A recent commentary in Housing Wire lays out the case against strategic default. It expresses a point of view worth examining.

Irvine Home Address … 24 SOUTHERN WOOD Irvine, CA 92603

Resale Home Price …… $1,250,000

Ya just got slapped

Across the face my friend.

Ya just got slapped

Yes that really just happened.

Well, everybody saw it, hah

Everybody laughed and clapped.

‘Cause it was awesome.

The way that you just got slapped.

Marshall Erikson Himyn — You Just Got Slapped

Today's featured article is a commentary from Housing Wire's Kerri Panchuk. Apparently, she does not accept the arguments I made in the following posts:

Strategic mortgage default has become common and accepted in 2011

Strategic default consequences minor and likely to decrease

Strategic default is moral imperative to prevent future housing bubbles

Widespread strategic default is essential to economic recovery

For a variety of reasons, I believe strategic default is a wise course of action for underwater loan owners who are paying more to own than the cost of rental. Let's read the counter-arguments to check their validity.

The new slap in the face of foreclosure

by KERRI PANCHUK — Tuesday, September 20th, 2011, 2:33 pm

Every American upset with the state of mortgage lending should read the Fox Business News article on strategic default in order to meet the “New Face of Foreclosure.”

Strategic defaulters are underwater borrowers who intend to remedy their “upside-down situation” by simply walking away from their mortgages.

The Fox Business article paints a clear picture of a 67-year-old strategic defaulter who is walking away from a $166,000 loan.

So is this man a distressed borrower who lost his job, fell ill or landed on unexpected hard times? No, not really. Those situations tend to garner sympathy, and rightfully so.

Instead, this man admits he collects two pensions, Social Security and generates additional income through a small business.

The defaulter also has the ability to make his payments, but lost his drive to do so when home values dropped, leaving him $45,000 underwater.

Isn't it also sad that he is $45,000 underwater? The unemployed didn't want to lose their jobs, which is sad, but the loan owner didn't want to see his house drop in value. Shouldn't that event also be a sad story deserving of sympathy?

The only difference between the two is the capacity to repay a lender — a lender who was part of a collective insanity in lending which created the valuation problem we are now correcting. The house this man bought at an inflated price would not have been so expensive if not for the behavior of lenders. Prices didn't fall because of the recession. Prices fell because they were too high, and the result was a recession.

The borrower's attitude recently changed in other ways. He now wants to live in the city, but he can't sell his home in this economy. Even if he could, it's impossible to get back what he paid.

The economy had nothing to do with his inability to sell the home. As I stated above, the lender-induced price inflation was the problem. The fact he can't get back what he paid is sad.

It's a type of new-car syndrome, but on a large scale.

Yet rather than sticking it out, the homeowner called a firm that readily advises homeowners on how to strategically default on their mortgages.

Why should he stick it out? Because some lender wanted to profit from his loan? Because of a moral obligation? LOL!

If the borrower gets his heart's desire, he will simply walk away from the mortgage, sending the home into foreclosure while remaining cash-rich and free to move on.

Good move, right?

Absolutely. It's the wisest course of action given his circumstances.

Of course, his neighbors won't be so lucky. They will now be living next to an REO.

So what? This guy is supposed to suffer so his neighbors can continue to sustain the illusion of home equity? The REO will sell at market value, and if that is lower than what the neighbors believe their house to be worth, the neighbors need to re-adjust their perception of value.

Call it the strategic default phenomenon, if you will, but it's more than a trend. It's a threat to the power of contracts

I don't think so… Strategic Default Is Merely Collecting On Home Price Protection Insurance Sold By Lenders.

People fail to keep the promises in contracts all the time. Good contracts spell out the consequences of failure to perform. Rather than forcing lenders to sue borrowers on a Promissory Note and wait for recovery, lenders compel borrowers to sign a mortgage agreement which allows the lender to call a public auction for the sale of the property. Mortgages exist because lenders needed to spell out the contractual consequences of non-performance by borrowers.

Failing to pay a mortgage note is not a threat to contracts. On the contrary, foreclosures are the enforcement of contracts. If you want to see what is a threat to contracts, look at new regulations concerning loan modifications and restrictions on foreclosures, those are threats to the power of contracts.

and an attack against all Americans who are paying for the mortgage crisis in the form of tax dollars that supplement housing initiatives and maintenance on foreclosures.

Strategic default is not an attack against all Americans by usurping their tax dollars; bank bailouts are.

Not to mention that declining home values and tighter lending standards that are keeping new homeowners on the sidelines.

Declining home values and tighter lending standards are wonderful for those sitting on the sidelines. It means properties are getting less expensive, and money is only being loaned to people who will pay it back.

Mind you, we are not talking about those who are truly in distress. Foreclosures from unexpected life changes are a different beast altogether.

Why? I don't believe capacity to pay makes any difference at all. Both parties should be foreclosed on immediately and their properties recycled into the market. The notion that the two groups are separable gives rise to the idea that squatting is okay as long as the squatter is unemployed. Do you believe that?

While businesses should not be excused for unethical practices, the idea that homeowners are committing a permissible sin by not paying affordable debt is not admirable.

No, a loanowner who is sacrificing their family's future in order to pay off a loan they should never have been given is not admirable. The needs of the family outweigh the needs of a bank to make profits.

In fact, it's an insult to borrowers who never bought in the bubble and to other homeowners who keep paying on underwater mortgages despite their frustrations.

No, it should be a wakeup call to loanowners who are underwater on their mortgage. The slap in the face should be a sobering realization that they are being chumps for continuing to pay.

The fact that lenders inflated a housing bubble and taxpayers have to cover the losses is a slap in the face to everyone who didn't buy in the bubble, both homeowners and renters.

A few months ago, an attorney working in default raised the following question: What if the strategic defaulter had made money on the same house? If he bought the home for $144,000 and gained a $20,000 profit, could the originator then call the borrower and ask him to split the earnings?

No. That's exactly why lenders should be careful not to inflate housing bubbles by using 100% financing. Lenders all know now that borrowers will default and leave them holding the bag. If lenders did not fear this, they would repeat the mistakes of the housing bubble. The call option has always been embedded in a loan contract. It's only when down payments are eliminated that the cost of this option becomes so low that borrowers are foolish not to gamble with the banks money.

