Category Archives: House Flips

Collage – Northwood – The second casualty in this complex – UPDATE #1

Originally posted December 30, 2006

The first casualty reported by us in the Collage tract was 714 Timberwood. And yes, these are the actual pictures advertising this property. Kinda crappy huh? You really need to evaluate the smaller no-name real estate brokers/agents before you entrust them with your $500k+ sale.

On to the details:

Address: 1602 Timberwood, Irvine, CA 92620 (Northwood)
Plan: 1267 sq ft – 2/2.5
MLS: S467201 DOM: 43
Sale History: 02/21/2006: $560,000
10/31/2003: $300,000
4/18/2001: $240,000
Current Price: $560,000

So what happened here? Well our flippers got in over their heads. They purchased in February 2006 for $560,000 using 100% financing. How common is this?!?! 😉

What I find interesting here is that in the 2.5 years from the original sale in 2001 to the 2003, the price went up $60,000 (25%). And then in the next 2.5 years from 2003 to 2006, the price went up $260,000 (87%).

The buyer in 2003 put down about 27%. The flipper in 2006 put down 0%.

In a rapidly appreciating market (from 2003-2005), flippers used other people’s money and made out like bandits. They were looked up to as ‘real estate gurus’. My guess is the current seller wanted to get in on the game and not be left behind. Too bad for them. At the current asking price, they are facing a loss of about $33,000 (assuming 6% in selling costs). Oh wait! They didn’t put anything down.. I suppose the lender (Fremont Investment & Loan) will be the biggest loser given that the private remarks state: “ALL offers need short sale approval from mortgage holder.”

UPDATE #1 – February 5, 2008

Yes, it has been over a year since this property was featured. It looks like the property went back to the bank (La Salle Bank) on 5/25/2007 at a price of $484,358.

It was then listed as a REO on 6/5/2007 for $532,500. The price kept dropping over a few months and it finally sold on 12/27/2007 for $447,000 (~20% off the 2006 price).

Liar Loans

Living easy

Loving free

Season ticket on a one way ride

Asking nothing

Leave me be

Taking everything in my stride

Don’t need reason

Don’t need rhyme

Ain’t nothin’ I would rather do

Going down

Party time

My friends are gonna be there too, eh

I’m on a highway to hell

On the highway to hell

Highway to hell

I’m on the highway to hell

Highway to Hell — AC/DC

“The Road to Hell is Paved with Good Intentions.” — Samuel Johnson. Most people who took out a “liar loan” did so to provide shelter for their families and hopefully make a few dollars speculating in real estate. Most people did not intend to defraud anyone when they took out the loan, but they ended up doing so by walking away from their payment obligations. This Highway to Hell is paved with good intentions, and it is very well traveled.

State Income Loans

One unique phenomenon of The Great Housing Bubble was the utilization of state-income loans, also known as “liar loans” because most people were not truthful when stating their income. Loan documentation is usually a routine part of obtaining financing. Lenders ordinarily require a borrower to provide documentation proving income, assets and debt. However, during the final stages of the Great Housing Bubble, loan documentation was seen as an unnecessary barrier to completing more transactions, and loan programs which circumvented normal documentation procedures flourished. The fact that these programs existed at all is a remarkable proof of the risk lenders were taking through the relaxing or outright elimination of lending standards. According to a study by Credit Suisse, 81% of Alt-A purchase originations in 2006 were stated income, and 50% of subprime originations in 2005 and 2006 were stated income. Stated income loans increased from 18% of originations in 2001 to 49% in 2006 according to Loan Performance. In a related study by the Mortgage Asset Research Institute, 60% of stated-income borrowers had exaggerated their incomes by more than 50%. Obviously, lying about one’s income to obtain a loan is not a conservative method of financing a property purchase.

The stated-income loan, also known as liar loan due to the built-in incentive to exaggerate one’s income, was originally provided to borrowers such as the self-employed who most often do not have W-2s to verify income. When these loan programs were first started, they were not made available to borrowers with W-2s as the transparency of the lie would have been obvious to all parties. During the bubble rally, these loans were made available to anyone, and not just were the borrowers encouraged to lie, they were often assisted in fabricating paperwork by aggressive loan officers and mortgage brokers. Since the loan could be packaged and sold to investors who had no idea what they were buying, there was a complete lack of concern for whether or not the borrower actually made the money stated in the loan application and thereby could actually make the payments on the loan. Everyone involved was making large fees, the borrower was obtaining the real estate they desired, and for a time, the investor was receiving payments from the borrower. As long as prices were rising, everyone benefited from the arrangement. Of course, once prices started to fall, borrowers did not want to continue making payments they could not afford, and the whole system collapsed in a massive credit crunch.

