Don’t Go Breaking My Heart — Elton John
You take the weight off me
Honey when you knocked on my door
I gave you my key
Does anyone remember Pepe le Pew? He was the happy-go-lucky French skunk who fell in love at every opportunity. Unfortunately, he smelled so bad that none of the objects of his affection wanted him around.
HELOC abusers must have been very happy-go-lucky during the bubble. They had few limits on the money they could spend, so there was plenty of reason to bounce around oblivious to the damage they were inflicting on everyone else. The stench of their pilfering is only now spreading a pestilence on the economy. Most probably have no idea what they have done, and they are probably too self-involved to care. I imagine their only real concern is their inability to sustain their Ponzi Scheme lifestyles.
{book}
Today’s featured property has been profiled before. It was a WTF award winner back in mid-2007. The owner was asking $900,000 for this place. Today we will learn why.
Asking Price: $539,000
Income Requirement: $134,750
Downpayment Needed: $107,800
Monthly Equity Burn: $4,491
Purchase Price: $460,000
Purchase Date: 12/5/2002
Address: 13 Banyon Tree Lane, Irvine, CA 92612
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 1,714 |
| $/Sq. Ft.: | $314 |
| Lot Size: | 6,500
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 1973 |
| Stories: | 1 |
| Area: | University Park |
| County: | Orange |
| MLS#: | S558020 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
to small park area at the end of the CDS and backs to the Michelson Dr
greenbelt. Family room with fireplace and vaulted ceilings. Plantation
Shutters. Recessed Lighting. Upgraded hardwood floors. Kitchen has
GRANITE COUNTERS, white wood cabinets, hardwood floors and large Nook
area. Hall Bath with upgraded GRANITE counter, replaced cabinet and
tile floor. Master bedroom has private courtyard, large Retreat area
and walk in closet with organizers. Low tax rate. Walk to elem school.
Located close to all amenities.
Wow! GRANITE COUNTERS. That is certainly a unique selling point in Irvine…
Notice how they are trying to tout its great location. Let’s take a look:
This property was purchased on 12/5/2002 in what looks like an intra-family transfer, perhaps from the parents to their adult child.
- The new owner paid $460,000. He used a $413,500 first loan and a $46,500 downpayment.
- On 3/26/2003 he opened two HELOCs for $41,800 and $50,000 respectively.
- On 3/29/2004 he refinanced with a $508,500 first mortgage.
- On 10/14/2004 he opened a HELOC for $71,000.
- On 11/1/2005 he refinanced with a $585,000 first mortgage.
- On 1/23/2006 he opened a HELOC for $39,000.
- On 4/7/2006 he opened a HELOC for $116,000.
- On 11/3/2006 he opened a HELOC for $24,900.
- On 12/1/2006 he opened a stand-alone second for $215,000.
- Total mortgage debt is $900,000. (The original asking price back in 2007)
- Total mortgage equity withdrawal is $485,500 including his downpayment.
Based on the names in the property records, it looks like parents selling a property to a grown son. If this is true, how would you feel about this if you were in their shoes? You sell the family house to your child, and he proceeds to rip off lenders for almost $500,000 and lose the house in foreclosure.
They must be very proud…
{book}
Don’t go breaking my heart
I couldn’t if I tried
Honey if I get restless
Baby you’re not that kind
Don’t go breaking my heart
You take the weight off me
Honey when you knocked on my door
I gave you my key
Nobody knows it
When I was down
I was your clown
Nobody knows it
Right from the start
I gave you my heart
I gave you my heart
So don’t go breaking my heart
I won’t go breaking your heart
Don’t go breaking my heart
And nobody told us
`Cause nobody showed us
And now it’s up to us babe
I think we can make it
So don’t misunderstand me
You put the light in my life
You put the sparks to the flame
I’ve got your heart in my sights
Don’t Go Breaking My Heart — Elton John
Proud? They probably suggested it.
Or, on the contrary the parents are heart broken to see what has happened.