F. Scott Fitzgerald's famous American novel, “The Great Gatsby,” dealt with a similar phenomenon in his time. While Fitzgerald's rant against the “careless people” of society in Gatsby was interpreted as an assault against rich aristocrats. Fitzgerald's rant was more about carelessness in general. And the principal goes across class boundaries. In his worldview, those who are careless make decisions without consequences. They enjoy the fruits of the high-rolling times and let others pick up the tab when things go bad.

So who is she criticizing here, banks or borrowers? It is the lenders who were careless and abdicated their responsibility to loan to only borrowers who could repay their loans in amounts they could afford to repay. This abdication of responsibility is what inflated house prices and created the incentive for strategic default. Lenders are more culpable than borrowers.

Certainly in the mortgage crisis there were many people and companies who were careless. But the idea that strategic defaulters are common heroes pushing back against a rigged system is the biggest slap in the face to all homeowners who bought into the American Dream only to be stung by the mortgage crisis.

Write to Kerri Panchuk.

Strategic defaulters are common heroes pushing back against a corrupt system. This is not a slap in the face to homeowners, it is a slap in the face to foolish lenders. Lenders are the ones who ruined the American Dream.

I get the impression from the emotional tone of the article above that the author is underwater on her mortgage and lashing out at the injustice she sees as strategic defaulters are benefiting from their decision. Perhaps I am wrong, but she doesn't feel the outcomes she is witnessing are just, and if I were a loan owner still paying, I might feel the same.

Strategic default is about resolving conflicting values

The essence of the strategic default debate revolves around two conflicting values. First, there is the value of keeping one's word and following through with the terms of an agreement, and second, there is the value of providing a viable economic future for one's family. For those who are severely underwater and paying more than a comparable rental, they can't have both. They must chose.

There is no right or wrong, black or white, in cases of conflicting values. Each person must weigh what they believe to be more important. Whatever choices each of us might make does not give us the right to judge others by our standards. Personally, I would chose my family. Some would endure the pain to keep their word. Who's to say which is right or wrong?

They believe they got a good deal

The sellers of today's featured property followed a good buying strategy when they purchased. They found a motivated seller who had given up on the sale, and they negotiated a price well below their recent asking price. Based on what they are asking today — after three and one half years of falling prices — they must believe they got a good deal because know they believe they can sell for a profit.

Date	Event		Price	Source
Sep 17, 2011	Listed (Active)		$1,250,000	SoCalMLS #U11003957
Aug 06, 2010	– Delisted (Withdrawn)		—	Inactive SoCalMLS #2
Jul 06, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 05, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 05, 2010	Delisted		*	Inactive Zillow #1
May 05, 2010	– Listed (Active)		*	Inactive SoCalMLS #2
Apr 01, 2010	Relisted (Active)		*	Inactive Zillow #1
Mar 31, 2010	Delisted		*	Inactive Zillow #1
Feb 15, 2010	Listed (Active)		*	Inactive Zillow #1
Jun 02, 2008	Sold (Public Records)		$1,085,000	Public Records
Jun 02, 2008	Sold (MLS) (Closed)		$1,085,000	Inactive SoCalMLS #S518133
Apr 25, 2008	Delisted		—	Inactive SoCalMLS #S518133
Mar 25, 2008	Price Changed		$1,198,000	Inactive SoCalMLS #S518133
Feb 19, 2008	Price Changed		$1,248,000	Inactive SoCalMLS #S518133
Jan 16, 2008	Listed		$1,298,000	Inactive SoCalMLS #S518133

Turtle Rock has done amazingly well at holding its bubble valuations. That being said, I have my doubts about this one making a profit.

What do you think? Is this property fairly priced, and will it sell for near its asking price.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 24 SOUTHERN WOOD Irvine, CA 92603

Resale House Price …… $1,250,000

Beds: 4

Baths: 3

Sq. Ft.: 2550

$490/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary, Traditional

View: Canyon, Fields, Hills, Mountain, Panoramic, Park/Green Belt, Tree Top

Year Built: 1979

Community: Turtle Rock

County: Orange

MLS#: U11003957

Source: SoCalMLS

On Redfin: 1 day

——————————————————————————

HIGHLY CUSTOMIZED VIEW HOME AT A QUIET CUL-DE-DAC IN PUPULAR HIGHLAND GARDENS WITH SWEEPING VIEW OF HILLS, TREES, SHADY CANYON AND TURTLE RIDGE. ELEGANTLY REMODELED WITH CATHERDRAL CEILINGS, TWO FIREPLACES, MARBLE FLOOING; FAMILY ROOM WITH WET BAR AND A TEMPERATURE CONTROLLED WINE STORAGE; GOURMET KITCHEN WITH TOP OF THE LINE APPLIANCES, GRANITE COUNTER AND BREAKFAST BAR, CHERRY WOOD CABINETRY AND GARDEN PICUTURE WINDOW. NEWER DOUBLE PANED WINDOWS AND ROOF. SOLAR TUBES, BUILT-IN MURPHY BED, RECESS LIGHTING. PROFESSIONALLY DECORATED, STAINED GLASS WINDOW, OPEN FLOOR PLAN, LIGHT AND AIRY. EXTRA SPACIOUS MASTER SUITE WITH PRIVATE BALCONEY; DUAL VANITY GRANITE COUNTER, SOAKING TUB. VIEW FROM ALL ROOMS WITH PRIVACY AND INDIVIDUAL D COR. FULLLY FENCED YARD WITH MANY FRUIT TREES. COVERED PATIO FOR INDOOR-OUTDOOR ENTERTAINING AMANITIES INCLUDING ASSOICATION POOL, SPA, PARK, CANYON TRAILS, CHILDREN PLAY GROUNDS AND MUCH MORE NO MELLOW ROOS AND LOW HOA FEES. THIS IS A MUST SEE!

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Proprietary IHB commentary and analysis

PUPULAR? CATHERDRAL? FLOOING? PICUTURE? BALCONEY? FULLLY? AMANITIES? ASSOICATION?

