California, preaching on the burning shore
California, Ill be knocking on the golden door
Like an angel, standing in a shaft of light
Rising up to paradise, I know I’m gonna shine.
My time coming, any day, don’t worry about me, no
Its gonna be just like they say, them voices tell me so
Seems so long I felt this way and time sure passin’ slow
Still I know I lead the way, they tell me where I go.
Estimated Prophet — Grateful Dead
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This could be the song of the guy who delivers the paperwork for a foreclosure…
Today’s owner must have estimated a fair profit for their property; otherwise, they probably would not have gone out and borrowed more than they paid for the property. In context with the previous HELOC abusers we have profiled, today’s seller is a minor leaguer. They are extraordinary in their ordinariness. They are stereotypical of many homeowner’s behavior during the bubble. People really believed their home appreciation was free money they could spend as income because their house would go up in value forever. In hindsight, it is laughable and ludicrous — and to some of use in foresight it was as well — but to those caught up in the mania, it made perfect sense.
Irvine will not be savaged by subprime (other than the job losses.) Irvine will be devoured by its own consumption. As I demonstrated in What is Equity?, if you consume your equity or buy at too high a price, the inflation hedge is the only thing keeping you above water, and if you consume too much through bad loan terms or HELOC abuse, you will go underwater and you will be at serious risk of losing your house.
Today’s seller bought in the upward trajectory of the speculative equity curve. Since they bought in 2003, they were too late to stay above water at the bottom of the trough; however, it might have been manageable if they had used conservative financing and not used their HELOC. Instead, they chose a different path, and now they are a short sale. This actually makes it easy to estimate their profit: they paid $830,000, and they borrowed $952,000, so the made $122,000 on the property. Of course, since they have recourse loans on the property, and they are a short sale, they have no protection from the lenders collections department. There may be a question as to how much of this “profit” they will be able to keep…
Asking Price: $899,000
Income Requirement: $224,750
Downpayment Needed: $179,800
Monthly Equity Burn: $7,491
Purchase Price: $830,000
Purchase Date: 10/6/2003
Address: 2 Valente, Irvine, CA 92602
| Beds: | 5 |
| Baths: | 5 |
| Sq. Ft.: | 3,103 |
| $/Sq. Ft.: | $290 |
| Lot Size: | 6,500 Sq. Ft. |
| Type: | Single Family Residence |
| Style: | Contemporary/Modern |
| Year Built: | 2001 |
| Stories: | Two Levels |
| Area: | West Irvine |
| County: | Orange |
| MLS#: | S511815 |
| Status: | Active |
| On Redfin: | 94 days |
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Unsold in 90+ days
Magnificent turnkey gem nestled on ultra-premium lot on end of safe & quiet CDS! Gorgeous curb appeal thanks to contemporary styling + stone detailing & mature landscaping. Dramatic living room entry boasts nice hardwood flooring + custom lighting & French door access to patio. Stunning gourmet kitchen w/ rich European cabinetry, granite counters, backsplash, island & built-in range & hood. HUGE master suite w/ private bath & walk-in closets. Entertainers’ yard.
Ultra-premium end lot? You mean the one backing on to Jamboree? safe & quiet? Have they no shame?
CDS? Collateralized Debt Servitude?
Magnificent Turkey…
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This property will probable look like a breakeven transaction when it finally sells. If they had used a 30 year fixed and avoided the HELOC, they probably would escape with some equity. As it stands, any assets they do escape with will be a target for their lender, although in the short term, they made $122,000. If this house sells for asking price and a 6% commission is paid, the lender stands to lose $106,940.
If you were the lender who had the second lien that did not get paid off in full, aren’t you going after the money the borrower took?
