Properties take a long time from the initial financial stress of the owner through foreclosure and on to sale in the open market. Today’s featured property is nearly two years into its journey.
Well I wish I lived in the land of fools, no one knew my name But what you get is not quite what you choose Tell me, how long, how long
I first featured today’s property in the post Burlingame Over on July, 26, 2007. In fact, I still have the pictures from that listing, so that puts me one ahead of the listing agent. I do like his pretty REO sign out front though.
Based on the previous listing, this homeowner was either a flipper or someone who was overextended from the start and wanted to get out. The financial distress of being a loanowner finally caused them to default at the end of 2007. A formal notice of default is issued at least 90 days after missing the first payment, so we can assume by the 4/10/2008 NOD, that this owner has not made a payment since December of 2007, and maybe even further back than that.
Foreclosure Record Recording Date: 02/06/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000052970
Foreclosure Record Recording Date: 04/10/2008 Document Type: Notice of Default Document #: 2008000164962
The records show the lender took ten months from NOD to NOT. This is supposed to be a 90 day process; seven full months were added to the process. That is seven months of free rent in addition to the seven a homedebtor automatically gets in the foreclosure process.
Once the bank finally decided to foreclose, they did do it promptly. The action took place on 3/2/2009 and the H&R BLOCK BANK paid $611,036 for the property.
Based on what I am seeing, unless the foreclosure process picks up later in the real estate cycle, rather than this problem being resolved by 2013, it will probably drag out until 2016 or later. There will be no meaningful price appreciation until the foreclosure problem is behind us.
Private Northpark guard gated location, end unit excellent location,
two bedroom and loft area close to pool and greenbelt area
Another I-don’t-give-a-shit description.
This property was purchased on 5/31/2006 for $712,500–let that sink in for a moment. Someone paid that much for a 2 bedroom 2 bath condo and thought it was rational. Anyway, the owner used a $676,875 first mortgage and a $35,625 downpayment. Since this was purchased right at the peak, there were no further refinances.
If this property sells for its current asking price, and if a 6% commission is paid, the total loss will be $233,794. The property is being offered for 27% off its peak purchase price.
It is still overpriced.
BTW, I thought you might find this 20 year rollback interesting. It is a condo in Corona selling for less than its 1989 sales price. The 1989 sale was near the peak of the previous bubble, and I long suspected we would find a rollback like this one in our area. This isn’t a trashout. The only reason it has rolled back 20 years is because that is what it is worth to a cashflow investor today. If the previous bubble got 20 years ahead of current valuations, how far ahead of time was the Great Housing Bubble?
Many analysts have noted that lenders are often better off doing a loan modification with principal reduction than going through the foreclosure process. Despite this fact, lenders would rather foreclose and lose more money than do any kind of principal reduction. Why is that?
Confusion never stops Closing walls and ticking clocks Gonna come back and take you home
Cursed missed opportunities Am I a part of the cure? Or am I part of the disease?
Forgiveness is the supreme act of kindness. The beneficiary of forgiveness is not the person being forgiven, but the person doing the forgiving. Carrying anger is both spiritually and physically harmful. That being said, don’t expect forgiveness from lenders any time soon.
There has been much discussion about whether or not banks should modify loans, including giving principal reductions, or if they should simply foreclose and move on. There are compelling financial arguments that favor loan modification and principal reduction; it is not going to happen.
Banks are fully aware of the moral hazard of principal reduction. Once they go down that road, it changes the behavior of borrowers everywhere. l last wrote about this in Crisis or Cure? In that post,I noted the following:
At the conclusion of Mr. Mortgage’s most recent post, he stated, “Bottom Line — after seeing these latest figures I am
more convinced than ever that the next step is wide-spread principal
balance reductions that will reduce the massive negative equity burden
in America and be a first-step to solving the mortgage and housing
crisis once and for all.” Widespread principal balance reductions are
occurring in a process known as foreclosure. Once a property goes
through foreclosure and is resold, the new buyer has a much lower
principal balance than the old one. That is what needs to happen.
Does Mr. Mortgage believe this is going to happen through voluntary
“gifts” of principal reductions to existing borrowers from the lenders?
That is what his statement implies. I rather doubt it. There is no way
to make this “gift” equitable, and the moral hazard would be extreme,
and the lenders will resist this to the bitter end. Look at their
opposition to allowing bankruptcy judges to reduce principal balances;
they would rather take the home back in foreclosure than allow
principal reductions even in the case of borrower insolvency and
bankruptcy. Further, they have managed to kill that measure in the
Senate—a Senate completely controlled by an antagonistic Democratic
majority. Don’t expect to see either a voluntary or a politically
mandated effort at principal reduction any time soon.
At the bottom of the astute observations, there was this gem from grabasnorkel:
IR you and others
have mentioned the choice the banks face -> either mod the loan to X
amount or foreclose and get the same X amount.