Resale Home Price …… $1,250,000

House Purchase Price … $1,085,000

House Purchase Date …. 6/2/2008

Net Gain (Loss) ………. $90,000

Percent Change ………. 8.3%

Annual Appreciation … 4.3%

Cost of Home Ownership

————————————————-

$1,250,000 ………. Asking Price

$250,000 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$1,000,000 ………. 30-Year Mortgage

$244,694 ………. Income Requirement

$4,879 ………. Monthly Mortgage Payment

$1083 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$260 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$99 ………. Homeowners Association Fees

============================================

$6,321 ………. Monthly Cash Outlays

-$1279 ………. Tax Savings (% of Interest and Property Tax)

-$1395 ………. Equity Hidden in Payment (Amortization)

$372 ………. Lost Income to Down Payment (net of taxes)

$176 ………. Maintenance and Replacement Reserves

============================================

$4,196 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$12,500 ………. Furnishing and Move In @1%

$12,500 ………. Closing Costs @1%

$10,000 ………… Interest Points @1% of Loan

$250,000 ………. Down Payment

============================================

$285,000 ………. Total Cash Costs

$64,300 ………… Emergency Cash Reserves

============================================

$349,300 ………. Total Savings Needed

——————————————————————————————————————————————————-

Laurie Goodman from Amherst Securities Group believes over 10 million more borrowers will go delinquent if the government doesn't take radical action.

Irvine Home Address … 4 TANGERINE Irvine, CA 92618

Resale Home Price …… $575,000

I apologize,

for the cruel things that I did,

But I don't regret,

one single word I said,

Just walk away

make it easy on yourself,

Just walk away

please release me from this hell,

Five Finger Death Punch — Walk Away

Millions more borrowers are going to default. Most of these defaults will be a direct result of the excessive debts they cannot handle. Some of these will be truly strategic, but most will be a stress-induced strategic default. The borrower probably could continue to struggle and make onerous payments, but they no longer see a point, so they will default. Are those strategic? Lenders would probably say so, but how much distress are borrowers supposed to endure?

However you want to classify these defaults, they are coming. Until that debt is cleared out, the housing market will struggle, and so will our economy.

10 million more mortgages set to default

by JON PRIOR — Tuesday, September 20th, 2011, 10:39 am

Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group.

At the end of the second quarter, more than 2.7 million long-delinquent loans, others in foreclosure and REO properties sat in the shadow inventory, more than double what it was in the first quarter of 2010 (Click to expand the chart below). With the market averaging roughly 90,000 loan liquidations per month, it would take 32 months, nearly three years, to move through the overhang.

And that number is contingent on no other loans going into default.

Mainstream media reports on the months of shadow inventory miss this fact. The shadow inventory problem is not behind us. Borrowers are going delinquent in large numbers.

It is better than it was before, but it is still bad. We are still adding loans to shadow inventory at a high rate, mostly due to strategic default. People know they can squat for a couple of years, so fewer are willing to struggle with their large underwater mortgages.

“Many analysts looking at the housing problem mistakenly assume it is limited to loans that are currently non-performing (or 60-plus days past due). Such borrowers have a high probability of eventually losing their homes. However, the problem also includes loans with a compromised pay history; these are re-defaulting at a rapid rate,” Goodman told a Senate subcommittee Tuesday.

Cure rates are abysmal, and they will continue to be. People can't afford the debt, and restructuring a super-sized debt to make it payment affordable does not solve the problem. That merely leaves debtors underwater and trapped in their homes.

Under a reasonable estimate, which is calculated with more conservative market conditions than what is currently being experienced, Goodman found nearly 2 million re-performing mortgages would default again and another 3.6 million already troubled loans to default as well.

The rest of the 10.4 million estimate is made of always-performing loans at various stages of negative equity. Of the 2.5 million always-performing mortgages with loan-to-value ratios above 120%, nearly half will default. Even 5% of the always-performing mortgages that have some equity left will default, as well, Goodman said.

Most of those defaults will be strategic. Underwater loanowners who are paying more on their mortgage than the cost of a rental are truly throwing their money away. It's ironic that the same crowd who belittles renters as throwing their money away on rent have no problem with throwing twice as much money away on loan interest. Pretty stupid, really, particularly when they are obtaining no equity.

In August, the Obama administration asked the housing industry for ideas on how to more efficiently sell or unload this overhang, and the Senate heard testimony from various housing players Tuesday.

There are people that still deny shadow inventory is a problem. If it weren't why is the Obama administration seeking answers on how to deal with it?

Each, including Goodman, said the government should target private investors.

Yes, they should.

Robert Nielsen, chairman of the National Association of Homebuilders, said government programs should be revamped to assist small and local businesses in rehabbing and unloading these properties.

Nielsen said Fannie, Freddie and the FHA should avoid bulk sales to large investors that have no stake in the neighborhoods in which these properties are located.

“Local and small businesses that have a stake in the future of the affected communities should be the driving force behind the disposition of the REO inventory. This will result in the creation of jobs and the stabilization of neighborhoods,” Nielsen said.

Bulk sales will be a bad idea. These funds will merely act as middlemen selling off individual homes to small investors and owner occupants. The profits made by bulk buyers is money the government could have acquired for itself if it merely continues with its current disposition efforts.

NAHB also urged Congress to extend the current conforming loan limits for Fannie Mae, Freddie Mac and the FHA, which are due to be lowered on Oct. 1.

Homebuilders want to sell homes to their FHA and GSE buyers at higher price points. Nearly half of their sales come from the FHA, and if those buyers can't obtain financing, the homebuilders cannot sell homes.

Stan Humphries, chief economist for Zillow, said the rental market is currently booming and would be able to handle a mass conversion of foreclosures into rentals by investors, but the government, he said, would be wrong in upsetting this dynamic.

“Investors smell a distinct opportunity in this situation: The chance to buy an asset cheaply and rent it out dearly. In fact, close to one-third of the purchases of existing homes this year have gone to all-cash buyers, the bulk of whom are real estate investors,” Humphries said. “Any plan that may upset this balance – such as Fannie and Freddie getting into the rental market and creating competition – will have a chilling effect on private investment in the one segment of the housing market that is performing well.”

Obviously, I agree with his assessment — and not just because I want to buy rentals. If the government starts renting instead of selling, this merely delays the necessary market clearing. These rentals would eventually need to be converted back to for-sale product unless Uncle Sam wants to become a permanent landlord on millions of single-family homes. When these properties are returned to the market, it will put renewed pressure on pricing and extend the housing crash.

How long do we want to prolong the pain? Are we looking to see if we can duplicate what happened in Japan?

But with a Congress currently gridlocked on nearly every issue, none of the panelists so clearly described the looming housing problem and the consequences of continued inaction like Goodman.

“To solve the housing crisis you must create 4.1 million to 6.2 million units of housing demand over the next six years,” she said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior

So how do you create that much housing demand? Job creation would certainly help. Does anyone think the US will create that many jobs over the next six years? I doubt it.

