Recently, I was emailed a link to a blog post written by an attorney who specializes in this area. It is the best explanation of the nuances of short-sale and foreclosure I have seen.
The featured property is a short sale (foreclosure-in-waiting) sporting a 36% discount from the peak.
Asking Price: $395,000
Address: 6 Gladstone #97, Irvine, CA 92606
Upside Down – Jack Johnson and Friend
I want to turn the whole thing upside down
I’ll find the things they say just can’t be found
Below is the post in its entirety:
I get this question a lot. The answer is, IT DEPENDS. That’s a slippery lawyer’s response (someone called me that yesterday) but the outcome in your situation could be
1. You still owe the bank a big slug of money;
2. You have a big income tax bill with no cash to pay it;
3. You owe the bank a big slug of money and you have a big tax bill ; or
4. You owe the bank nothing and you do not have a tax bill.
Everyone wants to be the last case. A lot of my clients show up to my office as the third case. The good news is most people can be the last case, but only IF THEY PLAN CAREFULLY!!!
This brings me to Jim Cramer. I
like Cramer because he brings raw institutional investor insights to
the masses. He tells the brutal truth (as he sees it) and I respect
that. But I was screaming at the plasma screen when he cavalierly advised his fans to “walk away” from their houses. I don’t fault his economics: if your house is sucking all your money from you, why throw good money after bad on it? But you can really hurt yourself financially if you do not “walk away” carefully.
So I have set out below the Califronia rules
that you need to take into account when you let your house go. They are
really complicated and are too complicated for you to figure out on
your own so GET PROFESSIONAL ADVICE BEFORE YOU DO SOMETHING STUPID.
THE CALIFORNIA FORECLOSURE RULES
1. THE PURCHASE MONEY RULE:
In
California, a lender who loaned you money to BUY your home, which you
ORIGINALLY moved into as your primary residence, cannot do anything
other than foreclose. This means if the foreclosure sale
does not pay all “purchase money” loans, those lenders cannot sue you
for the unpaid balance. Most importantly, this includes second mortgages used in many 80/20 100% financing deals. If you REFINANCED any of these loans, or paid down purchase money HELOC and drew down on it again, this rule does not apply.
2. THE ONE ACTION RULE:
In California, a mortgage lender can only take one action against you: A non-judicial foreclosure, or a judicial foreclosure. The
result of a non-judicial foreclosure is just like the PURCHASE MONEY
RULE, a lender can only sell the property and pay the loan. If the sale does not pay the mortgage, the foreclosing lender cannot get the unpaid balance from you. However,
the lender can get the balance from you in a judicial foreclosure. The
good news is judicial foreclosures are too uncertain and costly for
lenders that they are almost non-existent. BUT, (pay attention, this is important) if a junior lender’s security interest is wiped out by a senior
mortgage foreclosure, the junior lender can obtain a deficiency
judgment for their unpaid balance because they have not had their ONE
ACTION against you yet (subject to the PURCHASE MONEY rule of course). This
situation is very common these days for that second mortgage you used
to remodel the kitchen and bathroom, or bought that Escalade, or
refined a previous second mortgage.
3. THE CANCELLATION OF DEBT RULE:
Both the IRS and California tax you for the amount of debt that is CANCELLED in any given tax year. Debt
is cancelled only when a lender has given up on its right to collect
the debt or they are barred by law from collecting the debt (think
PURCHASE MONEY & ONE ACTION rules).
HOWEVER, if the debt cancelled was a “Purchase Money” loan (see above)
the debt cancelled is treated as a sale of your residence, subject to
normal homeowner exclusions. This is because the loan is deemed to be
non-recourse and therefore nothing has been cancelled.
4. THE BANKRUPTCY & INSOLVENCY EXCEPTION.
Both the IRS and
California exclude cancelled debt from your income to the extent the
debt was CANCELLED in bankruptcy and you were insolvent; BUT ONLY TO
THE EXTENT OF YOUR INSOLVENCY!!!! You are insolvent when your debts exceed your assets. Assets include IRA and pensions. GET A CPA TO HELP YOU HERE. YOU WILL NEED IT! DON’T BE STUPID AND TRY TO FIGURE THIS OUT YOURSELF!