Seems like equivalent options, but they are not. The threat of
foreclosure has to be backed up with real foreclosures, if that threat
is watered down, it becomes less of a stick they can use with other
loans. We see some of that in the marketplace right now because many
people are expecting a loan mod and have therefore stopped paying on
their mortgage.
It’s like a loan shark. When loans aren’t repaid, they have to break
bones, even if the borrower is broke. Even once in a while the borrower
is found dead – this has the purpose of keeping the threat real.
If you f#%k a mafioso over hard, and skip town, he’s still going to
come after you to kill you even if he can’t get his money back. Why is
that?
Or a credit card company. They don’t HAVE to ding your credit if you
default on a card, but they will. If they don’t then they won’t be
taken seriously and that leads to more defaults.
Two years ago a guy at work told me the banks would be reluctant to
foreclose because they wouldn’t net anymore than they would by working
with the borrower.. He was wrong then, and is wrong now. Think about it
for a moment.
I have been thinking about this comment for a couple of weeks, and I have come to the conclusion that grabasnorkel is right. The political behavior of lenders lends evidence to this same conclusion. Besides the lobbying for watered down legislation I mentioned above, consider the Bankruptcy Abuse Prevention and Consumer Protection Act passed in 2005. The main purpose of this major legisltation was to make it more difficult to obtain debt forgiveness. When you really think about it, lenders will do just about anything to avoid debt forgiveness even if the short-term costs are higher. Hence, we have loan mods that do not forgive debt (but do create lifelong homedebtors) and we have foreclosures.
The result of bank lobbying and practices is going to be a huge wave of foreclosures. It is clear that Americans have too much debt and need significant debt reductions. We will modify those few on the fringe, and we will foreclose on the rest. That is just the way of things.
One final ramification of lender policy is going to be the long-term exclusion of the foreclosed from the housing market. Previously, I had believed that we would see a resurgence of subprime to serve the needs of those with good jobs and healthy downpayments. Now, I don’t think this is going to happen. If current debtors believe they will be given a home loan in 18-24 months after a foreclosure, many more people will default. Lenders are going to exclude this group from home ownership for years just to serve as a deterrent to others. Current GSE policy is a five-year waiting period before they will buy or insure a loan from a borrower who has gone into foreclosure. Despite political pressure likely to mount in the future, don’t expect this to change.
In short, overextended borrowers are in deep trouble, and lenders intend to keep it that way.
I have joked about the Banker’s Prayer. Do you think they will forgive us our debts? or are overextended borrowers in as much trouble as I say they are?
BANK OWNED!!! Premier Quail Hill condominium. Granite countertops and
stainless steel appliances, ceiling fans, travertine flooring &
berber carpet. Fabulous master bath with spa tub and marble accents.
This property was purchased on 12/6/26 for $870,000. The owner used a $696,000 first mortgage, a $87,000 HELOC and an $87,000 downpayment. That is all gone as the property went back to the lender on 2/11/2009 for $590,750.
If this property sells for its current asking price, and if a 6% commission is paid, the total loss will be $218,768.
Due to the foreclosure moratoria, overwhelmed REO departments and a reluctance to take losses on bad loans, the foreclosure and disposition process is taking much longer than it should. In the interim, homedebtors facing foreclosures get to live rent-free in $1,000,000 properties.
Just when you think that you’re in control, just when you think that you’ve got a hold, just when you get on a roll, here it goes, here it goes, here it goes again.
The foreclosure moratoria we have witnessed over the last year were sold as a way of keeping responsible homeowners in their properties. That is a lie. The truth is Responsible Homeowners are NOT Losing Their Homes, so the real reasons for the moratoria are different than what is stated.
From a political standpoint, foreclosure moratoria are an easy sell because more than half the population are homeowners, and it has a veil of compassion that plays well in the media. Politicians who embrace the moratoria are rewarded with support (not from us but from others.) However, the real reason for the moratoria is to save the banks.
Our banking system is insolvent. Anyone who reads real estate and financial blogs knows that. We are supporting zombie institutions in the hopes that if they can make enough money on the huge interest rate spreads they are enjoying right now that they may be able to revive themselves. The verdict is still out on that one.
In order to disguise the banks insolvency, the government, through pressure on the Financial Accounting Standards Board (FASB), is allowing banks to mark their assets to the value they want them to be rather than to what they are really worth. This provides the appearance of solvency.
To maintain the illusion, banks do not want to get many more data points that show their valuations to be an illusion. The easiest way to accomplish that is to avoid foreclosure and asset disposition because then they must recognise the loss. As long as they haven’t gone that far, the mark-to-fantasy accounting rules allow them to keep the loan on their books at fantasy values, even if the loan is not performing.