That only leaves one viable alternative. Let house prices crash until cashflow investors absorb them. The surest way to create housing demand is to lower prices enough to attract cashflow investors. Many markets are already at those price levels, and unless the government does something really stupid — like renting properties out instead of selling them — the low resale prices relative to rents will prompt buying by cashflow investors. If the government starts renting these properties out, it will depress rents and thereby reduce the demand for properties from investors. If investors stop demanding these properties, the supply will take much, much longer to clear.

Owner occupants are not the answer. There are not enough wage earners with good credit to buy all the distressed properties. Cashflow investors must be part of the solution.

10% appreciation since October 2010?

We're going to see many property profiles like this one over the next few years. The owner buys in the bear rally, watches the market crumbe around him, but he still puts it on the market at a price that will give him room to negotiate and pay the commissions.

It won't work.

If this guy is going to sell this property, he is going to lose money. Prices are down year over year, and old Irvine condos are no exception. In fact, from what we have observed here, condo prices are still groping for a bottom.

Anyone think he can get $575,000 for this property?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 4 TANGERINE Irvine, CA 92618

Resale House Price …… $575,000

Beds: 3

Baths: 2

Sq. Ft.: 1403

$410/SF

Property Type: Residential, Single Family

Style: Two Level

View: Park/Green Belt

Year Built: 1977

Community: Orangetree

County: Orange

MLS#: I11120523

Status: Active

On Redfin: 5 days

——————————————————————————

This gorgeous garden patio home is located in the highly desirable community of Orangetree in Irvine , just minutes away from John Wayne Airport, Newport Beach, Irvine Spectrum shopping center, Oak Creek Golf Course, Irvine Valley College and Fashion Island. A gorgeous Leaded insert front door opens into well lit living area with impressive vaulted ceilings and beautiful wood laminate floors. The large updated kitchen includes all stainless steal appliances surrounded by custom cherry wood cabinets and recessed lighting. Both kitchen and bathrooms feature attractive and easy to clean granite counter tops with custom cherry wood cabinets. Three private bedrooms are carpeted in neutral colors. Home includes a fabulous landscaped patio with stamped concrete surrounded by a stunning custom redwood fence and gate. Enjoy the beautiful lush green belt located adjacent to the property for year around serenity. The property is extraordinary well maintained and includes an attached, oversized two car garage for extra storage. This home is located within minutes of Southern California's most desirable destinations and excellent Irvine schools.

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Proprietary IHB commentary and analysis

Resale Home Price …… $575,000

House Purchase Price … $515,000

House Purchase Date …. 10/14/2010

Net Gain (Loss) ………. $25,500

Percent Change ………. 5.0%

Annual Appreciation … 11.1%

Cost of Home Ownership

————————————————-

$575,000 ………. Asking Price

$115,000 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$460,000 ………. 30-Year Mortgage

$117,958 ………. Income Requirement

$2,244 ………. Monthly Mortgage Payment

$498 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$120 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$185 ………. Homeowners Association Fees

============================================

$3,047 ………. Monthly Cash Outlays

-$368 ………. Tax Savings (% of Interest and Property Tax)

-$642 ………. Equity Hidden in Payment (Amortization)

$171 ………. Lost Income to Down Payment (net of taxes)

$92 ………. Maintenance and Replacement Reserves

============================================

$2,301 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,750 ………. Furnishing and Move In @1%

$5,750 ………. Closing Costs @1%

$4,600 ………… Interest Points @1% of Loan

$115,000 ………. Down Payment

============================================

$131,100 ………. Total Cash Costs

$35,200 ………… Emergency Cash Reserves

============================================

$166,300 ………. Total Savings Needed

——————————————————————————————————————————————————-

Bank of America increased its foreclosure notices an astounding 116% over last month. The resulting foreclosures are scheduled to hit the market in spring of 2012 thus dooming any rally.

Irvine Home Address … 3 PACIFIC Grv Irvine, CA 92602

Resale Home Price …… $799,000

Go on and write me up for 125

Post my face, wanted dead or alive

Take my license n' all that jive

'cause I can't drive 55!

Sammy Hagar — I Can't Drive 55

The housing market is speeding toward another crash. Demand is weak, prices are falling, and to make matters worse, lenders are gearing up to process the shadow inventory waiting to be dumped on the market next year.

Bank of America shifts West Coast foreclosures into overdrive

by JON PRIOR — Tuesday, September 13th, 2011, 7:12 pm

Notice of default filings jumped nearly 70% in California from the previous month, led by renewed activity from Bank of America, according to the data provider ForeclosureRadar.

Foreclosure starts increased in five West Coast states from the previous month: California, Arizona, Washington, Oregon and Nevada.

BofA foreclosure starts more than doubled in August, jumping 116% from the previous month. Wells Fargo and U.S. Bank also showed increases but fell short of the BofA restart, according to ForeclosureRadar, which monitors West Coast states.

“While it can’t be said for every state in the nation, we are seeing continued improvements in foreclosure volumes in many areas of the country, and that is a potential harbinger for housing market recovery,” a BofA spokesperson said. “Strong gains like that from July to August demonstrate our progress – primarily in non-judicial states like California and Nevada – clearing more volume to advance to foreclosure once we pass the numerous, improved quality controls we have in place and only after all other options with homeowners have been exhausted.”

Notice the carefully chosen words. What does it mean to show “continued improvements in foreclosure volumes?” In the past, this has meant delaying the inevitable. Now it means increases the volume of processing. In more colorful terms, BofA is kicking the delinquent mortgage squatters to the curb.

I fully agree with their assessment “that (this) is a potential harbinger for housing market recovery.” I have long maintained foreclosures are essential to the economic recovery. I didn't think anyone believed me. Apparently, many insiders knew this all along and simply wouldn't admit it until now.

The little factoid missing from the BofA statement is that millions of people are going to finally lose their homes to foreclosure. It's about time. And before anyone sheds a tear for the squatters, remember, new families find the houses lost in foreclosure. There are millions of families waiting to buy properties at affordable prices once the foreclosures finally take place.

California foreclosures set to surge

By JON PRIOR — Monday, September 19th, 2011, 11:01 am

California default notices spiked 55% in August, and the number may keep rising in the coming months as mortgage servicers shake off the robo-signing freeze, according to RealtyTrac Senior Vice President Rick Sharga.

In August, servicers filed 28,961 default notices in California, the first stage of the foreclosure process in the state, RealtyTrac showed. Another filing tracker ForeclosureRadar found a similar boost in foreclosure starts along the West Coast and said Bank of America led all major banks with a 116% jump in August alone.

