Flippers Add Liquidity

Today’s featured property was purchased by the lender at a significant discount to its current asking price. What does it mean?

21 Orangetip kitchen

Asking Price: $729,900
Address: 21 Orangetip Irvine, CA 92604


And just…Flipper
Let her cry…if the tears fall down like rain
Let her sing…if it eases all her pain
Let her go…let her walk right out on me
And if the sun comes up tomorrow
Let her be…let her be.

Let Her Cry — Hootie and the Blowfish

Flipper… Dolphin… Blowfish… Get it?

elle and flipper

Don’t you want to be that flipper? Make a pile of money trading stucco boxes, and you too can swim naked with supermodels — or whatever it is you want.

Flippers Add Liquidity

The real value flippers add to a market is liquidity. The flippers who have been successful lately are those who buy at auction and sell for more in the resale market. Given the near certainty of a large amount of supply coming on the market, flipping is a risky proposition. The good flippers know this, and many have been pulling back.

When flippers become cautious, it reduces liquidity and lowers auction prices. Lenders must lower their bids significantly to avoid purchasing the property, and even then, there are times when no flipper can be enticed to buy.

The bank the purchased today’s featured property paid $525,147 on 7/7/2009. If it really is worth $200,000 more in the resale market, some flipper missed a great deal. This will entice them back into the game.

Flipping in a declining market is a game for the quick and the dead. It you get in and out quickly enough, you can profit from the trade. However, if you pay too much or get greedy and ask for too much — well, then you are a knife catcher.

knife-catcher

Flippers add liquidity to the market through keeping home prices high as well. As I noted last week, when flippers drive up home prices, it provides higher appraised values for all properties, and in a kool-aid world, more HELOC money for every homeowner to spend. That is the liquidity every homeowner can appreciate.

21 Orangetip kitchen

Asking Price: $729,900

Income Requirement: $182,475
Downpayment Needed: $145,980

Purchase Price: $525,147
Purchase Date: 7/7/2009

Address: 21 Orangetip Irvine, CA 92604

Beds: 4
Baths: 3
Sq. Ft.: 2,300
$/Sq. Ft.: $317
Lot Size: 3,877 Sq. Ft.
Property Type: Single Family Residence
Style: Contemporary
Stories: 2
Year Built: 2005
Community: El Camino Real
County: Orange
MLS#: P701125
Source: SoCalMLS
Status: Active
On Redfin: 7 day

Gourmet Kitchen Award

MOVE IN CONDITION – FRESH PAINT, NEW FLOORING. Gourmet kitchen with granite countertops, island counter, stainless steel appliances. Dual pane windows throughout. Large master bedroom with walk-in closet; master bath with double sinks, separate shower and jacuzzi tub. Fireplace in living room. Bonus loft. Laundry Room. Dual pane windows. Private courtyard. Must see!

Must see! Really? Why must I see it? Why do realtors say this? Are people really motivated to action by this statement in a description?

This one has been in the foreclosure pipeline since at least last July, depending on how long between the first missed payment and the notice of default. This must be at least 90 days, so the previous owner quit making payments at the latest in July of 2008. It is taking just over a year to process properties like this one.

Foreclosure Record
Recording Date: 02/03/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2009000048159

Foreclosure Record
Recording Date: 10/31/2008
Document Type: Notice of Default
Document #: 2008000500578

The lender will not actually make $200,000 if they get this asking price as they are just trying to get their original loan amount back. Good luck with that.

http://www.crackthecode.us/images/IWantYouToCatchThisKnife.jpg

45 thoughts on “Flippers Add Liquidity

  1. Freetrader

    Is this really a SFR? It sure looks to me like it shares a common wall in that Redfin picture, and the overhead shots do as well. There may be some weird techincality that allows this house to be regarded as a single family residence, but it looks like a townhome to me.

    1. Walter

      It is in the description:

      Property Information
      * Acres Source: Assessor
      * Attached

      So if it is a SRF, is is a legal term, not a free stander.

      1. Freetrader2

        Sounds like a bit of a ‘bait and switch’ — if so, this is even more overpriced that it appears at first glance.

  2. winstongator

    If the current ‘value’ is somewhere between what a flipper will pay at auction and what the flipper sells for, then the liquidity they provide is almost the opposite of Geithner’s legacy loans program. I worried about the program because I thought banks would be unloading loans at higher than value and the investors would exploit the fdic guarantee. Now it seems banks will offload the loans (homes) for below ‘value’. That move by banks is a positive. I question whether the premium flippers are charging is worth it.

