Chase's system as an active foreclosure.

"How am I in foreclosure?" he asks after hanging up. "I'm not in foreclosure."

I think it was because you quit paying your mortgage almost two years ago. I'm not sure, but I think that is pre-requisite for the bank to call a foreclosure sale, or at least it is supposed to be. So, if you haven't been paying your mortgage, there might just be a chance that you are in foreclosure.

In a way, many people who don't get their loan modifications should thank the banks for accelerating their default. Some of these people might have held on for years making their payments if the bank had not induced them to default by holding out the possibility of a lower mortgage payment. Without question, the banks created many strategic defaults by the incentives they put into the system.

A few weeks after that call, the Vecchiones get another one, this time approving the short sale. They bought it for more than $1.1 million in 2006 — the height of the bubble — with a high-rate, interest-only mortgage. Paying it meant staycations and other cuts, but they figured they could refinance in a couple of years, as the house grew in value.

You know how the story ends, but in 2006 few people (especially in the O.C.) had any idea what was coming, and lenders were hardly waving folks away from the cliff.

There's a spot in the backyard where Joshua once planned to add a little apartment for his parents. Now he figures his family of five will move in with them. He's sad not to have one last holiday season in the house. But if all goes as planned, the entire process, from first missed payment to renting the U-Haul, will have taken 22 months.

Since these owners obtained the beneficial use of a house that was supposed to cost them $8,000 a month, does anyone else like the idea of taxing these people on the $176,000 in squatter benefits?

The Long Goodbye

There are stories like the Vecchiones' slowly unfolding all around the culs-de-sac of Ladera Ranch — and in prestigious zip codes across America. The foreclosure crisis has hit lower-income communities the hardest, but it has touched every slice of the market, and resolving it may well be harder in places where homes are too expensive to attract investors with ready cash.

The reason this crisis hit the lower income communities first (so far worst, but really only the first) is because the loans given to the lower income communities reset or recast first. The Option ARMs and interest-only loans given to Alt-A and prime customers are resetting and recasting now. Many of those borrowers have already accelerated their defaults and are squatting in shadow inventory.

The shadow inventory problem will be much harder to resolve in prime areas where prices are far too high because there are not enough buyers able to pay the inflated prices to absorb the inventory. Prices will have to come down on mid to high priced homes or the banks are going to own them for a very long time.

Naperville, a tony Chicago suburb, has more than 230 homes valued at over $300,000 in danger of seizure, according to RealtyTrac, a foreclosure data provider. Monmouth County, a New Jersey Shore area that boomed in the early 2000s, has 462 over $400,000.

Ladera, an unincorporated community of about 25,000, is conspicuously affluent — it's home to Tamra of The Real Housewives of Orange County. The schools are strong, the surrounding chaparral foothills pretty. Good jobs are to be had in nearby Irvine. In short, this is a place a lot of folks would consider a slice of heaven, which is why MONEY began following what was going on here two years ago, as the dream of the house that made you rich began crumbling.

Now heaven has turned into limbo, where defaulters may live for a year or more with a giant mortgage they can't fully pay. Not counting homes already in the foreclosure process, about one in 10 Ladera mortgages is at least 30 days late, according to LPS Applied Analytics. And houses in the foreclosure process have been delinquent an average of 16 months, up from seven in 2008.

Ten percent of Ladera Ranch loan owners are not making their payments. That is a lot of distressed mortgages. If that many houses have to go through the foreclosure meat grinder, prices will get pushed much lower.

The national figures are almost as ugly. And what they show is that our collective real estate hangover is far from over. And limbo will start to last even longer as the "robo-signing" scandal raises questions about the integrity of the foreclosure process.

To judge from recent stories about poorly (if not fraudulently) documented seizures, you would think servicers are snatching up houses quickly. In fact, rushed doc signings and long delinquencies are two sides of the same problem: During the boom, lenders tripped over themselves to create millions more ultimately unsustainable mortgages than they can now unwind.

Yet for the housing market to return to health, there needs to be resolution for these zombie loans that won't ever be paid in full and won't quite die either. Until they can be eliminated through short sales, foreclosures, and permanent modifications, the zombies will keep home values from recovering and suck momentum from the economy. They're not departing soon.

As Christopher Thornberg of Beacon Economics in Los Angeles puts it, "This is going to bleed on for years. People will wander in and out of trouble."

Foreclosures are essential to the economic recovery.

It Only Looks Healthy

On MONEY's first day back in Ladera Ranch this summer, what jumps out is how nice the place still looks — no air of depression here. Although it's a bubble-era town, having sprung up in 1999 from what had been a real ranch, Ladera isn't like some of the foreclosure disaster zones you've heard about — the outskirts of Phoenix, say, or Riverside County, Calif., just over the Santa Anas.

Ladera wasn't a magnet for "drive till you qualify" buyers who might have been better advised to rent. The average credit score on a loan here was a solid 734.

Today 4.4% of homes in Ladera with mortgages are in some stage of foreclosure, compared with less than 3% for Orange County. That's given the place a bad rap locally, even though the vast majority of Laderans are, of course, paying their mortgages.

"What's annoying is the perception that Ladera has a bigger group of people who were irresponsible," says Devon Hocker, a real estate agent and publisher of a local magazine.

The facts are what they are. With a 10% delinquency rate and a 4.4% foreclosure rate, Ladera Ranch is above the average for Orange County and above the average for the nation. How is that possible with a large concentration of high wage earners?

Houses were wired for broadband and set up for home offices, she says, attracting entrepreneurs who had high incomes, at least in the boom. (Many were in real estate; a local joke goes that when you're pulled over on the main drag of Antonio Parkway, the deputy asks for your registration and broker's license.)

Because Ladera is so young, owners are more likely to have paid nosebleed prices and to have financed with one of the easy-pay mortgages that swept California after 2005. If someone told you he had a fixed-rate loan, quips Hocker, you knew he had just arrived from the Midwest.

Being from the Midwest, I never considered any kind of financing other than a fixed-rate mortgage. The fact that houses were not affordable using a fixed-rate mortgage is what told me there was a housing bubble early on.

The exotic loans also attracted flippers, who set the market's torrid pace. Troy Lowder says he went through four houses in Ladera; a friend and family members did the same, buying as tracts were first developed. "We all went from neighborhood to neighborhood, Phase 1 to Phase 1," he says. Lowder made more than $200,000 on one deal.

The flood of easy money shows on local streets. Planners designed neighborhoods to appeal to different psychological profiles: One was for green types, another for the "achievement-oriented." Landscaped trails and pocket parks dot the area — amenities that developers skimp on in less frenzied markets.

"You won't see another Ladera Ranch for a good long time," says Brooke Warrick of American Lives, which did market research for the development.

The area's desirability, and the potential inventory that is still in limbo, have produced an odd dynamic. While the median home price fell from $780,000 in 2007 to $530,000 in 2009, according to the service DQNews, you can't waltz into Ladera and snap up a quick bargain.

"Many houses are on backup offer," says a man out with his agent on a sunny afternoon. (He asked not to be named.)

Big deal. Many houses are in backup offers because it is a ridiculously priced short sale that the bank has taken more than a year to approve because the borrower is hiding money from the second mortgage holder or the borrower will not agree to pay up.

This appearance of vitality masks a deeper problem, and not only in Ladera. Simply put, housing isn't bought and sold now in anything resembling a normal market. On the one hand, the federal government has worked overtime to keep houses attractive, with super-low interest rates, higher conforming loan limits, and, until recently, a homebuyer's tax credit. Those moves have real costs, and low rates hurt savers even as they help owners.

Meanwhile, foreclosure moratoriums, mod programs, and bank delays have kept homes off the market, to the detriment of would-be buyers.

"They've done an amazing job of restricting supply and stimulating demand," says Sean O'Toole of ForeclosureRadar, which sells data on California foreclosures to investors.