5. THE FIRST ACTION RULE.
Not to be confused with
the ONE ACTION RULE, this rule says a secured creditor must seek to
recover the secured property before suing you for non-payment. This
means a second or third mortgage will have to wait until the first or
senior mortgages foreclose before they can sue you for a deficiency.
So, you think you know the rules? Let’s try a few examples and see how you do. Answers & explanations are below.
Example 1: Mike borrowed
an $800k first and a $200k second loans to buy a beach condo he stays
at on the weekends and rents out occasionally. The first foreclosed (non-judicial) and paid off only $750k of the first loan. The second was wiped out. What happens?
A. Mike walks away without any debt to the first or second loans because it was “purchase money” debt;
B. Mike has income from the cancellation of debt of $50k on the first and all of the second;
C. Mike owes the second the entire balance and has $50k cancellation of debt on the first mortgage;
D. A&B
E. B&C
F. Mike can’t surf so it does not matter.
Example 2: Mike got a $200k first loan to buy his house and later took a $400k second to add a go-cart track and skate board ramp. The SECOND foreclosed (non-judicial) and just paid off the first loan. The second was wiped out. What happens?
- Mike walks away without any liability to the first or second loans.
- Mike has income from the cancellation of debt on all of the second loan;
- Mike has no cancellation of debt income;
- A&B
- B&C
- Mike can’t surf so it does not matter.
Example 3: Mike got an $800k first loan and $200k second to buy his home. The second was a HELOC that he paid off then borrowed against to buy land in front of a great surf break. The first foreclosed (non-judicial) and just paid off the $750k of the first loan. The second was wiped out. What happens?
- Mike walks away without any debt to the first or second loans.
- Mike has income from the cancellation of debt of the second loan;
- Mike has no cancellation of debt income;
- A&B;
- B&C
- Mike can’t surf so it does not matter.
Example 4: Same
example as three, expect that his first mortgage was refinanced and,
just prior to the foreclosure, Mike had (in addition to his house
debts) $10,000 in cash and no other debts. What happens?
- Mike is taxable on the entire $50k CANCELLATION of debt from the first loan because he is not insolvent.
- Mike is taxable on $10k of his CANCELLED debt;
- Mike has no CANCELLATION of debt income;
- Mike can’t surf so it does not matter.
Example 5: Mike buys an investment property with a $500,000 first mortgage and a $200,000 second mortgage. Mike gets in an argument with the second mortgage company because they say he cannot surf. So Mike stops paying the second mortgage when the property is worth less than the balance of the first mortgage. What happens?
- The second mortgage forecloses and Mike has CANCELLATION of debt income.
- The second mortgage sues Mike for non-payment;
- The first mortgage company sues Mike for default;
- Mike sues the second mortgage company for slander;
- None of the above.
ANSWERS
1. C & F are correct. The
loans are “purchase money” but because Mike did not move into the condo
and make it his home when he got the loan, the purchase money rule does
not apply (WARNING Ask your attorney about the rare VENDOR RULE). The second can sue for the balance because it has not yet taken its ONE ACTION and is thus not CANCELLED. The
first is $50k short and it cannot sue Mike for the balance because it
took its ONE action so the debt is now CANCELLED and is taxable income. F is always true.
2. D & F are correct. The first loan was paid and thus there is neither deficiency nor cancellation of debt. The second loan was not a “purchase money” because the loan (although put to great use) was not used to buy the house. BUT, the second foreclosed so it used its ONE ACTION and cannot get a deficiency. Because the second cannot get a deficiency, the debt is now cancelled and is now taxable income. F is always true.