    1. winstongator

      None in FL either. Those cities are really just the ‘in’ suburbs of cities with currently successful, growing, companies.

  3. Geotpf

    Another lovely house (well, as Freetrader said, it shares a wall, so condo/townhouse really) directly across the street from the 5 freeway. WHAT? YOU CAN’T HEAR ME OVER THE TRAFFIC NOISE? I SAID ANOTHER LOVELY HOUSE DIRECTLY ACROSS THE STREET FROM THE FREEWAY!!!

    1. IrvineRenter

      Check out the newest techniques in blog spamming. Make a short post with something general and complementary so the blog owner will not delete it, and use the name-link feature to drive traffic to your site. I have been deleting more and more of these lately.

      1. dafox

        are they real people posting? I’ve heard of ‘sweatshops’ in india basically paying people to spam message boards to get around the CAPTCHAs

  4. Jennifer

    And the tilt to the kitchen? Did you see that? That is going to be a heck of a problem keeping stuff on the counter!

  5. IrvineRenter

    Kelli Hart had a great story over the weekend: Family faces loss of home amid health crisis

    LAGUNA NIGUEL – When Juergen and Lois Kempff received a notice of default in the mail saying their home was now in the foreclosure process due to missed payments, they figured it was junk mail.

    The notice came from a company they didn’t recognize, and to be honest, they had some heavier thoughts on their minds.

    Juergen Kempff, 65, has battled leukemia and lymphoma for a decade, on and off. His bone marrow has been debilitated from his treatments, and his oncologist has given him about six months to live.

    “This is a non-curable condition that’s nonresponsive,” Dr. Paul Coluzzi said. Kempff will hopefully receive a bone-marrow transplant at UCLA Medical Center in the next few months – something that will keep him alive longer, Coluzzi said. “He is still undergoing active chemo to condition his bone marrow to make the transplant successful.”

    It didn’t make the situation any better when the Kempffs’ option adjustable-rate mortgage payment skyrocketed to $4,300 a month from $2,500 last December.
    Seeing no way to afford the new payments, the Kempffs opted for a loan modification from their bank, IndyMac which was later purchased by OneWest from the FDIC in March.

    Lender Norm Bour said option ARMs used to be the ‘loan of choice’ to homeowners for years because it provided them with the ability to choose how they wanted to pay it each month.

    “These loans by their very nature were potential landmines,” Bour said. “A homeowner whose payment increases from $2,500 to $4,300 will break most budgets and will in many cases lead to foreclosure.”

    The Kempffs said they were told by an IndyMac representative on the phone that they had to miss three payments before a deal could be worked out. Hence, the notice of default reflecting missed payments.

    For a family that had never missed payments in 14 years of being homeowners, purposely skipping payments was hard for the Kempffs, but they consented.

    “While we sympathize with the Kempff’s situation, OneWest Bank would never encourage any of our borrowers to intentionally go delinquent on their loan,” said a OneWest spokesperson.

    “We were perfect for 14 years. Every single payment was on time, perfect, until they told us, ‘You have to skip three months before we’ll help you out,'” Lois Kempff, 48, said.

    In January, doctors told Juergen Kempff that he needed a bone-marrow transplant, which he decided to put off because of his occupational responsibilities. Juergen is the Spanish language curriculum director for UCI and teaches Hispanic linguistics and grammar.

    “He postponed his transplant to finish his class because his students needed the class to graduate,” Lois Kempff said.

    Though it was discomforting to forgo the transplant, the Kempff family encountered a bright spot when their oldest son, Daniel, in January celebrated a key step in his effort to become a chiropractor, the white-coat ceremony signifying his clearance to begin treating patients.

    “We are celebrating the good things,” Lois said.

    1. Joe Schmoe

      I don’t mean to be hard-hearted but what is the point of that article?

      EXACTLY the same thing happened to one of my former coworkers. He contracted leukemia and had to sell his house in San Marino to pay for the medical expenses. He, too, had a bone marrow transplant at UCLA about eight years after he was diagnosed with the disease. Unfortunately he passed away about a year and a half after the transplant.