Up to this point, says Brookings Institution economist Karen Dynan, "there was an argument that delaying foreclosure — even if you couldn't prevent it — was valuable, because the economy couldn't have withstood the consequences" of more homes dumped onto the market.

That is a great argument if your a banker or a loan owner. If you are a renter or a buyer, that argument sucks.

But the zombies remain, threatening a second leg down in prices should the pace of foreclosures speed up. Recent numbers suggest this deflation was already starting, says housing analyst Ivy Zelman of Zelman & Associates. But with the robo-signing scandal, she adds, it's unclear what happens next.

How Many Zombies Are Still Out There?

Estimating the number of zombies isn't a simple matter. Rick Sharga of RealtyTrac says mortgage servicers are delaying filing notices of default, the first public record of a problem.

An October report from Amherst Securities takes internal industry data on all loans with late payments, as well as loans now current that were once delinquent, and applies a formula that calculates the probability that those loans will ultimately fail.

The rough national count of zombie mortgages: 7 million. Considering that existing homes sell at a rate of 5 million a year — and that a six-month inventory is a sign of a healthy market — that's a big backlog.

It might be bigger. There are 2.6 million on-time loans where the borrowers are deeply underwater — that is, they owe a lot more than the house is worth. All told, about a quarter of mortgages in the U.S., and a third in California, are underwater, according to Core Logic, and Ladera residents are quite aware of the incentives to try to get out of such loans by defaulting to seek a modification or short sale.

I am curious if lenders thought the word would not get out.

When MONEY met Stuart and Judy Manley in 2008, they were trying to sell their Ladera town-house for $430,000 and trade up; they couldn't, and homes near theirs are now selling in the $200,000s.

They've seen neighbors receive modifications that drastically cut their rates. The Manleys' trouble is that they aren't in trouble; they're making payments on a fixed-rate loan.

"When you call and ask for assistance or a modification, they laugh and say, 'You don't call us, we call you,' " says Judy.

The Manleys say they won't consider it, but the social stigma of default may be fading. David Averell, a mortgage broker, says that a neighbor who stopped paying "is the pop star of the neighborhood. Everybody wants to know how to be that guy."

What's the Holdup?

Why the process of unwinding bad loans has moved so slowly is an even more complicated question than how many zombies exist — as complicated, in fact, as the mortgages themselves, which were often created by one lender, sold off to investors, and then passed around among different servicers. (Chase, for example, wasn't the Vecchiones' original lender). The most obvious explanation is that the industry is simply overwhelmed. "Foreclosure activity is six times the normal level," says Sharga.

That leads to confusion; Patti Arnold, an escrow officer in Orange County, just had a short sale fall through because the bank demanded the owner get a power of attorney from her deceased spouse. Second and third mortgages add to the mess. Lien holders have competing interests, and that gums up short sales as Lender A haggles with Lender B over how much cash the latter gets, says Arnold.

Some market watchers believe banks have incentives to take their time.

"Because of the drop in home prices, lenders aren't necessarily motivated to rush properties onto the market," says Alan White, an expert on mortgage law at Valparaiso University.

A flood of inventory that weakened prices could motivate more borrowers to default. There's even fear for the banking system as a whole. Although most mortgages are owned or insured by Fannie Mae or Freddie Mac or have been sliced up into investment pools, trillions of dollars of whole loans sit on banks' books, many of them second mortgages, says Daniel Alpert of the investment bank Westwood Capital, which buys and modifies distressed loans

These second mortgages are difficult to pass off to the US taxpayer. The denial over the fate of these loans keeps our banking system in need of amend-extend-pretend.

The modification of a loan's principal or the sale of the house whether in a short sale or after foreclosure — forces the bank to write off its loss. Alpert thinks banks are "slow-walking" the process, hoping the market rebounds.

Amherst's Laurie Goodman counters that investors' losses get worse the longer a default drags on. (In fact, Fannie Mae in September told servicers to speed things up.) Goodman blames the slog more on modification programs which, as the Vecchiones have learned, often merely delay the loss of a house.

In the government modification program called HAMP (which the Vecchiones didn't qualify for because of their jumbo loan), about half the trial participants drop out. And a huge percentage of modified loans go back into delinquency.

Not that getting a mod is easy to begin with. Stella Matadama from the Consumer Credit Counseling Service of Orange County has personally worked on 95 modifications during the past year. She's succeeded with 18. In all, fewer than 470,000 of the 1.3 million trial modifications done under HAMP have led to permanent relief.

Loan modification programs are a proven failure, and they will continue to be.

Life Underwater

Orange County has long been a bastion of conservative values; the idea of homeowners not paying and then staying put rankles. Larry Roberts, a local blogger and real estate investor better known as IrvineRenter, calls them "squatters."

One hot question is how much of this is "strategic" defaulting — that is, how many people who have stopped paying have simply decided they will no longer pour money into a bad investment? Californians talk about short sellers with BMWs and/or conspicuous surgical enhancements. (A tour of Ladera short-sale listings confirms the first part of the story.)

But the financial picture of defaulters usually isn't rosy. "There's a strategic element in most defaults, and few defaults are purely strategic," says analyst Goodman. "You have your hours cut back at work or go through a divorce and re-evaluate … You don't just say, 'Oh, it's three o'clock, time to default.' "

Not surprisingly, people who approach real estate as an investment show the most sang-froid about defaulting. Troy Lowder, the flipper, lost his last house in Ladera, purchased in 2006 with a mortgage that didn't even require paying the interest due every month.

Option ARMs were ideal loan for flippers. The low payments made holding costs negligible, and the large financing amounts made any flip within reach.

He had planned to sell at a profit in a couple of years, but comparable houses were soon going for $400,000 less than he had paid. And since both Lowder and his wife worked in real estate, less money was coming in.

"It sucks. We lost everything," says Lowder. But he says he'd play the game again in another boom.

Rik Hendrix's story is probably more typical. When he bought his house in 2008, he says, he was earning a six-figure salary as an assistant service manager at an RV dealership. But his wife got a better job, so he decided to go back to mechanic work to spend more time with his kids. Now he's going through a divorce and taking home half what he did as a supervisor.

"We're not selling as many accessories, and that's where you make your money," he says.

All this made his $5,000 monthly housing nut unsustainable. He finished a short sale in late October and says he was able to pay off a lot of credit card debt while not paying his mortgage.

An assistant manager at an RV dealership had a $5,000 monthly nut. No wonder the housing market is in trouble.

The Vecchiones, too, took an income hit. Their store is a Ladera fixture, but the crash squeezed local wallets. "The average person spent $40 per birthday gift, and that went down to $15 or $20," says Joshua.

He claims Chase wouldn't put them in a trial modification until he missed a payment; Chase says that's not policy.

In any case, the couple celebrated when they made their first $3,260 trial modification payment, thinking they were on their way to saving their house. But a trial merely slows the foreclosure machinery while the bank makes a decision.

Owners typically still owe the balance they aren't paying, plus additional late charges if they aren't approved for permanent terms. The Vecchiones were first turned down for not enough income, let back in, then rejected for not fitting Chase's financial models, decisions with which Joshua disagrees. Regardless, by that point they were even deeper in the hole.

Anyone who thinks the banks are doing them a favor with a loan modification hasn't read the terms carefully.

The common thread in these stories: Once homeowners are underwater, it doesn't take much to set them on the path toward losing their house, especially if they stretched to buy. That's what has made the foreclosure crisis into such a Gordian knot. The more defaults, the further prices fall; the further prices fall, the more people default.

Getting Out From Under

Do we have to muddle through several more years of foreclosures and a semi-functioning housing market, or can the situation be improved? That's a tough question; a lot of conflicting interests would require resolution. If you didn't overreach for your mortgage, it stings a bit when your neighbor gets help or stops paying on the house he couldn't afford.