3. Only F is correct. The
first loan was used to buy the home and it foreclosed so both the ONE
ACTION and PURCHASE MONEY rules apply to prevent the first from getting
a deficiency for the $50k. But $50k of the balance is
CANCELLED, BUT it was non-recourse PURCAHSE MONEY debt so it is treated
as a sale of his home for $800k, subject to the home sale exclusion
rules. The second was not a purchase money loan because the second set of loan proceeds were not used to buy the home. The
second did not take an action so it can still sue Mike for a
deficiency. Because the second can still sue Mike, it is not CANCELLED
and thus not taxable income. F is always true.
4. C and D are correct.
Mike has CANCELLATION OF DEBT income because his first mortgage is not
purchase money but the ONE ACTION RULE prevents the lender from
recovering the $10,000 deficiency. However, Mike has $760k in
assets (house + cash) and $1 million in debt so his liabilities are in
excess of his assets and thus his income is excluded. Had
mike just had an $800k first mortgage, he would have been taxable on
$10,000 of the debt because without the forgiven debt, he would have
$10k in net assets. So the tax is excluded only TO THE EXTENT OF THE INSOLVENCY. D is always true.
5. E is correct. The
second mortgage is in default and can bring a foreclosure action
against Mike but it cannot sue Mike because the FIRST ACTION RULE says
they must move to recover the secured property first. They will not do this because the value of the property is worth less than the first mortgage. The first mortgage is still current so it cannot take any action against Mike. Truth is always a defense against slander so Mike cannot sue for slander.
There were several items I found interesting:
- If you used a HELOC as a purchase money mortgage, it is non-recourse, if you did not tap this HELOC later. Everyone who used a HELOC to buy, then went to the housing ATM, gave up their non-recourse protections.
- If you never lived in the property as a primary residence, the loans are recourse. As one might imagine, this is an area of enormous cheating and tax fraud. Nobody is going to admit that they never lived there as a primary residence. In fact, most will point to the lie they told on their mortgage application (everyone claims a property as their primary residence to get a better rate) as proof that they did live there. I spoke with someone who was doing a short sale, and his financial advisor told him to lie. I guess everyone figures they will not get caught.
- A second mortgage who was wiped out by the foreclosure on the first mortgage can still take action against the borrower. Most don’t bother, but they have the right.
- Just because the lender isn’t calling you trying to collect doesn’t mean they cannot or will not in the future. If the debt is classified as recourse, the lender will either give you a 1099 for the forgiveness of debt, or they will try to collect (or they will sell the bad debt to someone else who will try to collect.)
- In order to establish insolvency, you must prove you are broke. The assets you have in your ERISA protected retirement accounts must be counted. This is a strange exception because the IRS cannot get a judgment against your retirement accounts, but they will count these assets when calculating tax on forgiven debt. This could easily create a situation where a borrower has to declare bankruptcy to wipe out the tax burden or pay it out of their retirement savings.
I wrote about these issues in The Great Housing Bubble. I did not go into this level of detail (partly because I didn’t want to be accused of giving legal advice). I hope this post provides some clarity on these issues.
{book4}
Asking Price: $395,000
Income Requirement: $98,750
Downpayment Needed: $79,000
Monthly Equity Burn: $3,291
Purchase Price: $612,000
Purchase Date: 8/29/2006
Address: 6 Gladstone #97, Irvine, CA 92606
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 1,200 |
| $/Sq. Ft.: | $329 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Contemporary |
| Year Built: | 1985 |
| Stories: | 1 |
| Floor: | 1 |
| Area: | Walnut |
| County: | Orange |
| MLS#: | S563327 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
SHORT SALE!!!! Absolutely gorgeous DETACHED single level home with
white picket fence and landscapd yard. This much desired open floorplan
features vaulted ceilings, FP in living room, hardwood flr thru out,
upgraded shutters and window coverings. Beautiful ceramic tile in
kitchen & all baths. Gourmet kitchen w/granite countertop, recessed
lighting, strainless sink, newer appliances. Granite and newer
sink/custom mirrors in all baths. Designer custom paint thru out. Very
light, bright, and airy. A must see! Short sale subjec to lender’s
approval…
strainless sink? Does it wash the dishes for you?
thru out? I wonder if the writer believes this is the proper construction of the word “throughout?”
subjec? landscapd?