Working as engineer for 10+ years and having been habituated to have conservative savings and investments, my net worth including retirement savings is not even over $300K. I am jealous of this guy who got $500K for almost nothing and by losing nothing (except useless credit score). I really admire this guy who milked the system for as much as he could. Only such people shine in new USA which is managed by corrupt people who bail out rich while passing its burden on middle class. Poor have nothing to lose any way.
Maybe he can’t walk away from the last $215k second mortgage? Wouldn#t it be a recourse loan?
“Property fronts to small park area at the end of the CDS”
The property is at the end of a Credit Default Swap?
I’ve been a daily reader and I love the analysis, but for some reason today these numbers are standing out to me: $4491 monthly equity burn. Most of the homes featured here are $4000+! Is it just me, or is that a tad bit outrageous?
My wife and I combined have the ‘income required’ however I couldn’t possibly imagine spending $4500 a month for any home let alone this one featured here. I can’t fathom spending $2000 a month for a home! I guess I’ll never be a homeowner in Irvine…
I’m holding on to my ultra-bearish position: we will see late 90s pricing return to Southern California. I’ve heard comments along the lines of “if that happens, we’ll be in a severe depression and things won’t be pleasant.” Sadly I think that may be the case. Even with all the bailouts, everything was overleveraged and this is the inevitable correction.
My current calculations have late 2009 prices = early 2002 prices. That’s 55% off peak.
Late 2010 prices probably more like 60-66% off peak. That takes you back to late 1990s pricing on a nominal basis. It takes you much further back when adjusted for inflation.
> The property is at the end of a Credit Default Swap?
LOL. 😆
Wow, I’m in love. Can I buy this house? Can I, can I? I can’t get enough of those GRANITE COUNTERS!
More outrageous behavior. I still cannot believe this shell game was allowed to perpetuate so long.
These type of people should NOT be able to simply walk away with nothing more than a few marks on their credit reports.
IR:
The green arrow is pointing at the wrong house (#7). It should be pointing at the third house (#15) on the left from its current position. You are absolutely correct about the story except it is a “she” not a “he”!
In terms of percentage, this HELOC abuse probably represents the highest ever documented on this site, standing at 90% of the present asking price.
The Buddha supposedly reached the state of Nirvana while reclining under a Banyon Tree. Not sure what this means for this listing.
Why do lenders think they can get more for a property today than what they paid at the auction 2 months ago? The market is moving down…not up.
All things being equal, a property is worth more in a REO sale than at a TDS (trustee sale) auction because in a TDS auction, you are not assured clear title so there is substantial risk at a TDS auction.
How much more, that is a question for the market to answer.
Yes, and you generally can’t inspect a house before a foreclosure sale.
And you have to pay cash, which limits the buyer pool.
Two more reasons. So basically you are shelling out cash for what can be a very risky transaction.
Only a good idea if you know what you are doing, getting a rock bottom price and are buying multiple properties to spread out the risk. In other words, TDS sales are primary for professionals.
Make that “Deep Pocketed” professionals.
“Why do lenders think they can get more for a property today than what they paid at the auction 2 months ago? The market is moving down…not up.”
Because it is in magical Irvine. Normal market rules don’t apply here.
How many of you believe these people will be able to get away with spending all this money? I seriously doubt it. I bet that the IRS will be knocking on their door in 5 years asking for their cut. I also wouldn’t be surprised if the IRS included interest.
IR..
If your story is right, then the property value on file with the county should be $460k + 2% appreciation/yr since 2002. Instead, according to redfin the appraised value is only $260k.
From OC Assessor Dept
http://www.oc.ca.gov/assessor/TaxSaveProps.asp#PC
Parent-Child Transfers (R&T Section 63.1)
* Real estate that is transferred from parent(s) to child(ren), or from child(ren) to parent(s) may be excluded from reassessment
parents
* The established Prop. 13 taxable value is not affected by the transfer
* The new owner’s taxes are calculated on the established Prop.13 value, instead of the current market value when the property is acquired.