      My former co-worker had dignity, though. He didn’t default on his mortgage and decide to “fight” the foreclosure — as if his cancer were the bank’s fault. He sold his house and began renting — without telling anyone. I only found out that he had sold his house when his daughter told me about it after he passed away. (He had five children, at the time of his death his youngest was just 13.)

      My co-worker bore his misforutnes like a man and didn’t attempt use his illness to get out of paying his mortgage. If he stood tall, these people should do so as well.

      1. WaitingToBuyByAndBy

        At one time, parents taught their children children reasoning, responsibility, and reverence.

        Apparently, those attributes do not equip students for the modern world, so we now have a school system that teaches readin’, writin’ and ‘rithmetic.

        Irresponsibility creates problems, like when a train engineer is texting a friend instead of watching the track. Or when greed and easy money induce millions of people to make really horrible decisions.

        If more people had been more responsible, we wouldn’t even be in this mess.

        Parents, teach your kids the three Rs.

    2. HydroCabron

      “… mortgage payment skyrocketed to $4,300 a month from $2,500 last December.”

      Uhh. Wow. Uhhh…uhhh…trying to think of something to say here…must react to this…wow…

      Okay, I have it: How could anyone sign up for this flagitious excuse for a mortgage unless they had absolute certainty of impending growth in income, or a mountain of cash in reserve? Even scarier to contemplate the number of mortgages like this, lurking out there like Soviet sleeper agents from ‘Telefon’, awaiting the “reset” code to transform into zombie engines of housing destruction.

      My stars and garters!

    1. John

      And yet people still have cash to down 20-50% on a $7-800K house in Irvine!

      And we still hear anecdotal stories of how properties are snapped up like hot cakes!

      Maybe I’m too impatient, but can anyone shed lights for me why this phenomenon is still occurring.

      When is bad economy is going to really hit Irvine housing market?

      1. Pwned

        There are still a lot of people who made $$$ selling their houses close to peak. I know a couple who just got a “great deal” on a short sale after selling their house a year or so ago. They nabbed a 3br/2ba sfr in LA for over $900k. We’re still in the deep waters of denial, and until this easy money is gone we’ll be hearing plenty more anecdotal stories like this.

    2. tonye

      There are statistics and there are lies:

      Explaining why her number (40%) is so out whack with the official numbers:

      “the government’s official jobless rate does not factor in working-age Californians who stay out of the work force by choice, such as stay-at-home parents, or those who have simply given up searching for work.”

      Now, I don’t much think the Gov always tells the truth (does it ever?) but this 40% number is a bunch of crap.

      Stay at home parents?

      Why included them in the “unemployed” list. Oh tricky! They are “jobless” not unemployed.

      What a bunch of crock… up there with the Chevy that will get 300 mpg…

  6. IrvineRenter

    From an email I received:

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    week of new ownership!

    Unfortunately, recent news stories about the Opus West bankruptcy have
    included some inaccurate information. We wanted to set the record
    straight and share some exciting news about the future.

    We are elated to announce that Geoffrey H. Edmunds & Associates
    recently completed the purchase of Opus West’s interest in 3000 The
    Plaza. The community is now 100-percent under Edmund’s supervision and
    control. As you may already know, Edmunds was deeply involved in the
    development partnership since the beginning, so it was a natural fit
    for the company to step in and take over the partnership.

    Edmunds intends on seeing the community to full completion and
    finalize the sale of the remaining individual homes to future home
    buyers at 3000 The Plaza.

    Sales are continuing as normal and we are once again offering some
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  7. wheresthebeef

    Over the long weekend, I chatted with someone in the loan mod industry. He works for Citi and claimed that only 14% of the people in their loan mod pipeline had received any help with their mortgage. He mentioned that the B of A number was about 5%.

    The kicker was…his exact words…”you don’t even realize the number of people who haven’t made a payment in three years that are still living in their homes.” That pisses me off royally.

      1. WaitingToBuyByAndBy

        In case you weren’t being sarcastic, it’s because you can lead a horse to water, but you can’t force him to make a mortgage payment.

        Getting a zillion deadbeat mules out of their properties amidst government intervention takes time and manpower.

  8. tlc8386

    Gone are the old days where you lived and raised your family and died in your home. It all has failed when wallstreet invaded your home for your loan to package it and sell it off.