Today’s property is a WTF listing price in Northwood II. This neighborhood is getting destroyed, and most sellers are losing money on their 2004 and 2005 purchases; however, today’s seller believes his property is different, and in fact, it has appreciated over 40% since he bought in 2004. I imagine he wishes liar loans were still available so someone could come up with the money to buy him out.

Asking Price: $1,699,000

Income Requirement: $424,750

Downpayment Needed: $339,800

Monthly Equity Burn: $14,158

Purchase Price: $1,237,000

Purchase Date: 11/9/2004

Address: 31 Lily Pond, Irvine, CA 92620

Beds:	5
Baths:	4.5
Sq. Ft.:	3,963
$/Sq. Ft.:	$429
Lot Size:	6,000 Sq. Ft.
Type:	Single Family Residence
Style:	Mediterranean
Year Built:	2004
Stories:	Two Levels
Area:	Northwood
County:	Orange
MLS#:	P620491
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Absolutely Gorgeous , Luxurious Home in Gated community! Very Open , Roomy Floor Plan. Incredible Highly Upgraded top to Bottom. Professional Paradise Landscape! AttractiveCustomised paint all inside house, * * Crown Molding , Hardwood Floors, Customised Carpet, Wood shutters, Large Gourmet Kitchen w/ Granite Counter Top & Huge Island, Luxurious master suites w/ walk-in closet. Large walk-in Pantry, Extended Family Room , Charming water fountain in Backyard. Best Location in NW II.

No greed here, this seller only wants to make $462,000 for a little over three years of ownership. It might have worked out if he had purchased in 2001 or 2002, but a late 2004 purchase makes him late to the party. He is not a real estate mogul, he is a bagholder.

That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

BTW, since AC/DC is one of my favorite groups, I want to share two more songs with you.

Hells Bells

Back in Black

Unforgiven

New blood joins this earth

And quickly he’s subdued

Through constant pained disgrace

The young boy learns their rules

With time the child draws in

This whipping boy done wrong

Deprived of all his thoughts

The young man strugggles on and on he’s known

A vow unto his own

That never from this day

His will they’ll take away-eay

What I’ve felt

What I’ve known

Never shined through in what I’ve shown

Never be

Never see

Won’t see what might have been

What I’ve felt

What I’ve known

Never shined through in what I’ve shown

Never free

Never me

So I dub thee UNFORGIVEN

Unforgiven — Metallica

Forgiveness is never an easy thing. There are some things that seem so wrong you don’t want to let people “off the hook” or you know you will see the behavior again. In the end, holding on to anger is far more destructive to the angry person than it is to the person to whom the anger is directed. Forgiveness is something one should do for their own sake.

The almost unbelievable irresponsibility with debt displayed by homeowners like today’s is so amazing, so far beyond any form of excusable behavior, that you have to wonder if it is right to forgive it. If someone borrows hundreds of thousands of dollars against their home and ends up with a short sale requiring the forgiveness of this debt, how do you feel about it? Remember America’s Debtor Prisons or Are Short Sales Moral? These questions do not go away. Does a really extreme case change your opinion about the subject? Let’s see…

Asking Price: $1,195,000

Income Requirement: $298,750

Downpayment Needed: $239,000

Purchase Price: $397,000

Purchase Date: 7/20/2001

Address: 9 Soaring Hawk, Irvine, CA 92614

Beds:	4
Baths:	2.5
Sq. Ft.:	2,960
$/Sq. Ft.:	$404
Lot Size:	4,462 sq. ft.
Type:	Single Family Residence
Style:	Traditional
Year Built:	1984
Stories:	Two Levels
Area:	Woodbridge
County:	Orange
MLS#:	S517428
Status:	Active
On Redfin:	12 days

Beautiful Woodbridge home has been expanded over 1000 sq ft to create an extra Large Kitchen, Great Room, Huge Master Bedroom complete with a Walk In Closet & a full size Customized Master Bath. Updated Kitchen includes Newer Appliances, Stainless Steel Refrigerator, Recessed Lights & Granite tile counters. This home is situated on a Private Lot with Gated Access to the Front Door. Walking distance to Parks, Pools and award winning Irvine Schools.

So lets walk through the mortgage history of this property and see just how bad HELOC abuse can get…

7-20-2001 The house was purchased for $397,000 with a first mortgage of $317,600 and a downpayment of $79,400.

11-07-2001 HELOC for $48,000 taking out over half of downpayment.

8-26-2002 Refinance for $360,000.

11-26-2002 HELOC for $29,000

11-26-2002 HELOC for $71,000

6-18-2003 HELOC for $56,000

6-18-2003 HELOC for $100,000

6-1-2004 Refinance for 517,500 –probably paid off HELOCs at this point.