An increase like that does not happen by accident. Someone at BofA made a calculated decision to dramatically increase foreclosures. I have speculated it was a necessary step to raise cash, but only BofA executives know for sure. Regardless of the reason, such a large increase is telegraphing a serious effort to process foreclosures.

Amend, extend, pretend is coming to an end.

“The industry has not yet returned to normal or necessary foreclosure activity levels, but progress is certainly being made,” a BofA spokesperson said.

In an interview with HousingWire, Sharga said gave some idea on where that “necessary” level might be.

“It wouldn't be a stretch to say that we might see NODs in the range of 30,000 per month in California for a few months, but it's difficult to predict that they'd get anywhere near the record levels we saw back in 2009,” Sharga said.

From January 2010 through September 2010, California NODs averaged 28,000 per month. That dropped to 26,000 per month for the rest of 2010 after the robo-signing scandal broke in October, when servicers were found to be signing affidavits en masse and without a proper review of the loan files.

The slowdown continued into the early part of this year, with the NOD average dropping to 22,000 for the first seven months of 2011.

These filings peaked in March 2009 at 58,858 and averaged roughly 42,000 per month that year, the highest average since RealtyTrac began reporting the numbers, Sharga said.

A restarted foreclosure process means prices in California are set for possibly more drops, but the effect will not be seen immediately, according to Michael Simonsen, co-founder and CEO of the data analytics firm Altos Research.

“The price implications for the foreclosure spike are further down the road,” Simonsen said. “August prices did indeed lose their steam from the first half of the year, but it's largely seasonal.”

Analysts expect house prices nationally to double-dip in the winter ahead and finally hit bottom in the spring of next year. JPMorgan Chase analysts long said the fall could be as much as 5%.

It sounds very reasonable to assume prices will bottom in the winter of 2012. Unfortunately, that does not take into account the surge of REO slated to hit the market when the current batch of NODs are processed. If Bank of America is desperate for cash — and it appears to be — then they will not fool around with this group of NODs. They will likely follow with NOTs in 90 days and push these through the auction sites over the winter and spring of 2012.

.

According to the California Association of Realtors, the median home price in the state reached its highest level this year in August to $297,060, though it is still down 7.4% from the year before. Prices could face other challenges such as the expiration of the conforming loan limits in October and the ongoing deficit struggle, CAR said.

With the foreclosure timelines pushed to historic lengths, Simonsen said these properties will begin reaching an already bloated inventory during the height of the selling season of 2012.

“Look for the price impact of newly initiated foreclosures to be seen in the spring of next year, as they add to the spring inventory,” Simonsen said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

The NODs being filed today are trustee sales in early 2012 and MLS sales beginning next March. BofA undoubtedly timed this move for just that effect. It does them no good to ramp up in the summer and push thousands of home through the process in the winter when there is no seasonal demand, but it makes perfect sense to process NODs now to meet the demand of next spring's selling season. Bank of America is timing these foreclosures to hit the MLS next year.

The liquidation phase of the bubble deflation

Many misguided notions were behind the bear rally of 2009. Government policy makers actually believed they could engineer a bottom ot the housing market through tax incentives, lower interest rates, and relaxed accounting rules. The banks didn't care as long as they were kept alive by the handouts and the higher prices.

The main reason the 2009 rally was not going to be sustained was not due to the economy — although many will blame the economy. The real reason the 2009 rally was doomed before it started was pent-up supply of shadow inventory. I have recently read dismissive accounts of the impact of shadow inventory from an analyst who completely missed the housing bubble. Sometimes I wonder where these analysts think all those houses went. Hiding them in shadow inventory never made them go away.

Each of the next 3 to 5 years, realtors will call the bottom, clueless analysts will agree with them, then both will be surprised when inventory or higher interest rates crush the spring rally. This will happen each year until the overhanging inventory is liquidated and interest rates come up from their temporary cyclical lows.

Remember you read that here.

$345,000 in mortgage equity withdrawal, 16 months squatting

The previous owners of today's featured property paid $520,000 back on 2/14/2001. They used a 400,800 first mortgage, a $80,120 second mortgage, and a 80,080 down payment. With a series of refinancings they ended up with a $650,000 first mortgage and a $175,000 second. They quit paying before April 2010 and squatting until August when the lender took back the property.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 3 PACIFIC Grv Irvine, CA 92602

Resale House Price …… $799,000

Beds: 3

Baths: 2

Sq. Ft.: 2200

$363/SF

Property Type: Residential, Single Family

Style: Two Level, Modern

Year Built: 2001

Community: Northpark

County: Orange

MLS#: P796555

Source: SoCalMLS

Status: Active

On Redfin: 2 days

——————————————————————————

Luxrious Northpark home built by California Pacific, located on a cul-de-sac in a 24 hour guard-gated community. Interior will have newer paint and carpet. Spacious Family Room with a warm and cozy fireplace. Upstairs consist of 3 bedrooms with a large a spacious master suite, elegant master bath. This wonderful guard-gated community offers pools, tennis courts, sports courts, toddler lots, must see to appreciate this gorgeous home.

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Proprietary IHB commentary and analysis

Resale Home Price …… $799,000

House Purchase Price … $769,516

House Purchase Date …. 8/12/2011

Net Gain (Loss) ………. ($18,456)

Percent Change ………. -2.4%

Annual Appreciation … 22.8%

Cost of Home Ownership

————————————————-

$799,000 ………. Asking Price

$159,800 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$639,200 ………. 30-Year Mortgage

$159,997 ………. Income Requirement

$3,118 ………. Monthly Mortgage Payment

$692 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$166 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$156 ………. Homeowners Association Fees

============================================

$4,133 ………. Monthly Cash Outlays

-$730 ………. Tax Savings (% of Interest and Property Tax)

-$892 ………. Equity Hidden in Payment (Amortization)

$238 ………. Lost Income to Down Payment (net of taxes)

$120 ………. Maintenance and Replacement Reserves

============================================

$2,870 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,990 ………. Furnishing and Move In @1%

$7,990 ………. Closing Costs @1%

$6,392 ………… Interest Points @1% of Loan

$159,800 ………. Down Payment

============================================

$182,172 ………. Total Cash Costs

$43,900 ………… Emergency Cash Reserves

============================================

$226,072 ………. Total Savings Needed

——————————————————————————————————————————————————-

MLS Find of the day

A reader emailed me this listing in San Diego with drying marijuana and weighing scale.

My last office in Lake Forest was next to a dispensary before Lake Forest kicked them all out of town. No matter how well ventilated the room, the smell of pot was overpowering even next door. I can only imagine how strong the smell is in that guy's bedroom.