    The flippers have also invaded our homes by keeping up the costs by inflating the resales. Paying cash for foreclosures and selling higher or renting them out. All in an effort to contain the high cost of living in a box.

    And our land owners have stopped building instead of reducing the homes in the same effort to keep the higher costs.

    And now they want your life insurance–
    when will American actually make anything of real value?

    Wall Street Pursues Profit in Bundles of Life Insurance
    By JENNY ANDERSON
    After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

    The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

      1. tlc8386

        What this is trying to tell us that Wallstreet will do anything to conjure up money and sell you something; anything. And it’s not going to change until we get some real regulations in place. These high risk instruments is what got us in trouble in the first place.

      2. Henry Bayer

        Similar business was investors pre-buying the life insurance proceeds of AIDS patients. This was when life expectancies were measured in months. Allowed some to die under decent medical care. Then AZT and other drugs extended lives indefinitely. Betting on death is risky.

  9. AbroadThankGod

    Spoke with my father over the weekend. He’s a college professor in the midwest at a small school. He mentioned that professor friends of his — originally from Iraq (25 years ago) — are looking to retire in, wait for it, Irvine CA. Evidently, there’s a large Iraqi community in the city.

    It sounds like there is a built up demand to live in Irvine from immigrant professionals with substantial savings. This came as a surprise to me as I thought all the Foreigner Tsunami comments were either xenophobic or at least misguided. I only mention it because people are asking where the big down payments are coming from.

    My father’s friends had a look and decided it was too expensive at this point. Still, I think this is a unique phenomenon. It’s not like people around the country or the world are desperate to retire in Tustin. I’m now a bit flummoxed. I still believe housing prices will get crushed across the better parts of Southern California in the coming year or two. And Irvine won’t be immune. But it might have more resiliency than I suspected.

    Let me add one more comment: that resiliency has nothing to do with the intelligence or foresight of current Irvine homeowners. They just got lucky…

    1. Party Pooper

      That makes sense.

      One Iraqi couple your father knows are looking to retire to Irvine when prices come down more.

      Therefore, there is a large pent-up demand for immigrant professionals to buy in Irvine.

      With those logical skills, you should work for the government.

    2. DarthFerret

      “Evidently, there’s a large Iraqi community in the city.”

      Do you have a link for this? Or anything more substantial than the desires of your father’s professor friend in the Midwest?

      It happens that there is an established Persian (Iranian) community in Irvine: http://www.niacouncil.org/index.php?option=com_content&task=view&id=733&Itemid=2. One of my favorite markets in Irvine is Wholesome Choice, a Persian market with an excellent food court and meat counter at Michelson and Culver. The Persian community in Irvine is very well-integrated (my landlord and my next-door neighbors, his parents, are among them).

      But what I do not see is how any of this will have a substantial impact on housing prices. The desires of a random bit of anecdotal evidence isn’t worth much to those looking for reason and direction in this illogical housing market.

      -Darth

      1. nefron

        Wait a minute, neither of you need to be so snarky. Do either of you live in Irvine? In fact there is a large Iraqi – they call themselves Persian – community in Irvine? Where are my numbers? How do I know? I don’t have numbers. But I do know that my next door neighbor is Persian, my landlord is Persian, the people who outbid me on the house I made an offer on are Persian, their real estate agents are Persian, there is a group of Persians who play volleyball two nights a week at the park close to my house. I know that there were large demonstrations against the Iraqi government’s repression of the election protests where???? At the corner of Michelson and Culver, in Irvine, and weekly, at the corner of Jamboree and Barranca, in Irvine. I have two Persian co-workers, both of whom live in Irvine. My neighbors at my last residence were Persian, and the husband has either four or five brothers, I believe all of whom live in Irvine with their families. I have more anecdotal evidence, should I go on?

        1. Belle Waring

          Those people are all Iranian rather than Iraqi, and speak Persian rather than Arabic, and are Shia vs. the average Iraqi who is likely Sunni.

        2. nefron

          Oops, my ugly American is showing. Persians are Iranian, not Iraqi. Sigh, every time I decide to post on this blog I put my foot in my mouth.

          1. WaitingToBuyByAndBy

            They still had no reason to pounce. He admitted his post was anecdotal and not to imply a general trend: “Still, I think this is a unique phenomenon.”

            There is too much hate and not enough listening.