What is Absolutely gorgeous? Is this the ultimate extreme of gorgeousness? Is there anything about this property that is not gorgeous?
{book3}
I feel bad for this owner. She is losing a lot of her own money. This property was purchased on 8/29/2006 for $612,000 (what was she thinking?). There is a $459,375 first mortgage and a $152,625 downpayment. Ouch!
If this property sells for its asking price, and if a 6 % commission is paid, the owner is wiped out, and the lender stands to lose $88,075. The total loss on the property will be $240,700.
I have a hard time imagining the lender approving a short sale because the discount is so large, and the loss on the mortgage is so small. I suspect they will hold out for $459,375 or take it in foreclosure.
One of the interesting subplots to this property is the behavior of the owner who sold at the peak.
- The previous owner purchased on 8/4/1999 for $231,000. He used a $184,800 first mortgage and a $46,200 downpayment.
- On 3/27/2001 he refinanced with a first mortgage for $189,500.
- On 6/2/2003 he refinanced again with a $232,800 first mortgage.
- On 7/3/2003 he opened a HELOC for $25,000.
- On 6/17/2004 he opened a HELOC for $100,000.
- On 10/24/2005 he refinanced with a $378,000 first mortgage.
- Total property debt was $378,000.
- Total mortgage equity withdrawal was $193,200.
The guy doubled his mortgage just like most homeowners I see. He got lucky and sold the place and paid off his debts. However, you have to think this pattern of behavior is going to continue in the future. He got to spend $193,000, and there were no negative consequences. Why wouldn’t he do the same thing on his next property? Unfortunately, the previous owners name is very common, and I could not locate the property he moved to. We will probably see it as a short-sale or foreclosure soon enough.
{book2}
Who’s to say
What’s impossible
Well they forgot
This world keeps spinning
And with each new day
I can feel a change in everything
And as the surface breaks reflections fade
But in some ways they remain the same
And as my mind begins to spread its wings
There’s no stopping curiosity
I want to turn the whole thing upside down
I’ll find the things they say just can’t be found
I’ll share this love I find with everyone
We’ll sing and dance to Mother Nature’s songs
I don’t want this feeling to go away
Who’s to say
I can’t do everything
Well I can try
And as I roll along I begin to find
Things aren’t always just what they seem
I want to turn the whole thing upside down
I’ll find the things they say just can’t be found
I’ll share this love I find with everyone
We’ll sing and dance to Mother Nature’s songs
This world keeps spinning and there’s no time to waste
Well it all keeps spinning spinning round and round and
Upside down
Who’s to say what’s impossible and can’t be found
I don’t want this feeling to go away
Please don’t go away
Please don’t go away
Please don’t go away
Is this how it’s supposed to be
Is this how it’s supposed to be
Upside Down – Jack Johnson and Friends
It could be a heck of a lot worse for this particular debtor…..
I have a feeling some of these folks are headed straight back to california-eye-ay !
———————————-
http://www.ritholtz.com/blog/2009/02/gulf-of-shame/
Remember when Dubai was said to have a quarter of the world’s construction cranes? Well, that was a myth. But so too was Dubai’s prosperity. The credit bubble’s deflation has hit Dubai very hard; and crushed the ex-pats who came in search of opportunity. Here’s the New York Times talking to a laidoff Frenchwoman named Sofia who came to work in advertising last year. She was so excited about prospects in the Gulf that she took out a 15-year mortgage on a $300,000 apartment:
“I’m really scared of what could happen, because I bought property here,” said Sofia, who asked that her last name be withheld because she is still hunting for a new job. “If I can’t pay it off, I was told I could end up in debtors’ prison.”
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.
Debtor’s prisons, foreigners fleeing the jurisdiction, notes of apology, hopeless FBs, what a great story. There will probably be a made-for-TV movie about someone ending up in a Dubai prison.
The could create a made for TV debtors prison in America for a reality TV show. I would definitely watch it. Time to dollarize this depression.