Then again, your property's value will go down if the bank forecloses on that neighbor. If you're a renter who wants to buy, a wave of foreclosures that drives down prices sounds like just the ticket — but only if that wave doesn't roil the economy enough to cost you your job.

Do any renters reading this story believe that their job was saved by the government subsidies that keep house prices out of reach?

So Congress and the Obama administration have tried to walk a fine line. The White House has resisted calls for a national foreclosure moratorium, and HAMP has proved to be anything but a radical homeowner bailout.

Under HAMP, mortgage servicers get a subsidy for modifying a loan, but the vast majority of those modifications reduce only monthly payments, not the principal, meaning homeowners remain underwater.

To really slice into the inventory that will eventually end up in foreclosure, argues Amherst's Goodman, we'll need a program that pushes servicers to reduce the principal owed for those who could afford a mortgage closer to current market values, perhaps while forcing them to give up some future appreciation. This would still leave lots of foreclosures, but it could more quickly sort who can and who can't save their home.

Another approach: Ease struggling homeowners out of their loans altogether, so they can make a fresh start. Investment banker Alpert and the economist Dean Baker have separately proposed giving defaulters a temporary right to rent their homes at market rates. Homeowners would have less incentive to prolong the foreclosure process, but they would still lose their investment and their good credit. And people in houses way beyond their means couldn't afford the rent.

The Right to Rent Would Flatten the California Housing Market.

Banks and mortgage investors would bear the direct costs of such efforts — boo-hoo — but here again, that doesn't mean you'll pay nothing. As Brookings' Dynan notes, the banking system remains fragile: Want another bailout?

And economist Bill Emmons of the St. Louis Fed thinks that forced write-downs would make lending unpredictable, which in turn could make mortgages costlier. In any case, given the climate in Washington, the chances for any major federal legislation seem slim. It's more likely that a push for write-downs will come from state attorneys general pursuing the robo-signing scandal. "The AGs are out for blood," says analyst Zelman.

So the ultimate workout remains unclear, but two things are certain. First, says Dynan, for the economy to get back on solid footing, households have to unwind much of the leverage they've taken on, and mortgage defaults are an inevitable part of that. (note the impact on disposable income in our consumer-driven economy when the ATM is turned off.)


The question is whether families who misjudged the real estate market (the majority of whom are not as affluent as folks in Ladera) must bear the brunt of the cost of this deleveraging, or if more of the burden can be placed on the lenders that inflated the bubble — and that have, as noted, already enjoyed a bailout.

Second, the status quo has costs, even for those who've stayed in homes they can't afford. It's stressful: Before her short sale was approved, Irene Vecchione feared her house would be foreclosed at any moment and visited the courthouse-steps auction in Santa Ana, where scruffy guys in wraparound shades snap up houses, to see how her dream might end.

And every month that the Vecchiones, and millions like them, don't pay in full is another month they don't rebuild their credit. Finally, when a modification doesn't work out, a homeowner has simply thrown good money after bad. "We paid what they told us to pay," says Joshua. "But we're in the same position as people who just didn't bother."

A responsible borrower goes Ponzi

The lure of free money is difficult to resist. Even those who demonstrated that they could borrow responsibly later blew up after they spent a pile of free money and couldn't pay it back. HELOC money is like heroin or cocaine: don't try it because you might like it, and once your hooked, it ends badly.

  • This property was purchased on 9/26/2000 for $452,000. The owner used a $332,000 first mortgage and a $120,000 down payment.
  • On 1/28/2002 she refinanced with a $322,000 first mortgage.
  • On 1/18/2002 she refinanced with a $331,200 first mortgage. Through her first two years of ownership she at least broke even on her debt.
  • On 4/11/2003 she refinanced with a $322,500 first mortgage and a $50,000 stand-alone second. It was the beginning of the end.
  • On 2/27/2006 she refinanced with a $450,000 first mortgage.
  • On 3/13/2007 she refinanced with a $450,000 first mortgage.
  • On 4/7/2008 she borrowed $70,000 from a friend who was just wiped out in the foreclosure.
  • Total property debt was $520,000.
  • Total mortgage equity withdrawal was $198,000.
  • The lender moved quickly once they issued the NOD.

Foreclosure Record

Recording Date: 08/25/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/24/2010

Document Type: Notice of Default

The property was sold at auction for $641,000 on 9/28/2010. The flipper is trying to make almost $160,000 on the deal. Do you think the market will give it to them?

Irvine Home Address … 32 COLUMBUS Irvine, CA 92620

Resale Home Price … $799,000

Home Purchase Price … $452,000

Home Purchase Date …. 9/28/2010

Net Gain (Loss) ………. $299,060

Percent Change ………. 66.2%

Annual Appreciation … 250.9%

Cost of Ownership


$799,000 ………. Asking Price

$159,800 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$639,200 ………. 30-Year Mortgage

$163,001 ………. Income Requirement

$3,381 ………. Monthly Mortgage Payment

$692 ………. Property Tax

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

$133 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees


$4,206 ………. Monthly Cash Outlays

-$822 ………. Tax Savings (% of Interest and Property Tax)

-$787 ………. Equity Hidden in Payment

$299 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves


$2,997 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$7,990 ………. Furnishing and Move In @1%

$7,990 ………. Closing Costs @1%

$6,392 ………… Interest Points @1% of Loan

$159,800 ………. Down Payment


$182,172 ………. Total Cash Costs

$45,900 ………… Emergency Cash Reserves


$228,072 ………. Total Savings Needed

Property Details for 32 COLUMBUS Irvine, CA 92620


Beds: 5

Baths: 3 baths

Home size: 3,230 sq ft

($247 / sq ft)

Lot Size: 5,300 sq ft

Year Built: 1979

Days on Market: 35

Listing Updated: 40513

MLS Number: S638691

Property Type: Single Family, Residential

Community: Northwood

Tract: Pl


According to the listing agent, this listing may be a pre-foreclosure or short sale.

Great 5 bedroom PLUS bonus room model… Could be 6 bedrooms as bonus room has a closet. Interior tract location with livingroom with vaulted ceilings, 1 bedroom downstairs, open kitchen, familyroom w/fireplace, plus den downstairs, spiral staircase. Huge master with sitting area with fireplace has vaulted ceilings also and large bath, walk-in closet. All bedrooms are good sized. BRAND NEW roof just installed. 3 car garage, great bonus room, back yard has firepit, in ground spa. Park located within tract. This beautiful familyhome is in a great area with an excellent school district… This is NOT a short sale.

Banks Cancel Foreclosures in Shift to Short Sales… For Now

JPMorgan Chase has made a silent shift from foreclosures to short sales in an attempt to clear their delinquent loan backlog.

Irvine Home Address … 10 SUNSTREAM Irvine, CA 92603

Resale Home Price …… $549,000

Deep down you know it's best for yourself but you

Hate the thought of her being with someone else

But you know that it's over

You know that it was through

Let it burn

Let it burn

Gotta let it burn

Usher — Burn

Everyone is desparate to hang on to their houses. Some hopeless borrowers hold our for sentimental reasons, and in California many struggle for financial ones. There comes a time when reality sets in and people just let it burn.

Foreclosure sales are being canceled at a record rate. That sounds like good news. If it were occurring because (1) borrowers were curing their loans or (2) loan modifications were successful or (3) short sales were occurring more frequently, it might be something to celebrate. Unfortunately, none of those is occurring. Banks are canceling foreclosure auctions because they are overwhelmed by delinquent borrowers, and they don't have the slightest idea what to do about it.

HAFA Ushers Record Number of Foreclosure Sale Cancellations in California

Tuesday, July 13th, 2010, 2:41 pm

Lenders are canceling more foreclosure sales in California than ever before, and new financial and political demand for short sales could be the culprit.