            A lot of people are posting about foreign cash buyers. If it is true, it would explain some things. Even if it is true, though, word will get back home once enough people lose their shirts.

            It has been so hard renting and waiting. I want so much to buy. At the same time, how tragic for someone to wait all that time only to buy at the “bottom” and watch the market over correct. Sigh.

            This was not a normal cycle. There is no way we are done yet. The rally unfortunately delays the process, but it can’t stop it.

          2. DarthFerret

            Waiting,

            Just for the record, he did NOT admit that his post was anecdotal. Read it again. The part that you quoted is saying that Irvine and its magnetism are unique, not that his father’s friends are unique.

            -Darth

  10. Craig

    Flippers can’t drive up prices, unless someone is willing to pay their higher asking price. I’ve never blamed the flippers for the housing bubble and crash. It seems to me that the fault lies with the banks for lax lending standards, and to people who thought the bubble was sustainable and prices would go up forever. Flippers (most of them) had the sense to sell quickly, and not try to hold on for future gains.

    Flippers add value not by driving up prices (which they can’t do by themselves), but by cleaning up slightly unkempt houses and updating them with the latest trendy paint, appliances, countertops, and floor coverings (i.e. pergraniteel.) Many buyers don’t want to do those things themselves, or lack the imagination to see how much nicer a house would look with some relatively inexpensive cosmetic changes.

    1. WaitingToBuyByAndBy

      Reading your comment really irritated me.

      We all know the flipper formula:

      (1) Buy home for X dollars.
      (2) Spend $15k upgrading home.
      (3) List home for 2X dollars.

      If flipped home A is listing for 2X, certainly my nicer home should go for 2.25X. Wow look at that! The prices are going up all over. Quick! Call my realtor and change my list price to 2.5X, no, 3X.

      Yes, easy money enabled idiots to look at upgrades and a price of 2X and then sign on the dotted line. If everybody had behaved rationally, the flippers would not have profited so much and would have been more careful in pricing and upgrading homes.

      At the same time, if you were there, all anecdotal evidenced suggested if you needed to buy, you had better buy something fast, because the prices just keep going up!

      Disclaimer: I’m writing from the hypothetical perspective of an uneducated buyer during the boom.

      So, I totally agree easy money enabled the problem, but flippers fanned the flames.

  11. tlc8386

    It’s true those flippers who fix up a home and then sell them provide value and then there are are those who do not.
    This home was just sold at auction for 1.3 and now up for sale days later for 1.8 tell me where is the value here.

    27371 Lost Colt Dr
    Laguna Hills, CA 92653Price $1,800,876

    Flippers are out to make money and play the market just like any investor.

  12. E

    How does a flipper help out the neighborhood HELOCers?

    Just because your new neighbor can afford to overpay for a house doesn’t mean you can afford to spend yours via the housing ATM.

    Want the money?

    Sell your house.

  13. scott

    Yikes – from Fitch, option ARM’s getting killed…46% are delinquent 30+ days even though only 12% have recast (h/t Calculated Risk). IR’s prediction for 40% foreclosure rate is looking better and better

    Further evidence of option ARM underperformance in the last year lies in the number of outstanding securitized Option ARMs either 90 days or more delinquent, in foreclosure or real estate-owned proceedings, which has increased from 16% to 37%. Total 30+ day delinquencies are now 46%, despite the fact that only 12% have recast and experienced an associated payment shock. Instead, negative and declining equity has presented a larger problem: due to high concentrations in California, Florida, and other states with rapidly declining home prices, average loan-to-value ratios have increased from 79% at origination to 126% today. ‘Negative equity and payment shocks will continue as Option ARM loans recast in large numbers in the coming years,’ said Somerville.

    Overall, Fitch’s expected losses for recent-vintage Option ARMs range between approximately 35%-45%, depending on the collateral quality of the underlying mortgage loans. In addition to expectations of higher defaults, severities have also contributed to higher expected lifetime losses. Fitch has observed that loss severities on Option ARMs have increased significantly to an average of approximately 60% from 40% a year ago. A key driver in the worsening severities is the fact that 75% percent of Option ARM loans are secured by properties located in California, Florida, Nevada, and Arizona, which have experienced average declines of 48% from second quarter-2006 to date. Even without further declines in home values, defaults on Option ARM loans are expected to soar as loan recasts occur, as these borrowers are unable to effectively refinance into alternative mortgage product.

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