* Generally, transfers between legal entities (i.e., corporations, partnerships) that are owned by parents or children do not qualify
A 500K heist, I am speechless. Robbing a bank or Brinks truck probably wouldn’t get anywhere close to this type of return. Not to mention, the only penalty is a few years bad credit.
People like this need to get exposed. They are the driving factors behind why normal, honest, hard working people have had to put the dream of home ownership on hold for about a decade. This society is driven by greed, materialism and vast amounts of fraud.
God help this country…no wonder the rest of the world doesn’t view us that highly.
alan – when a house is transferred within the family, you can keep the old tax basis. It’s quite a benefit. I haven’t done it, but I’m pretty sure that’s how it works, so what you’re seeing is the tax value from the parents.
I thought that if you pay your parents more than the current tax base for the property, what you pay them becomes the new price for tax purposes.
I believe the parents can gift the child 250,000 w/o tax, and with 2 parents it becomes 500,000.
So if the house was gifted, property tax remains the same as if it wasn’t sold.
Every owner, of every home that goes into foreclosure should be investigated for Mortgage Fraud. It would be a very simple process of pulling the original loan docs and verifying the information after a foreclosure.
If the home goes into foreclosure and you lied on the documents you should be prosecuted for mortgage fraud. If you took out a mortgage or a HELOC that you could not really pay for with your earnings you should be prosecuted. Plain and simple.
This would surely deter people in the future from lying on mortgage applications. This flipper is being investigated by the FBI and the IRS http://www.mortgagefraudblog.com/index.php/weblog/permalink/draper_man_charged_with_making_false_statements/. He can spend 30 years in prison and get hit with a 1 million dollar fine.
I think the fine should be equal to the criminal’s equity extractions or the banks total loss on the property. The beauty is that a court ordered fine cannot be included in a BK and they can garnish your wages.
Perhaps there’s hope after all, hopefully more attorney’s jump on the Rachel Dollar bandwagon.
that case involved identity theft, a crime our country seems to take much more seriously.
Or, how about the players in the mortgage industry. If they had required the applications to be accurate, we would not be in this mess to begin with. If you ask me, they are the ones most liable because they had a fiduciary responsibly with their investors to provide accurate processing of the loans they were selling.
I spent 7 years in the mortgage industry and seen things done the right way, and the wrong way. If you ask me, this is the root of the problem. Throwing half of Irvine in jail will most likely not be the best solution to this mess.
For most people, seizure and/or civil penalties are more appropriate. There are some people with foreclosed homes, nonrecourse loans, and assets which can be found.
For people with no assets, I am in favor of community service.
“For people with no assets, I am in favor of community service”
We could have a whole new class of gardeners in Irvine that show up in Mercedes Benz’s to trim your shrubs. 🙂
Maybe forcing community service is not such a bad idea. I like the idea of tan spa high lifers doing my lawn.
I agree. In fact, I do not think this person did anything wrong. The fact is that the lenders made a bet that they will be able sell this house (their collateral) for $900K in case the person defaulted. That is why they extended the loan. I think the root (and probably the only) cause of the problem we are in is the absurd valuation of houses by the lenders (and their investors) and not that people like this person took the money someone gave them knowing that they are not liable in any way if they just walk away. As we all know, the effective value of a house at a given point in time is the amount a lender is willing to extend a loan on it at that time. As I see the WTF prices homes are still selling in Irvine, I blame the lenders who are still giving loans to keep these prices what they are. IR (and others on this blog), you really should stop parodying HELOC abusers as criminals and blame them for all the mess we are in. Society should modulate an individual’s action (especially related to financial matters) via consequences and not good will. As long as there is someone willing to give FREE money, people can not be blamed for taking it. And, what the people who took the money chose to spend it on is none of anybody else’s business. The fact that some of the money that was given ended up coming from our taxes is a separate issue and the fact that happened is not the fault of the people who took the loans. I think we should not confuse the problem by pointing our fingers at the wrong source. That will only lead to a wrong solution.