10-22-1004 HELOC for 89,900.

4-21-2005 Refinance first mortgage of $624,000

4-21-2005 Refinance second mortgage of $156,000. Total debt of $780,000 at this point.

9-12-2006 Refinance first mortgage of $948,750.

9-12-2006 Refinance second mortgage of $189,750. Total debt of $1,138,500. No HELOCs

So there you have it. This homeowner went to the housing ATM 8 times over a 5 year period and pulled out $820,900. Now they have a property priced at a WTF asking price hoping they can find some knife catcher to come pay off their bills. Even if you wanted to buy this house, would you do it knowing that you were about to pay for $820,900 worth of consumer spending (They may have spent $200,000 on the renovation, but please spare me the BS about investment or illness or any of that crap. Look at the pattern of withdrawals. They spent it, and you know it.) I suppose the lender can always hope these people stashed some of this money away somewhere to cover the shortfall at the closing table. Doesn’t seem very likely, does it?

Consumed by greed, the homedebtors will be seeking forgiveness for their debts and sins. Our major religions believe forgiveness is a good idea, or should this behavior remain unforgiven?

Our Father

which art in heaven,

Hallowed be thy name.

Thy kingdom come.

Thy will be done

in earth, as it is in heaven.

Give us this day our daily bread.

And forgive us our debts,

as we forgive

our debtors.

And lead us not into temptation,

but deliver us from evil:

[For thine is the kingdom, and the power,

and the glory, for ever. Amen.]

The Lord’s Prayer — Matthew 6:9-13

I bet you didn’t think I could get Metallica and the Lord’s Prayer in the same post and have it make sense.

😉

That concludes another week at the Irvine Housing Blog. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

A Tall Oak Tale Update 2

We have a sale to report. 111 Tall Oak was asking $659,000 in the summer finally sold for $590,000. The unit was purchased on 3/6/2006 for $725,000. That is 18.6% loss in less than 2 years not including commissions. Basically, the second mortgage was a complete loss.

It looks as if our seller at 111 Tall Oak gave up trying, but the REO at 113 Tall Oak doesn’t have that luxury. When these properties were first profiled on July 30, 2007, the property at 113 Tall Oak was asking $689,000 — a wishing price. Now they are asking $579,000, and it still hasn’t sold. That is a $110K reduction in asking price (almost 20%) in about 100 days. The property was purchased by an FB on 3/6/2006 for $725,000.

Talk about a comp killer…

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”

A Tale of Two Cities — Charles Dickens

Does this quote from A Tale of Two Cities resonate today? The two properties I am featuring today illustrate this dichotomy. First we have a distressed homeowner about to lose a lot of money and thinks it is the worst of times, and his next door neighbor is a knife-catching flipper who thinks the market is going strong and we are returning to the best of times. It is the age of wisdom and it is the age of foolishness — depending on what happens next.

Asking Price: $659,000

Purchase Price: $723,000

Purchase Date: 3/9/2006

Address: 111 Tall Oak, Irvine, CA 92603

1st Loan $578,400
2nd Mtg. $144,600
Downpayment $0

Beds: 3
Baths: 3.5
Sq. Ft.: 1,607
$/Sq. Ft.: $410
Lot Size: –
Year Built: 2004
Stories: 3
Type: Condominium
County: Orange
Neighborhood: Quail Hill
MLS#: S485520
Status: Active
On Redfin: 92 days
Unsold in 90+ days

From Redfin, “SpleSplended DETACHED – 2 YR old Villa in Quail Hill. ULTRA-HIP Floorp lan for 21st Century-3BR/3.5BA+Tech Desk. Granite Counter-Tops, Shutters, Berber Carpet, Wood flooring, Stainless Appliances, Courtyard location. 5-Star resort amenities w/ pools, sport court, tot lots, tennis, fitness gym, several parks+walking trails. Next to Spectrum, Retail Plaza already opend, Walk to Top-Tier Alderwood school. UNI-HIGH School. This is a pre-foreclosure sale! Sale subject to lender approval.”

What makes a floorplan ULTRA-HIP?

Over 90 days on the market with no sale at this drastically reduced price. Where are the multiple offers over the asking price?

If the short sale is approved, the bank stands to lose $103,540 after a 6% commission. Since this is a 100% financing deal, The seller will undoubtedly try to simply walk away. My guess is the bank will probably approve a sale down to the total loss of the second mortgage, but they won’t take a hit on their first. That is pure speculation, and I could be wrong.