Lenders canceled nearly 22,000 California foreclosure sales in June, driven mostly by JPMorgan Chase. It’s a 27% increase from May, a 153% growth from a year ago, and an all-time high, according to ForeclosureRadar, which tracks foreclosures in the state.

Foreclosure sales can be canceled for successful loan modifications, short sales, a legal requirement, or even a filing error. In terms of strategy, a spokesperson for JPMorgan Chase said the bank has not made any policy shifts to cancel more foreclosure sales.

According to ForeclosureRadar, a certain number of the cancellations can be attributed to pending modifications and short sales, but homeowners and real estate agents have complained to the company of sales that were canceled without either.

This trend underscores how clueless the banks really are. They have no idea how to resolve this problem, so they lurch from one failed solution to another. The backlog of foreclosure properties is enormous, so pulling back from foreclosure in the short term is like bailing the sink before pouring in Liquid Plumber. They still have a clog and a sink full of soiled water, but they realized continued filling the sink is doing them no good.

Unfortunately, canceling all their foreclosure sales isn't going to work either. They can't foreclose on everyone because there simply isn't enough cash available to absorb a couple of trillion dollars of real estate at the courthouse steps. Resolving the backlog of delinquent borrowers is going to require a combination of successful loan modifications, short sales, and foreclosures.

The successful loan modifications will be few and far between because most borrowers are hopelessly overextended. Short sales will clear out a large number of properties, but it still requires active participation by the seller. Many properties are abandoned and many have squatting owners who are sitting there waiting for the Sheriff to evict them. Short sales alone will not solve this problem.

JPMorgan Chase is undoubtedly canceling too many foreclosures, and when the short sales don't happen — and many will be killed by owners gaming the system — the Chase and other lenders will need to ramp up their foreclosures again later to clear out the trash.

“We have seen a shift over the last couple of months where homeowners want this process to be over and they want to start to rebuild,” said a spokesperson for ForeclosureRadar.

Researchers at the company received varying answers as to why the cancellations are up. The best answer came from one unnamed REO professional. According to the source, the Home Affordable Foreclosure Alternatives (HAFA) program had the most to do with the cancellations. The Treasury Department launched HAFA in April to provide incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure to homeowners who fail the Treasury’s Home Affordable Modification Program (HAMP).

Loan modifications are obviously not working. The HAMP program is a dismal failure for a number of reasons, not the least of which is the borrowers themselves:

“Now that servicers have systems in place to administer the program they are removing delinquent loans from the foreclosure pipeline to allow a reasonable short sale time period,” the source told ForeclosureRadar. “Predictably (also my opinion) the period would be expiring just after the November elections so there would be less political blowback as those properties that don’t conclude with a successful short sale are taken to foreclosure and ultimately, REO.”

This is a brilliant observation. Politics plays into this decision. Expect to see increases in foreclosure filings again after the elections when the short sales do not go through.

After foreclosure activity dropped across the board in May, new foreclosure notices increased 6.7% in June, and notices of trustee sale jumped 21%. In fact, notices of trustee sales have outnumbered preliminary notices of default for the past four months. The gap really widened in June, when there were almost 9,000 more notices of trustee sale.

But this trend could become the norm as banks have to restart more foreclosures than they initiate.

“Historically it is very unusual to have more Notice of Trustee Sale filings than Notices of Default” says Sean O’Toole, founder and CEO of ForeclosureRadar. “But with skyrocketing cancellations and the possibility of failing loan modifications, this will be increasingly common, as lenders are only required to file a Notice of Trustee Sale to restart the foreclosure process.”

Lenders pushed 23% fewer properties into REO status in June and 46% less than a year ago. The amount of properties that have received a notice of default but have not yet been scheduled for sale increased 8.8% in June, but further along the foreclosure pipeline, inventory remains constricted. The amount properties scheduled for sale dropped 1%, and REO inventory declined 4.8% in June.

Shevy and George are out in the trenches making offers on short sales daily. I spoke with Shevy yesterday, and he hasn't noticed any increased willingness among the various parties to make these deals happen faster. The usual culprit is the second mortgage holder.

The HAFA program pays the second mortgage holder $1,500 to go away. Most aren't taking it. Since many Orange County borrowers have assets, these second mortgage holders are demanding the sellers liquidate and pay them off before they approve the sale. In typical OC fashion, most of these sellers are unwilling to pay up. Perhaps at the lower rungs of the housing market where the borrowers have no assets, more short sales will go through, but in more affluent areas, the HAFA program is doing nothing to facilitate short sales.

Owners who attempt selling short haven't come to accept that they must be insolvent in order to walk away. The fantasy among most of them is that they can short sell and keep all their stuff. It doesn't work that way. Unless people start selling their assets to pay off these second mortgages, don't look for more successful short sales to occur in Orange County. It isn't going to happen.

Most owners will use delays in the short sale process to further game the system. It is an easy way to add six months to a year to the squatting process. The longer they play along, the more time they have to hide their assets and possibly get some price recovery.

As I have said before, all the parties involved have incentive to drag this process out. The end result is a great deal of squatting and more accelerated default. Once everyone has stopped paying their mortgage, the banks will be forced to resort to foreclosures to clean up the mess. More foreclosures are going to happen.

As banks attempt the transition to short sales and fail, the inventory should continue to balloon. More houses are being put up for sale, but the pace of transactions is not increasing. Between the flippers bringing foreclosures to the market and owners listing more short sales, I expect to see inventory to continue to rise.

Option ARMs are not affordability products

Many people took out Option ARMs because they could not afford the payments on a conventionally amortized mortgage. This was a classic affordability product, but as I have pointed out, Affordability Mortgage Products Make Prices Unaffordable. The previous owner of today's featured property used an Option ARM and despite a significant down payment, he couldn't afford the payments on this property.

  • This house was purchased on 8/12/2004 for $620,000. The owner used a $461,000 first mortgage and a $159,000 down payment.
  • On 7/27/2007, just before the credit crunch stopped origination of these products, the owner refinanced with a $458,400 Option ARM with a 1.75% teaser rate.

Foreclosure Record

Recording Date: 04/20/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/24/2009

Document Type: Notice of Default

This guy didn't get as much squatting as most. The property went to auction on 5/20/2010, and the opening bid was $409,500. To the pleasure of the first lien holder, the property was bid up to $445,300. The flipper stands to make a reasonable profit on the deal.

Irvine Home Address … 10 SUNSTREAM Irvine, CA 92603

Resale Home Price … $549,000

Home Purchase Price … $445,300

Home Purchase Date …. 5/20/2010

Net Gain (Loss) ………. $70,760

Percent Change ………. 15.9%

Annual Appreciation … 132.4%

Cost of Ownership


$549,000 ………. Asking Price

$109,800 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$439,200 ………. 30-Year Mortgage

$108,683 ………. Income Requirement

$2,254 ………. Monthly Mortgage Payment

$476 ………. Property Tax

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

$46 ………. Homeowners Insurance

$300 ………. Homeowners Association Fees


$3,076 ………. Monthly Cash Outlays

-$379 ………. Tax Savings (% of Interest and Property Tax)

-$567 ………. Equity Hidden in Payment

$190 ………. Lost Income to Down Payment (net of taxes)

$69 ………. Maintenance and Replacement Reserves


$2,389 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$5,490 ………. Furnishing and Move In @1%

$5,490 ………. Closing Costs @1%

$4,392 ………… Interest Points @1% of Loan

$109,800 ………. Down Payment


$125,172 ………. Total Cash Costs

$36,600 ………… Emergency Cash Reserves


$161,772 ………. Total Savings Needed

Property Details for 10 SUNSTREAM Irvine, CA 92603


Beds: 2

Baths: 1 full 2 part baths

Home size: 1,525 sq ft

($360 / sq ft)

Lot Size: n/a

Year Built: 1981

Days on Market: 40

Listing Updated: 40352

MLS Number: S619237

Property Type: Condominium, Residential

Community: Turtle Rock

Tract: Rb


Gorgeous Townhome in Turtle Rock community. New laminate floor and baseboard. Kitchen open to Family room with Balcony. Fireplace in Living room with new title decoration. Move-in ready.