When I first saw these photos I didn't believe it was pot because I didn't think anyone would be able to live with the overwhelming odor of pounds of drying pot, but when I saw the scale, I was convinced. Either this guy runs a dispensary, or he really, really likes to smoke pot — or both.

Banks are in no hurry to sell their high end inventory. Unless we see significant capitulation, the overhang will persist for a decade at least.

Irvine Home Address … 25 RIDGEVIEW Irvine, CA 92603

Resale Home Price …… $3,694,800

I can wait, I can wait,

I can wait forever

I know it feels like forever,

I guess thats just the price I've got to pay…

Simple Plan — I Can Wait Forever

The high end market is a shambles. Sellers are slowly lowering their asking prices, but many act as if they can wait forever. The few transactions taking place are often at or above the peak which many have interpreted as strength. In reality, product is being withheld from the market to force the few buyers who can pay to come up with enormous down payments. Very little is selling.

The banks are responsible for this. Lenders inflated the housing bubble across all property classes by injecting excessive debt into the housing market. In particular, the Option ARM was widely used to underwrite huge mortgages to put people into houses they could not afford with debts they could never repay.

Today's featured property is a perfect example. It was financed with a $2,912,449 Option ARM. The owner quit paying shortly thereafter, and after a year or more of squatting, the lender took back the house for $3,206,666, the full amount on the note at the time.

No lenders are making such stupid loans today, and as a result, the buyer pool who can afford such a spendy house is dramatically depleted. The high-end market above $2,000,000 is returning to what it should be — the exclusive domain of the very rich who can pay cash.

Unfortunately, there are very few households with enough wealth to put $1,000,000 or more into a down payment or an all-cash purchase, and we have a plethora of properties priced for absorption by these buyers. Whenever you have a dramatic difference in supply and demand, prices are bound to move. In this case, we have a huge overhang of supply and nearly no demand, so prices will inevitably fall.

High-end supply

I mentioned a few weeks ago that Redfin now enables you to search for bank-owned homes both on and off the market. There are currently 144 in Irvine, 79 of which are not on the market. Many of the 79 are high-end properties the banks don't believe they can sell in today's market, so they are withholding them for better days… better days which are not forthcoming.

Lenders are making a classic mistake. They believe prices are depressed, and if they wait, strong demand will increase prices and allow them to sell at a better price. They are wrong. Prices are not depressed. Prices were elevated above reason, and they are now correcting back to affordable levels. Lenders are waiting for higher prices which will only be coming as wage inflation over time allows buyers to afford more. That will take a very long time. Further, the overhang of all this supply will prevent the appreciation lenders need to sell at a better price.

I am not alone in noticing the woes of high-end markets.

Higher-End Housing Hits a Wall

Published: Wednesday, 24 Aug 2011 — By: Diana Olick

Most of America won't shed a tear for those who own higher-priced homes, especially given that the median home price in the nation has now fallen to just $174,000, but investors and homeowners alike should take note: Higher priced homes are taking a hit and the outlook for them is worse than the overall market.

That will have ramifications for recovery.

Despite the fact that just eight percent of US loans are currently jumbo, according to Inside Mortgage Finance, and that share will rise to just 10-12 percent when the conforming loan limit is lowered October 1st, high-end housing is already being hit harder than the overall market, which isn't exactly doing so well itself. …

In order for the high end market to regain some semblance of strength, jumbo lenders will need to re-enter this space. Unfortunately, with default rates still being very high, lenders are not anxious to give away more free money to high-end squatters.

Recidivism rates on jumbo mortgage cures remain unchanged

by KERRI PANCHUK — Tuesday, September 13th, 2011, 11:06 am

Default recidivism rates on jumbo and alt-A mortgage loans tracked at similar levels when comparing the first quarter of 2010 to the second quarter of 2011, according to a new report from Bank of America Merrill Lynch.

According to the analysis, the highest levels of recidivism come from mortgages refinanced in 2008, especially in the second half of the year. For both the third and fourth quarter of the year, more than half of the loans redefault after a year. Merrill Lynch defines a mortgage as a redefault when payments are missed for more than 60 days.

Recidivism decreased for loans originated sooner, so the redefault rates will invariably rise as time progresses, though potentially to lesser degree. JP Morgan is also the mortgage servicer with the highest level of recidivism rate among jumbos….

However, any lack of improvement on jumbo loans in terms of recidivism rates on defaulted loans may create a disincentive for the private mortgage market to jump into the segment, especially as conforming loan limits are dropping. …

Yes, that is exactly what it does. Lenders are not going to jump in to jumbo space just because the GSEs are leaving it. There will undoubtedly be increased activity at the margin between $625,000 and $729,750, but the desire for mortgages over $1,000,000 will remain low until default rates drop. Unfortunately, default rates on jumbo mortgages will not decline any time soon. The loan balances are far too large relative the borrower's incomes.

This leaves us with a high end market floating in space. Lenders are unwilling to enter this space because borrowers keep defaulting because borrowers can't afford the payments. Unfortunately for lenders, they also own or control a huge number of properties they need to sell at these same price points. Each lender needs another lender to step forward and underwrite a loan they themselves are not willing to underwrite. It's a Mexican standoff resulting in a frozen housing market.

While lenders wait for one of their competitors to step forward to bail them out, they are stuck with large numbers of non-performing loans, delinquent mortgage squatters, and REO they can't get rid of without bank-busting losses. So what do they do? They cling to their wishing prices like any other seller in denial and hope for the best. Hope is their only viable plan.

1,267 days on the market and counting

I first profiled today's featured property back on September 26, 2007, nearly four years ago. I profiled it again back in March of 2011. It was purchased by a peak buyer who lost a tidy down payment, and now the lender is going to have to absorb the rest of the loss. Apparently, they are in no hurry.