Or be added to the “Locked Up Abroad” series on A&E. Or is it CNBC? Can’t remember.
I wonder if debtors in Dubai get flogged or have their extremities cut off.
The celebrity version would be can’t miss TV.
It would make a great sequel:
http://www.crackthecode.us/images/coming_to_america2.jpg
Larry Flint is working on that. ;-D
Fantastic – these refugees are all most likely headed to the U.S where they will be greeted with lays and citizen of the year awards.
A debtors prison? Oh how inhumane. How do you expect people to non-chalantly borrow hundreds of thousands of dollars for condos in Irvine, CA if they have to concern themselves with little things like repayment even if their half-baked plans go bad? How are bankers going enslave the majority of the hoi polloi who might be too fearful of the consequences of a default? The owners won’t have that.
“lays and citizen of the year awards”
Not to be too picky about spelling, but I think you meant “leis”.
Then again, maybe you did mean “lays”
You got me. Congratulations. I was not confident in its spelling, but too lazy to spell check it and figured that the average reader would know what I meant – as you astutely did.
Here you go. Keep up the good work.
http://www.crackthecode.us/images/MRAward.jpg
Ha ha ha ha!
That $152,625 downpayment may not even have been money she saved long and hard for. Like many buyers of that time, it may have come from “equity” from the previous move-up home.
Of course it did. We are not talking about premium property here. It’s just another player in the circle jerk that our masters package up and sell to us as the “housing ladder” (not a pyramid! a ladder! a pyramid might alarm the suspicions of the masses).
Anyone that had to earn 153K the hard way would expect their dollar to go a lot farther than a mere drop in the bucket toward the cost of an average house.
It would have been much smarter to take the lottery winnings and leave the state – buy a house for straight cash elsewhere and at least have a place to live when the scheme collapsed in on itself.
I feel very bad for this Frenchwoman, and I just hope she can unload that apartment for close to what she paid for it and GET THE HELL OUT OF THE GULF. Dubai is, as far as I’m concerned, a ‘set up’, a big,gem -encrusted Venus Fly Trap for rich and/or opportunistic Westerners gulled by the sci-fi buildings and amenities, and gold-rush atmosphere, into sinking their money and lives into what has to be the world’s most unsustainable city.
Let her story be a reminder to everyone who contemplates immersing themselves in a totally alien culture, of how easily you can run afoul of local customs and laws. No matter how “progressive” and “modern” Dubai may seem, it is still a middle eastern city in which Muslim laws and customs prevail, despite accomodations for western customs. Make sure you know the laws and customs before you go. I feel very sure that if this lady had known that she could be imprisoned for unpaid debts, she’d have acted differently. I also feel sure that if she had educated herself thoroughly on local laws and customs, she might not have gone there to begin with.
We westerners tend to take our progressive laws and our privileges and rights too much for granted. Remember that when you go to these alien places, you’re not in America or France anymore, and the locals are not obligated to respect your culture’s laws and ways.
My best pal, a world traveler, says the same thing. She studies up on the countries she visits for months before she even buys a ticket. She visits places like Afghanistan, Peruvian jungles, the real Australian Outback, Saudi Arabia, and Nepal.
She’d never live in a foreign country unless it was totally westernized. She never takes for granted anything, but she’s been doing this sort of real world adventure stuff for 25 years. Even she’s gotten into trouble a couple of times.
Here goes the media again, creating victims and false hardships of those re-entering the real world and having to live within their means like everyone else.
http://www.cnn.com/2009/LIVING/personal/02/12/survivor.milesapart/index.html
http://www.crackthecode.us/images/recession_lessons.jpg
Perhaps these whiners should take a trip over to the other side of the train tracks in their local city and see where the real hardship is experienced.
To think that this woman was banking 95K a year off of the credit gravy train at a car hustlership and couldn’t manage to save a penny because she was buying fancy purses, shoes, and fru-fru drinks is beyond foolish. I am continuously amazed at the stupidity of these people.