How to Lose $1,100,000 in Irvine Real Estate

A recent trustee sale in the North Korea towers sets a new standard for housing bubble losses in Irvine: $1,099,400. Perhaps Irvine isn't such a safe haven after all.

Marquee at Park Place at Night

Irvine Home Address … 3131 MICHELSON Dr #1702 Irvine, CA 92612

Trustee Sale Price …… $653,100

He Wants To Dream Like A Young Man

With The Wisdom Of An Old Man.

He Wants His Home And Security,

He wants to live lke a sailor at sea.

Beautiful Loser, Where You Goona Fall?

You Realize You Just Can't Have It All.

Bob Seager — Beautiful Loser

The Marquee at Park Place: The North Korea Towers: The Beautiful Loser. Every original owner has lost a fortune. Some have realized their losses and given up, and some are still holding on waiting for 20 years when prices come back. Today's featured property transacted for 63% off the peak. That is quite a fall.

Was the housing bubble foreseeable? Did buyers like those profiled below simply get caught up in an unusual event, or was their foolishness obvious to anyone willing to examine the costs and benefits to make a rational decision?

I take you back to the prime of the housing bubble. In June of 2004 the kool aid was free flowing, people believed prices could only go up, and everyone who bought real estate was going to make a fortune. How wrong they were….

Penthouse Living at Marquee Park Place Offers Luxury, Panoramic Views

Publication: Orange County Business Journal

Date: Monday, June 7 2004

The luxurious penthouse condominiums atop the 17th and 18th floors of the Marquee Park Place residential towers in Irvine offer distinctive floorplans with up to 2,088 square feet of living space and panoramic views of city lights, distant mountains and the coastal horizon.

Orange County's first high-rise residential community, Marquee Park Place is being built by Bosa Development in ' the Park Place commercial and residential district. Nearly 95 percent of Marquee's 232 luxury condominiums are sold or reserved to date.

Marquee Park Place is Orange County's first high-rise residential community.

With the first move-ins scheduled for late 2005, Marquee Park Place consists of two gleaming concrete and glass 18-story towers. Each of Marquee's distinctive towers will house two-bedroom, two-bath luxury homes, as well as two-bedroom plans with den, ranging from approximately 1,275 to 2,088 square feet. Complementing the towers are four unique two-story townhomes that will be built as part of the Marquee community.

"The Marquee penthouses are elegantly designed and luxuriously appointed," said Ingrid Siikov, sales executive for Marquee Park Place. "The views from every penthouse are spectacular. When you're on the penthouse floors of Marquee Park Place, you're in your own world."

The marketing copy sounds very exciting, doesn't it? Living there seems like the American dream. And the prices will go sky high after the rich Asians come over to buy them later on.

Spectacular views

The Penthouse Plan F encompasses approximately 2,088 square feet and features a master bedroom suite with master bath and large walk-in closet. The bedroom suite has direct access to the home's expansive view deck with up to 700 square feet that commands a spectacular view of the surrounding city lights, mountains and coastal horizon.

The stylish home also has a large second bedroom with walk-in closet, spacious living room with an exterior view balcony, formal dining room and contemporary kitchen.

The Penthouse Plan H floorplan features 1,908 square feet with a view deck off the dining room and covered deck off the master bedroom.

When Pat Burkhart read about Marquee Park Place last year, she knew immediately that she wanted Marquee to be her new home. Currently living in Newport Beach's Big Canyon golf course community, Burkhart was the first person to buy a Marquee penthouse, and she says she can't wait to move in. "I'm very excited about living at the Marquee," she exclaims.

I wonder how excited she is now?

Stylish, safe living

Burkhart is not new to living in a high-rise community. When she lived in Singapore in the late 1990s, she lived in a high-rise and she says, "I loved it. I could walk to stores, movie theaters, just about everyplace I wanted to go. I think living in the Marquee will be the same."

That is part of the problem with these towers: it isn't the same as living in an urban area. It has all the inconveniences of suburban, car-dependant living and all the inconveniences of urban living — no yard, plenty of noise, and so on.

A world traveler, Burkhart says she also likes the idea of being able to lock her door and leave on a trip without concern for maintenance or security. And when she's home, she can savor the view from her penthouse vantage point. "I've wanted to live in a high-rise community ever since Singapore, and the Marquee will be perfect for me and my lifestyle."

Another penthouse buyer who can't wait to move into the Marquee is Jenny Szell, who is planning to sell her larger single-family detached home in Irvine to downsize and simplify her life. An interior designer, Szell says she lived in a high-rise apartment in Marina del Rey and was enamored with the lifestyle and the view.

"I really look forward to moving into Marquee Park Place," she says. "The convenience of high-rise living is very attractive to me. It's all very exciting."

Szell points out that she was first introduced to Bosa Development and its high-rise communities when she visited Vancouver, where Bosa is headquartered, and immediately decided that she wanted to live in a high-rise. "I was pleasantly surprised when I discovered that Bosa was building the Marquee in Irvine. It took only 15 minutes for me to complete the sale."

It took this woman only15 minutes to complete a sale on a nearly $2M condo? Brilliant!

New trend in condo sales

Burkhart and Szell are among several single professional women who've purchased Marquee homes, and they also represent a national trend in condominium sales, according to the National Association of Home Builders. About a third of condo buyers today are single women, compared to those who purchase single-family homes, where single women makeup 20 percent of buyers.

Given how bad the condo markets have already been crushed nationwide, single professional women must not be too happy about the housing bubble.

In addition to the Marquee penthouses, Siikov says buyers can still choose from a selection of the Marquee Plan E signature residences, 2,063 square-foot homes on the 13th through 16th floors. Along with panoramic views, the Plan E encompasses special amenities such as a breakfast nook, a den, powder room, and spacious living and dining room areas contiguous to the contemporary kitchen.

Beautiful amenities

All of the striking Marquee homes are appointed with the finest materials and fixtures, including quality wood cabinetry of cherry, walnut or zebrawood, and professional quality stainless steel appliances, and a state-of-the-art home-office communications/ Internet panel. Other amenities include rich carpeting and flooring selections in hardwood, limestone and marble, granite countertops, high ceilings, seven-foot interior doors, and a convenient storage locker.

Reflective of a five-star resort, the Marquee community will be served by a gated circular driveway with classic porte codiere and secured entrance leading to the elegant lobby with 24-hour concierge. Additionally, a 24-hour entry attendant will monitor access to the complex and closed-circuit cameras are stationed throughout the high-rise community. Residents and guests will park in a fourlevel, gated garage; each residence will have two reserved parking spaces in the garage.

The landscaped Marquee complex also features a business center, social room, billiards room, and an inviting outdoor plaza with a pool, barbecue area, lush gardens, and fitness facility with changing and locker rooms.

For $998 a month in HOA dues, the amenities need to be outstanding. The cashflow drain on these properties is enormous, particularly for those still paying on the ridiculous mortgages.

The Marquee Park Place sales gallery and model homes are open 11 a.m. to 5 p.m. Saturday through Thursday, and are closed Fridays.

To visit the Marquee sales gallery, from Jamboree Road take Michelson Drive east and turn left at Carlson Drive into Park Place. Drive through two stop signs going past the Edwards Cinemas, and take the first right after the second stop sign, at the six-story office building (3121 Michelson Drive) where the sales gallery is in Suite 150. Park in the parking structure adjacent to the office building (tickets will be validated). From Culver, take Michelson Drive west to Carlson Drive, turn right into Park Place.

For more information on Marquee Park Place contact the Marquee sales gallery, at 949-474-7703 or visit For more information about Bosa Development, visit

For more happy owners, please see Jan. 22, 2006: Orange County's high-rise era is under way.