Hizkel – the money wasn’t GIVEN (meaning gift) it was LOANED (meaning money lent at interest, something lent for the borrower’s temporary use)
Regardless of the asset used for the LOAN–a Loan is a LOAN and it must be paid back—MOST things depreciate in value once it is USED and not brand new—asking for higher value than the asset is indeed the banks fault they gave out a higher loan to equity ratio–BUT It is still a LOAN—
Well, my point is about what consequences will the law lay upon the person when she decided to walk away. If that consequence is just a ding on her credit score, then the difference between a gift and a loan ends up being just semantic. If our society, through its law, has decided this to be the best way to regulate individual’s action with regard to home loans, and if there is a lender extending a loan fully aware of the law, why do we pile on the person because we somehow feel her legal action is unethical ?
I agree with one exception: if the borrower lied on the application. In this case I have no problem going after them too.
Thing is, the lender knew the purchases money loans were non-recourse and made them anyway. So I place more responsibility on the fool handing out the money rather then the liar taking the free money.
Sorry Hizkel you’re just wrong. You’re just rationalizing away unethical and immoral behavior. It’s stealing.
Oh, and BTW, who wants to bet that this one will be in escrow within two weeks?
nefron, basing financial transactions solely on the ethics of the participants is a lame way to conduct business. And, as I am sure you know well, ethical and legal do now line up all the time. Here, what matters is what is legal. Having said that, I still do not see anything unethical in agreeing when an “expert” tells you your house is worth $900K and that he wants to give you cash right now, if you want. And, when you find out that is not the case and the law does not require you to give the money back, well too bad for the lender… or the tax payer.
Hizkel,
As was mentioned, the HELOC is not free money. It is a loan that was supposed to be paid back.
When you have hundreds of thousand (maybe millions) of people engaging in these types of shenanigans…the result is an economic collapse which we have seen in 2008.
It is my business to know where they spent this money because I, my kids and maybe my grandkids will be paying for this mess.
Quit defending these idiots. They are getting off far too easy. These people will be in better financial shape in a few years (after credit is repaired) than honest people who played by the rules. Justify that…
I really don’t understand why you guys are all outraged. Hizkel is absolutely correct. The mortgage basically says “that in case the borrower defaults, the lender will take back the house”. The borrower weighed the consequences and decided to let the lender have the house. End of story.
And why do you think that the borrower is at fault? Borrowers are not anywhere near as knowledgeable as lending professionals. If the lender thought it was okay to lend out the cash, why wouldn’t the borrower take it? There is no way the average borrower had any idea what sort of situation he was getting into.
So please stop with the “holier than thou” routine. The lenders screwed up royally and the borrowers took an option that was written into the contract.
wheresthebeef, although I am no legal expert, I think the people who took these loans also played by the rules. And, my gut feeling is that the negative impact of bad credit is not as bad as we tend to assume here given the current situation and the realization by the lenders that this time, mostly it is their own failure and not the failure of the people who defaulted on these loans. Besides, the tax payer has footed a huge chunk of the bill, which may motivate the banks to disregard these bad scores a couple of years down the road. I also will not be surprised if I see some push by the government to force lenders to disregard these bad scores. And as for getting off too easy, nothing has happened to a number of players in the financial system with far more direct culpability and it just does not make sense to target those with the least amount of culpability.
Hizkel,
You made some good points. These homeowners are just part of the problem…there are bigger systemic problems.
Regarding playing by the rules. Yes, they did nothing wrong by opening up a HELOC. However, if they spent this money or had no thought of ever paying it back…there is something absolutely wrong with that.
Back in the day, HELOCs were used for medical emergencies, temporary job loss, remodeling a kitchen or bathroom. During the insanity, HELOCs were used for purchasing Escalades, vacations, and shopping sprees at South Coast Plaza.
It was the obligation of the borrower to repay the loan…and we all know that much of this money has went up in smoke and will never be returned.
Just venting my frustrations at these people. They were financially irresponsible and will have little consequences to bear. Additionally, the .gov is asking the rest of us to pay for their mistakes…that really chaps my hide.