Date	Event		Price
Sep 16, 2011	Price Changed		$3,694,800
Sep 16, 2011	Relisted (Active)		—
Sep 02, 2011	Delisted (Expired)		—
Jul 13, 2011	Price Changed		$3,748,000
Sep 07, 2010	Relisted (Active)		—
Sep 04, 2010	Delisted (Expired)		—
Jun 25, 2010	Price Changed		$3,999,000
Nov 12, 2009	Price Changed		$4,099,000
Sep 04, 2009	Price Changed		$4,199,000
Sep 04, 2009	Relisted (Active)		—
Sep 02, 2009	Delisted (Expired)		—
Jan 22, 2009	Sold (Public Records) This home was foreclosed Foreclosure and bank-owned REO (Real Estate Owned Home)		$3,206,666
Sep 04, 2008	Relisted		—
Sep 02, 2008	Delisted		—
Jun 05, 2008	Price Changed		$4,249,000
Mar 29, 2008	Listed		$4,299,000
Mar 27, 2008	– Delisted		—
Jan 27, 2008	– Listed		*
Jan 26, 2008	– Delisted		—
Jan 14, 2008	– Listed		*
Dec 22, 2006	Sold (Public Records)		$3,953,500

The bank has had this property on its books for two years now. They have made small price reductions, but they are still holding out for a wishing price they aren't going to get.

This is denial.

The listing and delisting with minor price reductions is simply foolish. They are hoping they hit the knife-catcher lottery, and so far, they haven't gotten lucky. They better hope they do so because if Bank of America starts foreclosing and liquidating in earnest, the extreme supply constriction they are relying on to force bids up isn't going to continue to work in their favor.

All it takes is for one or two of the major players to move from denial to capitulation, and the additional supply will severely weigh down prices at the fragile high end.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 25 RIDGEVIEW Irvine, CA 92603

Resale House Price …… $3,694,800

Beds: 5

Baths: 6

Sq. Ft.: 6055

$610/SF

Property Type: Residential, Single Family

Style: Two Level, Mediterranean

View: Bay, City Lights, City, Coastline, Mountain, Ocean, Panoramic

Year Built: 2006

Community: Turtle Ridge

MLS#: S526948

Source: SoCalMLS

Status: Active

On Redfin: 1267 days

——————————————————————————

At the very top of Turte Ridge, this is the ONLY Plan 3 that's hit the market and worth the wait. Highly sought after, this property is the largest of the LACima plan homes, with over 6,055 of living space on a huge lot at over 23,000 square feet at the end of a very quiet cul-de-sac. Absolutely no view obstructions. You can see all the way from the ocean to the Saddleback mountains with no roofs! Upgrades throughout the interior including faux wall painting, additional fireplaces and highly upgraded bathrooms. Wait till you see the view from the master bedroom!! This home is priced to sell.

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Proprietary IHB commentary and analysis

Highly sought after? That's why it's been on the market for 1,267 days, right?

This home is priced to sell. Then why isn't it?

Resale Home Price …… $3,694,800

House Purchase Price … $3,206,666

House Purchase Date …. 1/22/2009

Net Gain (Loss) ………. $266,446

Percent Change ………. 8.3%

Annual Appreciation … 5.3%

Cost of Home Ownership

————————————————-

$3,694,800 ………. Asking Price

$738,960 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$2,955,840 ………. 30-Year Mortgage

$753,755 ………. Income Requirement

$14,420 ………. Monthly Mortgage Payment

$3202 ………. Property Tax (@1.04%)

$585 ………. Special Taxes and Levies (Mello Roos)

$770 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$495 ………. Homeowners Association Fees

============================================

$19,472 ………. Monthly Cash Outlays

-$1872 ………. Tax Savings (% of Interest and Property Tax)

-$4124 ………. Equity Hidden in Payment (Amortization)

$1100 ………. Lost Income to Down Payment (net of taxes)

$482 ………. Maintenance and Replacement Reserves

============================================

$15,058 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$36,948 ………. Furnishing and Move In @1%

$36,948 ………. Closing Costs @1%

$29,558 ………… Interest Points @1% of Loan

$738,960 ………. Down Payment

============================================

$842,414 ………. Total Cash Costs

$230,800 ………… Emergency Cash Reserves

============================================

$1,073,214 ………. Total Savings Needed

——————————————————————————————————————————————————-

Over the last year, I have purchased 36 houses in Las Vegas for my flipping fund. Many have been occupied which required me to facilitate the occupant's departure.

Irvine Home Address … 64 GRANT Irvine, CA 92620

Resale Home Price …… $640,000

There's a note on the door..

Eviction notice

“Listen, one of us is leaving,

and when I say US I mean YOU…

YOU'RE leaving.

(You're leaving… You're leaving.)”

I'm in the house y'all,

I'm in the house y'all

And ain't no little piece of paper gonna kick me out y'all!

Sage Francis — Eviction Notice

Some foreclosure and eviction cases can be heartbreaking. However, we live by rule of law in this country, and unless we want to start giving away real estate to those with the saddest story, these evictions must take place.

Elderly woman, 101, in tears as she's evicted from her home and her possessions are thrown into dumpster

• Texana Hollis's son failed to pay her property tax
• Detroit woman had lived at her home for 58 years
• Rushed to hospital after eviction over heart attack fears

By Paul Thompson

Last updated at 7:44 PM on 13th September 2011

A 101-year-old woman has been evicted from her home of the last six decades after her son failed to pay property taxes on time.

Texana Hollis's possessions were thrown into dumpsters after bailiffs moved to take her house in Detroit, Michigan.

The 101-year-old was left in tears and disorientated after she was ordered out of the property that has been her home for the past 58 years.

That is about as sad as it gets. The house was paid off, and the 101 year old woman lived there for 58 years, and now she is homeless.

Officials said her 65-year-old son Warren had failed to pay property taxes for up to seven years.

Although the home was owned outright by Ms Hollis he had ignored repeated warnings that they faced eviction.

Now we see what is really going on. The son wasn't paying the property taxes. My guess is he wagered nobody would foreclose on the home as long as his aging mother lived there, so he just stopped paying.

What was the taxing authority supposed to do? Let these people live there tax-free? What about the other taxpayers who aren't getting a free ride?

Perhaps if we pass a new law that says if you live past 95, you don't have to pay property taxes, then it might be okay. It might not be a bad law. But until that law is passed, regardless of age, people have to stay current on property taxes if they want to stay in their homes. This house was enjoying the benefits of police and fire protection without its owners paying a fair share of the bill.

Warren said: ‘I kept it from her because I did not want to worry her.’

He also admitted that he knew they faced eviction, but thought it would not happen.

Yep. He bet they wouldn't foreclose and lost. What a fool! Whatever bad circumstances befall this man, he richly deserves. It's his fault, not the foreclosing tax authority.

Ms Hollis wept as she told her local TV station that she only found out about the back taxes the night before she was evicted.

Hours after being evicted Ms Hollis was rushed to hospital over fears she might have had a heart attack.

Friends later said did not suffer a heart attack, but was stressed over the incident.