The biggest loser

It is a policy of the IHB not to reveal the names of owners of properties. I am not out to embarrass any particular kool aid intoxicated fool but rather the mindset and thought process that produced their bad decision. Unfortunately, the name of the owner is in today's post because it is listed in the article above. I won't tell you which one because it doesn't really matter. Everyone who bought here was been wiped out.

The owner of this property paid $1,752,500 on 2/17/2006. She may have put down a deposit in 2004, but the sale is listed as occurring in 2006. She used a $1,226,600 one-year ARM and a $525,900 down payment. Ouch!

The property went up for auction on 7/2/2010 with an opening bid of $630,000: the bank was ready to lose half its stake on the courthouse steps. The bidders drove the price up to $653,100 leaving a total property loss of $1,099,400.

Let me repeat that: closed sale to closed sale, the loss was $1,099,400. The price of speculating in real estate can be quite high or those who have no idea what they are doing. Do you think the flipper will fare any better?

Marquee at Park Place at Night

Irvine Home Address … 3131 MICHELSON Dr #1702 Irvine, CA 92612

Trustee Sale Price … $653,100

Home Purchase Price … $1,752,500

Home Purchase Date …. 2/17/2006

Net Gain (Loss) ………. $(1,099,400)

Percent Change ………. -62.7%

Annual Appreciation … -17.9%

Cost of Ownership


$653,100 ………. Asking Price

$130,620 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$522,480 ………. 30-Year Mortgage

$129,291 ………. Income Requirement

$2,682 ………. Monthly Mortgage Payment

$566 ………. Property Tax

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

$54 ………. Homeowners Insurance

$998 ………. Homeowners Association Fees


$4,300 ………. Monthly Cash Outlays

-$450 ………. Tax Savings (% of Interest and Property Tax)

-$674 ………. Equity Hidden in Payment

$226 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves


$3,483 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,531 ………. Furnishing and Move In @1%

$6,531 ………. Closing Costs @1%

$5,225 ………… Interest Points @1% of Loan

$130,620 ………. Down Payment


$148,907 ………. Total Cash Costs

$53,300 ………… Emergency Cash Reserves


$202,207 ………. Total Savings Needed

Property Details for 3131 MICHELSON Dr #1702 Irvine, CA 92612


Beds: 2

Baths: 2 baths

Home Size: 2,062 sq ft

($436 / sq ft)

Lot Size: n/a

Year Built: 2006

Days on Market: 3

Listing Updated: 40219

MLS Number: U10000651

Property Type: Condominium, Residential

Community: Airport Area

Tract: Marq


Penthouse Suite. .. 2 bedroom plus den. Highly upgraded. .. ultra luxury with 24 hour concierge. HOA dues were just lowered below $1,000. Unit comes with 2 parking spots next to elevator. .. Floor Plans can be obtained at www. bosadev. com H Model on 17th floor

Responsible Home Owners Are Hurt by Irresponsible Loan Owners

Responsible homeowners are not losing their homes, but they are forced to pay a price for the foolish irresponsibility displayed around them.

Irvine Home Address … 43 SANTA COMBA Irvine, CA 92606

Resale Home Price …… $799,990


Dance with me

I want to be your partner

Can't you see the music is just starting

Night is calling and i am falling

Dance with me

Fantasy could never be so giving

I feel free I hope that you are willing

Pick the beat up and kick your feet up

Dance with me

Let it lift you off the ground

Starry eyes and love is all around us

I can take you if you want to go

Oh oh

Orleans — Dance With Me

Lenders and borrowers dance with disaster. Borrowers have the lead in the amend-pretend-extend fandango, but as the economy improves, along with lender balance sheets, lenders will take the lead. As the default shuffle plays out, wallflowers who chose not to cha-cha are wilting under the economic distress caused when the music stopped. Dancers are short on chairs.

Walking One Block Damaged By The Housing Crisis

by Tamara Keith

Dana Lane doesn't look devastated.

It's part of a California subdivision built in the late 1980s, a mix of stucco and wood siding with mismatched fences. It looks like so many working-class suburban blocks.

But since the foreclosure crisis started, Riverside County, Calif., has ranked near the top of the list for its rate of homes being taken back by banks. This is a county that has long attracted Los Angeles refugees who drove east until they could afford to buy, then had to commute hours every day. Neighborhoods are hurting. Even people who didn't get swept up in the bubble have been hurt by the bust.

Dana Lane is one particularly hard-hit block in the city of Moreno Valley. There are hints of what its residents have been through — a broken window, for-sale signs and brown lawns.

More than two years into the housing bust, 20 percent of the homes on Dana Lane have gone into foreclosure, and residents here wonder who will be next.

It is difficult for us to relate in our elitist bubble here in Irvine, but prices have been crushed in neighborhoods where borrowers in default have been foreclosed from their homes. Many more foreclosures are yet to come.

Fall from entitlement

Anita Sandoval stopped paying her mortgage five months ago. …

The house across the street just went for $75,000 in a foreclosure sale.

"And I bought mine for $260,000, and it's the exact same home," Sandoval says. "I've been in the house. It's the exact same home." [Ouch!]

But that's not why Sandoval stopped making her mortgage payments. Her savings ran out, and she was finally hit with the painful reality that she and her husband really couldn't afford this house. They never could.

Isn't that a textbook example of The Unceremonious Fall from Entitlement?

HELOC Abuse Riverside County Style

The Bubble Mindset

"Like everybody else, I'm in an upside-down loan," says Brenda Moore, who owes more than $300,000 on her mortgage. This is remarkable considering she bought her house in 1989 for $80,000. A search of public records reveals that Moore, a retired nurse, has refinanced her home eight times since 1998.

The loans are from a who's who of subprime lenders. With each loan she took out more equity, and each time the loan terms got worse.

"Hey, I had a lot of equity, so I would just go in there using it and having a lot of things done — outside and inside," Moore says.

Please, help me with the HELOC abuse grade. Based on her statement — and the fact that she quadrupled her mortgage — would you characterize her spending as thoughtless? She clearly rationalizes spending appreciation, so the grade is at least a D. But do you think she maintained her delusion that she was not spending her house? Or did she cross the line to earn an E?

Moore replaced a sagging fence. She put in new carpet and a tile floor in the kitchen. But that doesn't explain where all the money went. Most of it didn't go to tangible things; it went to raising her five grandchildren and two great-grandchildren even after she was no longer able to work.

At one point, Moore had just pulled out a chunk of equity when a family member passed away. She used the money to help pay for the burial.

"So that was a blessing because I had just — about a week [ago] — had just did the refi and was going to do some more work around the house, and that happened," Moore says.

Who are we kidding here? She blew the money on her entitlements. Even her justifications are weak. This woman spent the money obtained from her home through mortgage equity withdrawal as if this money were earned income. She carelessly managed her finances and created a Ponzi Scheme of debt. Her theft was enabled by her victim, so it is difficult to apportion blame, but there is plenty of guilt to go around. Is that character deserving of sympathy? And your tax money? Not that you have much choice in the matter….

When it got to the point that she could no longer make her mortgage payments, Moore thought about walking away.

But she says the Lord intervened. A nonprofit group helped her get a loan modification. Her payments have been cut in half. When a reporter tells her about the Betts family down the street, she seems a little surprised that there's anyone on the block who didn't refinance.

She is surprised her moral bankruptcy wasn't shared by her neighbors. Extraordinary Popular Delusions and the Madness of Crowds documents this behavior over the centuries; it's nothing new.

The Lord is now fostering moral hazard? The Lord wanted to bail this woman out rather than see her experience the consequences of her decisions? That isn't the Being I revere. A 50% reduction in payment means her modification is acting like an Option ARM, and this woman will be in foreclosure once banks stop dancing. I wonder if she will feel blessed then?