So now you have to take a job 1200 miles away earning a lowly peasant’s wage of 42K like the majority of the rest of the country and sleeping on an air-mattress because you can’t buy a real bed now that you are 50K (probably even more now) in debt and all of your credit lines are maxed out.
BOO-HOO.
Get ready for another round of bailouts thanks to losers like this.
Good thing she doesn’t live in SoCal where 95K per year is just above the poverty level.
I think that’s the cut off point for your church to help pay for your child’s private school tuition… high cost of living places like the OC are going to be totally screwed by Obama.
If 95k is near poverty level, then majority of people living in OC are in poverty.
Them median income at the peak of the bubble in OC was 80k.
The median income is a paltry$98,923
It’s well accepted that everyone in Irvine, CA received an 11K pay raise between 2005 and 2008.Incomes only go up. Recession is growth. Up is down. Left is right.
Man, you guys are on a roll today!
What in the hell is a “country club girl”?
By the way, these people don’t look like they’re starving.
Hey she’s one of the lucky ones–she still has a job.
IR, I actually read this post last year and went to seek advice from the law firm that the blog belonged to. The non-recourse nature of my 80/20 loan convinced me (along w/ reading this blog and other housing blogs) it was better to walk away than throw money down a pit. Buying a house in california w/ no money down is like playing w/ house money in Vegas.
How was your experience with this law firm? I wanted to post more about them, but there is no “about us” or “contact us” on their home page. He must be very busy too because he hasn’t posted since the middle of 2008.
As long as those loans remained non-recourse, it certainly is like gambling. The most accurate comparable is a “call” option. The only premium for the option is the payments on the mortgage while you own it. With an Option ARM, that could be a very small number indeed.
After some digging, he is with Doan Law. There is a link on the original site, but it doesn’t clue you in that it’s his firm. http://www.doanlawfirm.com/KenAndrews.php
I’m also interested if anyone has had experience with the firm. Not like I own a house or have a mortgage, but I like to know who is credible, and maybe who to refer the realtors to.
I met with this gentleman last year around May or June at his office in La Mesa, down near San Diego.
Sharp Guy, very straightforward, and as “un-lawyer-like” a fellow as I could have ever hoped to come across. (That’s a positive.) His opinions of the housing market, and the pain to come in the future, are a carbon-copy of your playbook here on IHB.
I’m in a non-recourse 80/20 loan as well, and will, in all likelihood, be moving forward with foreclosure on my horribly upside-down home in Mission Veijo sometime soon…at which point, I will very confidently be retaining this fellow to handle any of the legal tidbits.
I got a very good vibe from him, he seemed 100 percent “no BS.”
They have an office in Santa Ana. It seems like they were really busy w/ bankruptcy cases. I think they are the one of the few firms out there that are experienced w/ lien stripping in a chpt 13 bk(which I originally wanted their services for). However I was convinced otherwise when the lawyer told me of the non-recourse nature of my loans and even if my junior loan was dropped the house would STILL be underwater. He told me if any collection agency would try to collect on a non-recourse loan they would be stupid to try.
Irvinerenter if you get time please read this and let me know what you think.
The End by Michael Lewis –
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?PMID=alsoin/The-End
Good information, IR. I read the lawyer’s article last year at his blog site (he’s linked on Housing Doom) and wondered if, down the road, the 2nd & 3rd holders would decide to take action. I have heard that those vulnerable debts are quietly being purchased at a discount from the original lenders, for later legal action. Have you heard anything like this?
$612,000 for 1,200 sq ft.
$510/sq ft.
That’s just mind-boggling.
Come here.
Don’t worry bout da price. The price is just a numba. Prices are for schlubs – you ain’t a schlub is ya? You don’t look like one – you are good lookin. You deserve a nice place ta call yer own and live tha dream.
Don’t pull away, come here. What am I? You want to be renting and throwin away ya money for tha rest ah ya life and have strangers think you are irresponsible and have no money? Maybe you ain’t ready to be an ownah and I can respect that. Here’s my card, give me a call when yous ready to take that next important step in your life.