The avoidance of foreclosure will be an ongoing problem with high end properties because the losses on these will be so large. The high end, particularly in the beach communities, is so inflated that the drop to traditional valuations is going to cause catastrophic losses with the lenders. Obviously, they are in no hurry to incur or recognize these losses. The lenders are in just as much denial as the homeowners. If it wasn’t for those pesky defaults, they could maintain their denial for a very long time.
Foreclosure Record Recording Date: 11/26/2008 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2008000552034
Foreclosure Record Recording Date: 08/22/2008 Document Type: Notice of Default Document #: 2008000401664
Today’s featured property was issued a notice of Trustee Sale around Thanksgiving of last year. The lender could have foreclosed at Christmas time (I could see delaying that one). This property should have been at auction in early January, but here we are in June, and the freeloading homedebtor likely still occupies this property (I don’t know for sure). I don’t know why they are trying, but it is for sale.
Some responsible buyer may bid on this property, although it is most likely going to be a foreclosure. Who knows, perhaps this homedebtor will be given a loan mod and allowed to stay in this place. The lenders can maintain their denial a bit longer that way.
OPEN HOUSE ON FRIDAY 5/29 FROM 2-6PM. BRING YOUR BUYERS TO SEE THIS
BEAUTIFUL HOUSE. Opportunity Knocks! Spacious bright.A large lot in
such a great neighborhood within both Orange County and the City of
Irvine,area of Turtle Ridge.You must see this one. One Bedroom and one
bath for an office or guests.Large living room with fire place, formal
dining room, gourmet kitchen with granite counter. Hardwood flooring
downstairs and carpet upstairs.
This description illustrates how clueless realtors are to the changes in their marketing environment. They still believe the MLS is some kind of private communication between agents when in fact, it is now the primary way buyers find properties. Rather than take advantage of the medium, most realtors don’t even realize it is being used. If they did, perhaps they would not write such horrible descriptions and address comments to the other agents.
BTW, someone commented recently that I do not capitalize “Realtor” when it should be. If you think about it for a moment, you might see why I do not bother….
This is another pretender living the good life in Turtle Ridge. It is faux owners like this one that will bring down pricing in Turtle Ridge.
This property was purchase on 11/24/2004 for $1,274,000. The owner used a $1,000,000 first mortgage and a $274,000 downpayment. That much was real enough.
On 12/20/2005 the property was refinanced for $1,170,000 with an Option ARM with a 1.25% teaser rate.
On 12/2/2005 he also opened a HELOC for $90,000.
On 9/12/2006 Countrywide gave this guy a $533,250 HELOC. Brilliant.
Total property debt is $1,703,250 plus negative amortization.
Total mortgage equity withdrawal is $703,250 which includes the downpayment.
If this property sells for its current asking price, the total loss to the lenders will be $767,950 after a 6% commission.
Most homebuyers underestimate how much cash they really need to purchase a house. Back when houses provided money, this was less of a problem than it is today.
livin off an income of depression and rejection feeding off the remains of a scab of an infection locked to a chain of i.o.u.s and endless debt i’m cashless and pathetic
Unlike the heyday of the Great Housing Bubble when 100% financing was readily available, it now takes cash to close a real estate deal. If you have no cash, you get no house.
So how much cash does it take to close a deal? and how much cash do you need to have available to get through the process and still have a life? The actual cash demands during the process come from four main areas:
Downpayment — 3.5% – 20%+
Closing Costs — 1% – 3%
Inpsection Contingencies — 0% – 5%+
Furnishing and Move In — 2% – 5%+
The downpayment is the largest and most obvious use of cash in the homebuying process. Downpayments are generally 20% of the purchase price of the home because lenders are usually only willing to loan 80% of the appraised value or purchase price, whichever is smaller. Lenders will extend loans at levels greater than 80% of the value if a third-party issues insurance on the loan and promises to pay off the lender in the event of a loss.
The insurance on loans can come from a government entity like the FHA, or it can come from a private mortgage insurance company. In the wake of the Great Housing Bubble, private mortgage insurance is very hard to obtain due to excessive losses by insurers. The only insurer of loans over 80% LTV is the FHA which insures loans up to 96.5% LTV; this results in a 3.5% downpayment. The problem with FHA loans, and all private mortgage insurance, is the cost; you pay a premium for this insurance that comes out of the amount you could be putting toward a larger payment on a larger loan. Basically, if you don’t have a 20% downpayment, you will get much less house because you will both finance less and have less to put down.
Another issue related to downpayments is caused by a low appraisal. Sometimes buyers fall in love with a property and bid higher than its appraised market value (this also happens with falling comps in a declining market like ours today). When an appraisal comes in below the agreed sales price, the lender will only loan to appraised value–the buyer must make up any shortfall with their own cash if they want to close the deal. This is one of the reasons downpayments have been so high in Irvine since prices started falling; only those with the extra cash can close the deal.