"So that's good they didn't have to," Moore says. "But then, too, I look at it this way: You're sitting on a bank, so if you can use it, use it because you can't take it with you, so enjoy it while you can."

Any of you that thought she earned a HELOC abuse grade of D rather than an E because you thought her spending was not thoughtless, do you want to rethink your grade?

My Heroes

[William and Laura Betts live on Dana Lane in the community of Moreno Valley, Calif. The couple stand out because they actually paid off their mortgage in 2005. William, who lost his job in November 2009, is glad they don't have to worry about making payments on their house.]

The bubble mindset here was infectious, but it didn't affect everyone.

William and Laura Betts stand out on Dana Lane. They've actually paid off their mortgage. They made their last payment in 2005 at the height of the refinance frenzy. It was a goal from the moment they moved in back in 1986.

This couple made paying off a mortgage a goal and a priority just as I recommend in Time to Payoff and Accelerated Amortization.

"Payment was $750, I think, and the very first payment we sent in 10 extra dollars, and they sent it back because we had to pay at least a whole month's principle, and that was $15 or something — I forget the exact number, but it was more than we had sent in," says William Betts.

Resisting Temptation

Every month they sent in a little extra. They are Mormon and say their faith guided them to be fiscally responsible. Sure, they got calls from mortgage brokers who were eager to help them turn their home into an ATM. But they resisted. They weren't even tempted.

"I'd hear the commercials on the radio about OK, 'This is the ultimate refinance.' And then three months later, the same company and the same radio host was [saying], 'This is the ultimate final refinance,' " William Betts recalls. "And you know that things just can't keep going like they're going without something happening. You think, this is crazy, this is insane. These people — they're foolish." …

It didn't take a PhD in economics to realize the housing bubble was wrong. In fact, that is perhaps the most upsetting element of the entire injustice: anyone could have seen this coming if they chose to open their eyes.

When William Betts thinks about what's happened to this street, he doesn't resent his neighbors' choices or the nice furniture and granite countertops they bought with imagined equity. He just feels bad for them.

"How do I say this?" Betts asks. "Most of our neighbors, I think, sold their inheritance for a bowl of pottage. The Jet Skis are gone, and so is their house." …

I have stated the same many times; conspicuous consumption can be viewed with pity and astonishment rather than envy and jealousy.

Back in November, Betts lost his job. It's the second time in four years he and his wife have had to live off of savings and unemployment. But at least they don't have to worry about their home.

"I just remember the day that we signed the papers that the house was now ours," Betts recalls. "You know, I've slept pretty good every night since then, 'cause when you own your house, you never have to worry about where you're going to live."

That is inner peace emanating from true financial freedom, and it is this family's reward for showing fiscal discipline, ignoring the Joneses, and living a virtuous life. It is sad that they are getting punished for the insanity around them; worst of all, they are being forced to pay for it in taxes as well.

Home prices in this neighborhood may have bottomed — nobody knows. The Bettses' home is now worth little more than it was when they bought it 25 years ago — not much of a reward for doing everything right.

But that's not how the Bettses see it: "Be it ever so humble," says William Betts, "it's ours."

I respect everything these people thought, said, and did.

These are financial titans worthy of much more respect than fools like the Emperor of Irvine. Net worth isn't the value of assets you control, it's the difference between asset value and debt. Debt subtracts from wealth. Debt does not make people rich.

More than a year ago, I wrote Responsible Homeowners are NOT Losing Their Homes. This couple proves it.

Responsible homeowners are NOT losing their homes.

To see the truth in this statement, one needs to have a clear definition of “responsible homeowner.”

A “responsible homeowner” is a buyer who, if they utilized financing, did not stray from the conservative parameters set forth by lenders (prior to the bubble) and financial planners. This includes using a maximum 28% debt-to-income ratio on the mortgage, at least a 20% down payment and fixed-rate conventionally amortizing financing.

Few who fit this definition are going to lose their homes; although, some of them may chose to walk away from the debt because they are hopelessly underwater. The only ones who fit the above definition who are in danger of losing their homes are those who lose jobs; they are the truly sad casualties of the housing bubble. Unfortunately, this is becoming more common due to the financial crisis caused by all the homeowners who borrowed irresponsibly.

Responsible borrowers are not the ones defaulting on their mortgages; irresponsible homeowners are.

If “responsible homeowner” is defined as a buyer who believed they could manage their monthly payment and did so until the loan terms changed, then by this definition, many responsible homeowners are going to lose their homes.

Almost everyone who signed up for a toxic loan thought they could make the payment; most did for a while. Many were convinced they could make the payments by a predatory lender out to make a few bucks on the origination. Many more believed they could supplement their incomes with the rapid appreciation they would enjoy as their house values rose to infinity. Does ignorance to their inability to sustain their housing payments make them responsible?

With so many Californians believing and acting like the irresponsible loan owners at the beginning of this profile, and with so few Californians believing and acting as our heroes, it becomes very difficult to foresee what the future holds. Contrary to popular belief that the housing bust is behind us, we are only in the 4th inning. The consequences of the bust — millions of foreclosures — have been delayed and deferred but not avoided. Will California kool aid survive the bust resulting in permanently inflated prices?

Irvine Home Address … 43 SANTA COMBA Irvine, CA 92606

Resale Home Price … $799,990

Home Purchase Price … $680,000

Home Purchase Date …. 2/9/2010

Net Gain (Loss) ………. $71,991

Percent Change ………. 17.6%

Annual Appreciation … 101.6%

Cost of Ownership


$799,990 ………. Asking Price

$159,998 ………. 20% Down Conventional

5.00% …………… Mortgage Interest Rate

$639,992 ………. 30-Year Mortgage

$165,646 ………. Income Requirement

$3,436 ………. Monthly Mortgage Payment

$693 ………. Property Tax

$250 ………. Special Taxes and Levies (Mello Roos)

$67 ………. Homeowners Insurance

$47 ………. Homeowners Association Fees


$4,493 ………. Monthly Cash Outlays

-$840 ………. Tax Savings (% of Interest and Property Tax)

-$769 ………. Equity Hidden in Payment

$311 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves


$3,295 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$8,000 ………. Furnishing and Move In @1%

$8,000 ………. Closing Costs @1%

$6,400 ………… Interest Points @1% of Loan

$159,998 ………. Down Payment


$182,398 ………. Total Cash Costs

$50,500 ………… Emergency Cash Reserves


$232,898 ………. Total Savings Needed

Property Details for 43 SANTA COMBA Irvine, CA 92606


4 Beds

2 full 1 part baths Baths

2,300 sq ft Home size

($348 / sq ft)

6,005 sq ft Lot Size

Year Built 1996

8 Days on Market

MLS Number S608182

Single Family, Residential Property Type

Westpark Community

Tract Mon


Remodeled and Customized 4/5 Bedroom Home at End of Cul De Sac. Entry to Sunny Living Room with High Ceilings and Custom Modern Flooring. Kitchen with Nook Opens to Family Room with Cozy Fireplace and Sliders to Large Backyard with lots of grass. Kitchen is upgraded with Stainless Steel Oven, Dishwasher and Sink, Glass Back Splash and Modern Decor European Cabinets. Main Floor Bedroom Now Used as Den, could be office of converted to 5th Bedroom. Master Suite Has Dual Vanity Sinks, Shower Stall, Tub and Large Walk-in Closet. Large drive-way, and only 4 homes at the end of the Cul de Sac, so great for children to play.. Apx 42 Acre Irvine Memorial Park Nearby with Tennis courts, Soccer Fields, Softball Diamonds, Batting Cages, Outdoor Amphitheatre, Gardens, Fountains, Large Playground, Tot Lot and Gazebo with Picnic Tables. THIS IS NOT A SHORT SALE OR A BANK REO, EQUITY SELLER CAN CLOSE QUICKLY.. OPEN HOUSE MARCH 13 – 12:00 TO 4:00

The flipper spent money well on staging.