Stop being disingenuous. We all know that the contract says that because in life there are unexpected circumstances. People lose their jobs, get serious illnesses, unexpected things happen that cause someone who could afford the mortgage under normal circumstances to no longer afford it. That doesn’t mean that you enter into a contract knowing up front that you have no intention of paying the money back. It’s fraud. It’s stealing.
I am in favor of seizure and fines that have some bite to them.
Think of two people both having the same debt. Lets say an IRS problem for 30k and 70k in student loans and 20k in credit card debt.
Person A works out a payment plan with the IRS and continues to pay down their student loans on montly bases and pays their montly minimum on their credit card.
Person B rolls all of those debts into a mortgage they knew they couldn’t afford and lied on their loans. They then lose “their” home to foreclosure.
Person B will take a ding on their credit becuase of a foreclosure but they have reduced their total debt load by 120k.
In a few years person B will probably be in a better position to buy a home because they will have a lower debt load so their DTI will be better then person A’s. Not to mention the money the were able to bank during the foreclosure process allowing them to save a years worth of rent to put in the bank for their next down payment.
I say they should have some long term consequences for their actions.
This property seems to be next to a wildlife corridor.
Yes, it’s called the 405 freeway 🙂
As someone who has never taken a loan from a bank, can someone please explain this whole HELOC thing? Can a person really make off with new cars, boats, houses, etc. without paying for them? Won’t the bank seize the borrowers assets to make up for the deficiency after the house is sold at a loss? And if not, why not?
As for the house itself, what is being shown in the 4th photo? It looks like a little walled-in (and roofed?) patio with a sliding glass door off of perhaps a bedroom? Is it for air-drying your undies?
Larry,
I am no expert but let me give it a shot.
There are two types of loans recourse and non recourse.
Purchase Money loans are non recourse meaning they can only take the house and any defeciency the bank eats. So anyone that purchased using an 80/20 and used the money to purchase the home the banks can only take the home.
Heloc’s are almost always recourse meaning yes they can come after you and seize assets and obtain judgements.
I haven’t heard of a lot of that so I assume that the banks don’t have the resources, if the bank is still in business.
I would also think it may be because those loans were sliced and diced so much that nobody truly knows who should be going after what.
I also think that the HELOC can be discharged in bankruptcy. If the home has been foreclosed on by the owner of the first mortgage.
Why bother trying to collect 100-200k you know you don’t stand a chance of collecting.
I think I should start a business buying HELOC’s for one one thousandth cents on a dollar.
Here’s a link that may be of interest to all (S&P sponsored housing report):
http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html
“They had bills to pay”
Okay, this may be a dumb question, or one that has been addressed here before, but do people have to pay taxes on the forgiven amount of a short sale? If they borrowed (stole?) that much money, does the IRS impute it as income at some point?
Update on one of your posts IR:
https://www.irvinehousingblog.com/blog/comments/the-price-of-being-wrong1/
Just closed for $790K… List was $789K.
Some fun commentary from the profile comments:
Astute Observation by ipoplaya
2008-05-14 06:48 AM
I have a feeling they won’t have a problem getting an offer near list… They’ve probably already had one that the bank has yet to review. Shorts are a pain.
Astute Observation by buster
2008-05-14 08:46 AM
Ipop – Aways comforting to have the bulls around. Objectively (meaning forget about what they paid, what their neighbors sold for in 2006, what it might be worth): Is this 27-year old Irvine tract home, stamped out like cookies from a cutter in the early 80s, worth over three quarters of a million US dollars? Think about it – over 3/4 MILLION?
Not a chance. I know it, you know it and (more importantly) the lenders know it. This baby is headed back to the $500,000 range, and even that will be a stretch.
Very interesting! I also would not have guessed that it would get anything close to the asking price.
If that holds up through 2009 and into 2010, it looks like I will never be able to buy in Irvine and similar parts of California. (Or more perhaps I could buy there, but emotionally and financially would not be willing to pay those prices for that kind of a property.)