{book2}
Closing costs are another hefty yet forgotten drain of your cash. These come in two forms; fees and contingencies. The fees you will pay may include any of the following: appraisal fees, lender fees, assumption fees, attorney’s fees, credit report, escrow company fees, “garbage” fees (miscellaneous charges, not your garbage pick up), loan fees, inspection reports (more on this next), prepaid homeowners insurance, prepaid loan interest, prepaid property taxes, private mortgage insurance, recording and filing fees, survey fees, tax service fees, title search fees, transfer tax, and other fees. Not all of these fees are incurred on each transaction, but most are. These add up to between 1% to 3% of the purchase price of the property with 2% being the norm. Buyers pay this out of their cash as these costs are not usually rolled up into the loan.
Once you enter the escrow process, you will pay for property inspections (you do not have to, but you are very foolish not to). The inspections may turn up expensive repairs. Some repairs may be immediately necessary while some may be able to be deferred. In either case, you will need to go back to the seller to negotiate who will pay for these repairs. The seller is under no obligation to offer you any allowance or offer to make repairs to the property. If the seller is unwilling to make repairs, as a buyer you have the right to terminate the escrow and obtain a refund of your deposit, or you can decide to go ahead with the deal and make the repairs yourself–out of your own cash. It is sometimes possible to get the loan increased to cover these items, but usually it is not.
The cost of moving in and furnishing the property is another area of cash need. Many people simply move the furnishings from their previous residence, but many do not. It is a nearly universal desire to have new furniture and appliances when moving in to a different house. Those that have the cash reserves after the closing nearly always do this. Depending on the tastes of the owners, this number can be just about anything, but a good rule of thumb is to have 2%-5% of the purchase price set aside for moving expenses and new furnishing.
Another issue related to cash management and housing costs is the need to keep a cash reserve. Financial planners tell people they should have six months cash reserve as liquid savings at all time. Although that sounds good in theory, in practice almost nobody does this. In the real world few people consider all the expenses listed above, so they drain every penny they have by the time they close escrow; the cost of furnishing and moving in is financed on credit cards. The closest most people have to six months reserves is a large available credit line through a collection of credit cards (remember Southern California’s Cultural Pathology and “credit is saving”). Lenders often require borrowers prove they have at least two or three months of mortgage payments saved up, but even if they had this at closing, most blow it when they move in.
Despite these real world problems, it is important to have an adequate budget for the actual cash demands of the transaction and the move in plus the cash reserves to survive after the fact. During the housing bubble, people could rely on house price appreciation to furnish the house, fund all repairs, replenish an emergency reserve fund and provide additional spending money. Over the next decade or more, houses will provide none of these things; the money will need to come out of wage income. Few are prepared for this reality, but now you know what you are facing and how much this will all cost. Think about it when you go to bid on property when the time is right.
Beautiful home in gated Northwood Community. Home has high ceilings,
master bedroom suite with balcony, a formal dining room as well as a
family room with fireplace. Community has many amenities and is close
to schools, parks, and shopping.
When a realtor takes a short sale listing, they know they probably will not make a commission from it. You can tell because the listings have no money and less than 5 minutes time put into them, just like this one.
This property was purchased on 6/22/2005 for $1,200,000. The owner used a $900,000 first mortgage, a HELOC for $180,000, and a $120,000 downpayment. He refinanced the first mortgage for $1,040,000 on 1/3/2007. He probably wishes now that he did not pay down the HELOC because after the refinance, he had $160,000 of his own money into the property.
If this property sells for its asking price, the owner stands to lose his $160,000, and the lender stands to lose as well.
The big news this week was the implosion of the Treasury market for 10-year Notes. The yield on these has a strong impact on mortgage interest rates. Mr. Mortgage discussed this in his recent entry, 5-28 – Potential Consequences of 5.5% Mortgage Rates. He walks you through all the implications of the mortgage meltdown. He then followed up with 5-29 – ‘The Day After’ the Interest Rate Spike. The bond markets rallied and the spike may be reversed, or this may be the end of low interest rates. The next two weeks will be critical.
You can find IrvineRenter on Twitter. I figured out how to get the IHB posts to automatically feed into it. So if you are into Twitter, you can follow the IHB there as well.
Tomorrow is our ninth Wedding Anniversary, so I want to wish my wife a happy anniversary. I love you.
The chart below is one of the more interesting I saw this week. It is hard to deny there was a real estate bubble in Las Vegas. Look at the trajectory of the line; you have to suspect there will be some downside overshoot.
Check out the carnage in Riverside County. The median home price there is now $179,000. There is no way Orange County in general and Irvine in particular can sustain its prices when substitute housing is that much cheaper in Riverside County. The historic price differential between Riverside County and Orange County will re-establish itself, it is only a matter of time. I doubt it will happen by a large increase in prices in Riverside County.