Location, Location, Location:

Do you think this site may have some sound and air quality issues?

In the post, Do We Owe Baby Boomers Their Imagined Home Equity for Retirement? I profiled 55 Castillo which was also a corner property. I speculated then as I do now, "Do you think asset managers are disposing of their worst properties first?"

Previous Owners

I am not sure how to grade these owners as HELOC abusers; the choices are D, E, or F. Please help me out.

They purchased the property on 4/29/2005 for $865,000. They used a $692,000 first mortgage, an $86,500 second mortgage, and an $86,500 downpayment. On 12/11/2007 they refinanced with an ARM for $852,000 which withdrew all but $13,000 of their downpayment that was subsequently lost. They defaulted about a year later:

Foreclosure Record

Recording Date: 08/10/2009

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 05/04/2009

Document Type: Notice of Default

When these owners took out the new loan and withdrew most of their downpayment, what was going through their minds? If there were merely setting up a routine practice of equity extraction to fuel consumer spending, then they earn a D. If they took this money out carelessly, then they earn a E, but if they took this money out knowing they were likely to go under, then they gamed the system and earn an F.

High End Home Prices Benefit from Lack of Inventory

The high end has benefited from a lack of supply and low sales volumes. With lenders proceeding with foreclosure faster, we are starting to see the inventory we have been waiting for.

28 WOODS Trl kitchen

Irvine Home Address … 28 WOODS Trl Irvine, CA 92603

Resale Home Price …… $2,049,900


We can never know about the days to come

But we think about them anyway, yay

And I wonder if I'm really with you now

Or just chasin' after some finer day

Anticipation, anticipation

Is makin' me late

Is keepin' me waitin'

Carly Simon — Anticipation

Since the Government deeply inserted itself into the housing market, the future has become far from certain, and we spent an agonizing year anticipating the release of inventory lenders have determined will never come. Two-thousand ten is a different year; lenders are foreclosing in earnest, and we are seeing the first of this inventory hitting the market.

Report: Sales of pricey California homes drop in 2009

Sales of California homes priced at $1 million or more tumbled for the fourth consecutive year in 2009, according to a report out Thursday.

The number of million-dollar-plus homes sold dropped 23.8% to 18,621 in 2009 from 24,436 in 2008, according to San Diego real estate research firm MDA DataQuick.

If we were experiencing a true, robust housing market recovery, why are sales at the high end falling year after year? Low volumes are sustaining asking prices (that plus denial), but actual sales continue to plummet, and unless the government is planning to subsidize this market, look for a crushing weight of pricing to fall at the $729,750 conforming limit plus available downpayment savings. Expect a dramatic squashing of the market down to the $800,000 to $1,100,000 range

The decline was the result of buyers holding back, a weak mortgage market for big loans and the drop in home prices over the last several years dragging the value of several houses below the $1-million-dollar threshold, DataQuick said.

"Prestige home sales are a unique subcategory of the real estate market. The buyers and sellers respond to a different set of motivations,” DataQuick president John Walsh, said. “In the multimillion-dollar price ranges, decisions are largely discretionary and aren't as dependent upon jobs, prices and interest rates the way they are for most buyers and sellers."

This article is focused on homes prices at $1,000,000 and above, and yet the reporter quoted John Walsh's statement about multimillion-dollar homes. The reporter is implying that the dynamics of real wealth have some bearing on the pretenders who own houses they believe are worth between $1,000,000 and $2,000,000 where the major disaster is coming. Multitudes of borrowers overextended themselves to get into houses in the no-man's land between the FHA limit and price points only the truly wealthy can afford.

The trend underscores the nature of the state’s housing recovery. Sales of California home sales at all price levels increased 16.9% percent last year, to 460,166 from 393,703 in 2008. One in 25 homes sold for a million dollars or more last year, while the year before it was one in 16 and was one in nine in 2006.

No, the trend underscores the nature of the State's housing fiasco; we have no housing recovery, and saying that we do doesn't make it so; although, it makes people feel good, and it keeps the high end in denial. Why are homedebtors idiots? Because they are lied to constantly.

Lower-end homes largely fueled last year’s buying spree as both investors and first-time purchasers sensed opportunity in steeply discounted foreclosure properties across the state.

The Federal Housing Administration, a federal agency that insures mortgages often used by first-time buyers with little cash for a down payment, has played a big role in supporting the market for lower-end properties in California and some move-up markets. In pricier California communities, such as Los Angeles County, the limit for FHA loans was increased to $729,750 from $362,790 less than two years ago.

But more expensive homes haven't enjoyed that same level of government support nor were they hit as hard by the subprime mortgage meltdown.

Traditional luxury markets are faring better than those that experienced large price increases during the bubble years. For instance, million-dollar-plus home sales in Riverside County dropped 48.6% last year while Los Angeles County saw a 13.3% decline.

Notice the subtle lie perpetrated in this sentence: "Traditional luxury markets are faring better than those that experienced large price increases during the bubble years." Did you read, "Traditional luxury markets did not participate in the bubble therefore, prices will not fall?" The writer intended for you to get that message, and it is deceitful drivel.

There is one, and only one, reason million-dollar-plus home prices have not fallen off a cliff: lenders have not been foreclosing and discretionary sellers are in denial, so both available inventory and sales volumes are very low. Demand is nearly absent, but if supply is restricted enough, prices don't fall. What we are left with is a huge market segment dominated by shadow inventory with nobody to sell it to.

Lenders are finally moving properties through the foreclosure system, and I am anticipating much more high-end inventory this year. Through the summer, demand may be sufficient as unsatisfied buyers exist from 2009, but their numbers will be depleted quickly, and once exhausted, prices will get pushed down by the weight of all this inventory. Financing will not return, and many properties will fall to the $729,750 limit plus savings. Have you noticed that the Irvine Company priced everything within reach of financing? If they believed the over $1,000,000 market was viable, they would be selling at those price points; they are not because no market exists there.

I am profiling many more Trustee Sale flips lately because there have been many more Trustee Sales, sales that simply were not occurring last year. The pace is quickening with some lenders clearing their books. Today's featured property is an REO the lender is hoping to flip for a price higher than its peak purchase price in 2006. Has the high end already fully recovered?

No, no way.

28 WOODS Trl kitchen

Irvine Home Address … 28 WOODS Trl Irvine, CA 92603

Insightful Housing Beacon

Resale Home Price … $2,049,900

Income Requirement ……. $426,871

Downpayment Needed … $409,980

20% Down Conventional

Home Purchase Price … $1,700,000

Home Purchase Date …. 11/4/2009

Net Gain (Loss) ………. $226,906

Percent Change ………. 20.6%

Annual Appreciation … 57.5%

Mortgage Interest Rate ………. 5.05%

Monthly Mortgage Payment … $8,854

Monthly Cash Outlays …..….… $11,650

Monthly Cost of Ownership … $9,100

Property Details for 28 WOODS Trl Irvine, CA 92603

Gourmet Kitchen Award

Beds 5

Baths 4 full 1 part baths

Home Size 3,800 sq ft

($539 / sq ft)

Lot Size 9,052 sq ft

Year Built 2007

Days on Market 11

Listing Updated 2/3/2010

MLS Number S603502

Property Type Single Family, Residential

Community Turtle Ridge

Tract Arez

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

Spacious five bedroom plus four and one half bath home situated on a private cul-de-sac in the gated community of Turtle Ridge. This home is like brand new through out. Gourmet kithcen offers stainless steal appliances, granite counters, travertine flooring. Upper level media/game room loft. Main floor bed and bath. Entertaining rear yard with custom designed pool, spa, outdoor kitchen, fireplace, courtyard fountains, water features. Plus much more

kithcen? Does the realtor still earn the gourmet kitchen graphic when he spells kitchen wrong?

How many of you were introduced to Carly Simon this way?