I suspect the flipper who purchased this neighboring property was not counting on 111 Tall Oak becoming a distressed , pre-foreclosure right after he purchased 113 Tall Oak as a flip. Such is life…

Old Asking Price: $689,000

New Asking Price: $579,900

Purchase Price: $603,000

Purchase Date: 3/6/2007

Address: 113 Tall Oak, Irvine, CA 92603

Beds: 3
Baths: 3.5
Sq. Ft.: 1,610
$/Sq. Ft.: $428
Lot Size: –
Year Built: 2004
Stories: 3
Type: Condominium
County: Orange
Neighborhood: Quail Hill
MLS#: S486686
Status: Active
On Redfin: 85 days

From Redfin, “* * * PRICE REDUCTION * * * A chance to own a detached home in the prestigious Quail Hill community with it’s resort style amenities to enjoy!! This tri level home boasts a modern floorplan which is functional and comfortable. Repairs are scheduled to begin soon and will include new paint, carpet and stair repair. This home features 2 balconies, plantation shutters, a romantic two-sided fireplace, and a computer niche. .. .. don’t miss out!!”

This realtor only uses two exclamation points. I guess he is trying to restrain his enthusiasm. * * * PRICE REDUCTION * * * Is our flipper losing confidence in the market? After watching your neighbor languish on the market for 90 days at a lower price, I probably would.

.
If this flipper gets the asking price, he stands to make $44,660 after a 6% commission. Not bad for doing absolutely nothing (You can see from the pictures the property was not renovated.) Of course, when your own purchase and that of your neighboring property establish the market in the low $600,000s, It is going to be a difficult sell at the asking price.

This flip was purchased during the Spring of Hope, will it end in the Winter of Despair?

Angel

I sit and wait

does an angel contemplate my fate

and do they know

the places where we go

when we´re grey and old

´cos I´ve been told

that salvation lets their wings unfold

so when I’m lying in my bed

thoughts running through my head

and I feel that love is dead

I’m loving angels instead

and through it all she offers me protection

a lot of love and affection

whether I’m right or wrong

and down the waterfall

wherever it may take me

I know that life wont break me

when I come to call she wont forsake me

I’m loving angels instead

Angel — Robbie Williams

Today’s seller took a gray and old house and turned it into an angel. There is even a waterfall. Where will it take him…

The readership of the Irvine Housing Blog has been growing steadily. Currently we are seeing around 3,300 unique visitors a day. Most sellers probably hate us, but all publicity is good publicity, right?

Today’s listing is a beautifully remodeled home. When I first saw this house, I thought someone was crazy to sink money into an old house adjacent to a busy shopping center in University Park. I thought to myself, “I could see someone asking $1,000,000 for this thing when they are done — not that they will get it, but they might ask.” Little did I know they believed they were building the Taj Mahal…

Asking Price: $1,469,000

Income Requirement: $367,250

Downpayment Needed: $293,800

Purchase Price: $640,000

Purchase Date: 2/15/2007

Address: 2 Angell, Irvine, CA 92612

Beds:	5
Baths:	4.5
Sq. Ft.:	3,800
$/Sq. Ft.:	$387
Lot Size:	5,800 sq. ft.
Type:	Single Family Residence
Style:	Contemporary/Modern
Year Built:	2008
Stories:	Two Levels
View(s):	City Lights
Area:	University Park
County:	Orange
MLS#:	S517790
Status:	Active
On Redfin:	3 days

This is a DREAM come TRUE. CUSTOM HOME. JEWEL of Irvine. The house was originally built in year 1965. New addition and total remodeling was completed in January 2008. Custom features include 10 feet high double entry metal(Copper)door, travertine flooring, granite counter tops, brandnew cabinetries, two double ovens, two dish washers, Main floor master suite. Breath taking kitchen with one piece granite counter top island. second floor hallway and master suite wood- flooring, two sky-lights, tankless water heater, two zoned A/C units, two fireplaces (One in Master B/d and one in Living room)and many more. .. .

$1,469,000 in University Park, WTF! Would you buy a house for 3 times the cost of most houses on the street — in a declining market? If this flopper simply took a look at the situation unfolding around them, they would set a price at breakeven to cover the purchase and renovations and pray they found a knife catcher. Instead, is looks as if they are trying to double their money. Good luck with that.

I suppose this house would appeal to someone really pretentious. It is located right at the exit of the University Park shopping center so everyone looks at it when they leave the facility, and it is by far the nicest house in the vicinity. If you go have lunch at Charo Chicken, you can stare at this house out the windows and watch the waterfall. If you feel the need to stand apart from your neighbors and put yourself above them, this is the house for you. Perhaps this kind of buyer is more concerned with bragging about how much they paid rather than reveling in what a deal they got. There is plenty to brag about here.