Oh so, you are ready? Ah, I thought so. You seem like a serious kind a person who takes ownaship seriously. Well, these days, we talk financing. What will you pay me to live in this here house for one month? I can work with yas – just tell me. We can work out all that final price papawork latah.
You wanna pay 2000.00 a month? I can get you in for 2000.00 a monthfor a little while
Wasn’t that easy? And you was worrying about tha bottom line. Sheesh! Enjoy ya house.
What percentage of borrowers understand the terms of their mortgage (even a simple 30 year fixed)? What percentage of borrowers understand the legal consequences of foreclosure? Can you think of any more complicated transaction that most people complete?
I’m not sure there’s a solution, other than the government protecting people from themselves with more regulation of lenders.
Let’s begin with re-programming the masses to analyze their home purchase for 1 to 5 minutes longer than they spend analyzing a piece of produce at the local supermarket. That will be a huge start and get us moving in the right direction.
At present, we are surrounded by a bunch of dopes who keep picking up bad fruit that goes rotten immediately after the purchase.
“I’m not sure there’s a solution, other than the government protecting people from themselves with more regulation of lenders.”
That is the conclusion I have come to. For as much as I dislike government meddling in our affairs, the behavior of all the parties involved in the housing bubble screams out for more regulation, particularly since we will all end up paying for it.
I want to know how you fit 3 bedrooms into 1200 sqft? That third bedroom must be a closet.
I live in a 2bedroom with 808 sqft. (though not particularly happily)
I would consider 1200 sqft luxurious at this point.
Here’s the property from a different angle, clearly showing all of the bedrooms.
http://www.crackthecode.us/images/minihouse.jpg
like a doghouse…
“I’m not sure there’s a solution, other than the government protecting people from themselves with more regulation of lenders.”
Actually, the market left on its own can take care of itself. The lenders who got burned lending to Joe 6-Pack will do a better job of checking credit & viability so as to not sustain those losses again.
Oh yeah, I almost forgot: The system was rigged so that the taxpayers sustain the losses.
“Smart” in terms of a Wall Street employee equates to “clever” as in being able to privatize gains and socialize losses.
And “smart” in terms of politics, equates to not paying your taxes, which in turn leads to a job offer in a cabinet position.
My home is paid for and my company is still doing good business at full retail, yet I feel depressed from reading all this stuff.
My friends want to borrow money and some resent me for not being in the same boat they are.
It used to make me feel better to take the boat for a ride around the harbor but that does not seem to help. I am a thinking part of the problem with me is seeing Obama on TV thinking there must be some mistake, he can’t possibly be the President.
This is going to be a shitty time for many of us even if we are not on the brink.
I miss Ronald Reagan and the other grown ups that used to run things.
You and I have similar thoughts and circumstances. I finally stopped reading the CNN sob stories about the folks in financial ruin – it just became too depressing. This morning on the radio I heard about the propsed tax increases for California and the nation. If I didn’t have a reason to stay in my current job (a pension), I would seriously consider leaving California.
Oh yeah. Viva Reagan!
you’re kidding, right?
Not kidding at all…
Perhaps you just need a bigger boat?
Or perhaps the denizens of Newport Harbor just need to spruce up the harbor a bit?
If you need to cheer up….buy a floating hot tub for your boat……..
http://www.tugtub.com
I don’t want to get TOO far off-topic here, so I’ll just restrict my comment to:
Ronald Reagan hardly ran things as a grown up.
I hope this link works……
http://zfacts.com/metaPage/lib/National-Debt-GDP.gif
Long story short: every president since WWII has successfully reduced debt as a share of GDP EXCEPT for Reagan and the Bushes.
Sure he ran up the debt, but it was Good debt used to make bombs and other fun stuff. Everyone likes those things…
Except maybe the people who they are dropped on…
Just sayin’.
Except Regan did not pass the budget, that was the Democrats who controlled congress during his time. A President only proposes budgets. Congress changes them and passes them.
During the Regan years he proposed lower taxes and lower spending, Congress passed lower taxes and more spending. You wonder why the debt increased.
Just think about this in terms of today, Obama has proposed a budget, which he has actively campaigned for on his bully pulpit. Congress actually takes this proposal or a portion of it, changes it, and then passes it.
IR, great thread today.
I think you’re right, the lender will probably hold out for the $459k. If they were smart, they would list it in the low 4’s and might get some bidding activity.
It IS listed for $395k. Why is it worth $459K? After all it is just a glorified condo with a hefty HOA fee.
Let me see. I got a big first and very small HELOC second.
I can stop paying the HELOC and stay current on my first and pretty much…
I walk?
Won’t they report me and destroy my credit?
What happens when to the title to the deed? If I ever pay off the first, then the second can come back and kill me, right?
PS- Tony don’t surf.
I like this property, single level with no stairs. It’d be perfect for my parents and grandmother.
It looks like the chinese are coming to save our housing market. Woo hoo! 😛
According to the article “Many buyers are unfamiliar with U.S. markets, so they focus on well-known ethnic Chinese neighborhoods”. Does Irvine fall into this category?
http://www.msnbc.msn.com/id/29162036/
“It’s a great time to buy because of the financial crisis, and houses in large cities like New York and Los Angeles will definitely go up in a few years,” Ying said. The home is an investment, but he’s also planning long-term: He hopes his 5-year-old son might use it if he goes to college in the United States.
Looks the NAR has planted their shills outside the U.S and opened up the Kool-Aid spigots.
The U.S will be more than happy to take your money Mr. Ying – step right up, sir, you are quite the negotiator and you drive a hard bargain.
I like how he sets himself apart from those short-term knife catching vultures. No sir, he is all about the long-term. His 5 year old son is going to live in that house when he goes to college – yes, sir. No half-baked plans here at all.
This is a great blog. But don’t you ever talk about TARP here?
Or is Irvine so far gone, that not even TARP can help? Anything in TARP that might help here?
Irvine is grossly overpriced relative to fundamentals and it is dominated by Alt-A and Jumbo loans. Nothing in the TARP is going to make prices more affordable, Alt-A any less toxic, or Jumbo rates any lower. In short, the TARP is not going to help here.
Will the TARP be used to refinance the non-recourse Alt-A’s and option ARM’s, thus making the non-recourse loans in to a recourse loans?
Why wouldn’t he do the same thing on his next property? Unfortunately, the previous owners name is very common, and I could not locate the property he moved to. We will probably see it as a short-sale or foreclosure soon enough.”
Some serious Schadenfreud here. Renting in Irvine must really do a number on you. You’re imagining this guy tooling around in his shiny BMW with the wind blowing through his hair.
It’s like your captain Ahab and this a white-whale that’s escaped. 🙂
I would like to find some of these people that moved on. I am only going on supposition that they would continue this behavior at their next residence. Until I find some concrete examples, it is still supposition.
“If I were him I would put in everything now and go until something broke. But, thank God, they are not as intelligent as we who kill them; although they are more noble and more able.”
First, I feel sorry for her lost. She made a 25% down but the housing when south. It not like others who had no equity in the house and are asking for a bailout or walking away.
It seems like the banks have some recourse, but how likely are the banks going after the individuals who walked away with possible lots of cash through equity withdrawal? or some new housing that made cash back with home purchase?
Very interesting on the non- vs. recourse laws. It seems only the original loan is non-recourse and if the proposed govt program to refinance at “more affordable” rates will make the loan recourse and put the borrower in debt for life. Will the banks and courts be garnishing wages, so the people/debtor will only be take home only enough for substances?
Say morgtage slave makes $50,000, SocSec 7.5%, CaITax 7%, USITax 15%, rent&utilities; 25%, food & clothes 5%, car & insurance 5%, court garnishment (debt service on $200,000 at 6% 15 years for prior foreclosed house debt and court cost)40%. It’s like the song: “…16 tons and what do I get, another day and another dollar in debt….” Do the math and see a lawyer and accountant.