I can only imagine how awful that must have been for her.

With no place to stay a neighbour agreed to let Ms Hollis and her son stay at her home temporarily. But neighbours are questioning why the local authority would want to turn a 101-year-old woman out on to the streets.

‘This woman needs to be back in her home now,’ one angry neighbour said.

Local businessmen are looking to see if they can pay the back taxes to allow Ms Hollis to move back into her home.

I hope they raise the money to pay off the tax bill. They should keep a lien on the property, and the moment this lady passes on, they need to boot the son to the curb with no mercy.

My family's eviction story

My grandmother's blind sister was 82 years old when she was evicted from her paid-off family home for a highway construction project. True story.

Rather than wait a few more years for this ailing elderly blind woman to pass on in her lifelong home on the lake in Friendship, Wisconsin, the Department of Transportation decided it was time to straighten out a dangerous corner around the edge of the lake by wiping out my great-aunt's home.

This incident was very sad, and my great-aunt died in a nursing home shortly thereafter emotionally devastated by the event. Her son kept the bitterness alive for years thereafter.

My senior citizen eviction story

When I bought 19 Tierra Buena, Las Vegas, NV 89110, it was occupied by a widow whose husband had passed a few years earlier. Since they lived in Las Vegas, any stored savings they had in home equity was wiped out in the housing crash. She quit paying in 2008 and got about two and one half years of free housing before the bank finally foreclosed. Jacki and I were both saddened by her circumstances.

We offered her $500 to leave the property, and she agreed. We sent her a check to the address she gave us, and it was sent back to us. The post office couldn't find her at the address she gave us. After a couple of weeks, we still hadn't heard from her.

My conscious was bothering me, and one night I woke up at 3:00 AM thinking about this poor woman. It occurred to me to simply mail the check to the 19 Tierra Buena address to see if the post office would forward it to wherever she really was. Jacki resent the check, and a week later, it cleared our account.

I could have saved $500. She made no attempt to contact us after she left. I couldn't live with the idea of saving $500 at the expense of a widow.

My least favorite former property owners

These stories were so irritating for me they are worth recanting again here….

Squatters on my dime

I have one property I purchased in November, and the former owners are still squatting there. The former owners pulled an interesting legal move. They had the wife file for bankruptcy in her maiden name a few days after the foreclosure auction, and they put the property into the estate. Well, our search didn't pick up the bankruptcy because it wasn't in the owner's name, so we began foreclosure proceedings. Late in the process, the bankruptcy attorney accuses us of harassment, and we had no idea what he was talking about.

Once we discovered the suit, we had to initiate our own suit to have the property removed from the bankruptcy proceedings. They didn't own the property when they filed, so they can't obtain protection from the bankruptcy court to stay there. If they had filed before the foreclosure, they would have had other rights, but if they had filed before the foreclosure, it would have shown up in a title search, and I wouldn't have bid on the property.

The cost of all this legal maneuvering is expensive. The time to properly evict these people has been costly in two ways. First, the declining market means my resale price is declining while i wait. in addition, I have opportunity cost on money tied up in a non-performing asset. I am not a bank. I can't amend, extend, and pretend I am making money. I either sell quickly for a profit or I don't profit.

Ye ol' crack house

By far the most bizarre story I have is a property I purchased in October.

Back in 2005, a recent Salvadoran immigrant obtains his citizenship. With his workman's salary and a penchant for liar loans, he puts together an empire of 8 properties in Las Vegas from 2005 to 2007. The last of these properties was his crown jewel — the property I bought.

The property is in a older Las Vegas neighborhood called Spring Valley. The neighborhood is dominated by ranch style houses ranging from 1,400 SF to 1,800 SF. It has seen better days, but this is not a bad neighborhood. It is mostly median income middle-class families trying to get by.

My property is the large 5 bedroom home at the end of a cul-de-sac. It is the only one in the area with a large pie shaped lot with an outbuilding and RV parking. Back in 2007 when Vicente the Fox, our recent immigrant, bought this property with his liar loan, it was the finest property on the street.

Vicente the Fox began using his large property as a salvage yard. He put individual locks on all the bedroom doors and leased out the rooms to boarders and skimmed their rent. He tried to convince them to keep paying him even after I bought the house.

The boarders were united by their love for crystal meth. There is no evidence this place was used as a meth lab — thankfully — but when the constables came by to evict the last boarders, they confiscated a cigar box full of used pipes and other paraphernalia. In the two weeks after we took possession, the house was broken into three times.

The amount of junk on this lot is staggering. There are eight automobiles on this property, and none of those are in the garage because the garage was full of stuff. All eight cars are in the back and side yards. There were 4 working refrigerators on the property, a dirt bike, an air conditioner, anything and everything you can imagine, and lots of it.

I call our former owner Vicente the Fox because he carefully avoided us whenever we tried to serve him formal eviction papers. He didn't live at this house, and his former address is an apartment where he skipped out on the rent. However, since I was unable to serve him, I could not fully divest him from the property and the junk sitting on it.

He teams with a local attorney bandito to shake me down for wrongful foreclosure, stealing his property, and so on. Since I couldn't get him served, his weak case was strong enough to tie me up in court for a while. I settled.

Surprisingly enough, it turned out in my favor because when I let him back on the property to get his stuff, he cleared out much of the garbage along with the stuff of value. My worst fear was him picking over the good stuff and leaving me with a $5,000 mess to clean. He took a number of paint cans and other items that would have required me to bring in special disposal teams.

There is no good resolution for this property. I will lose money on the deal, and Vicente the Fox will have a roving pile of garbage scattered at friends and acquaintances houses all over town.

Eventually, this property will get sold. Hopefully, it will be to a good family that restores it as the jewel of the neighborhood. That's the outcome I want.

Flippers are maligned for bringing down the quality of life in neighborhoods. The reality is that the delinquent former owners are the ones who brought down the neighborhood. Flippers like me are the ones taking back the crack houses from rent-skimming former owners and putting families back into them.

I just rented Stober Court to a section 8 government assistance tenant. I had no idea such tenants could get $1,350 monthly rent allocations. She nearly broke down in tears when she saw the cleaned, painted, and repaired property. I felt good about that one.

Let's not forget, New families find the houses lost in foreclosure.

Merry Christmas and happy new foreclosure

I bought this house on December 7, 2010. The above was the actual picture of the property I used to evaluate it as a potential flip taken the morning of the auction.

Do you see the carefully groomed landscape and the Christmas reindeer in the front?

These people liked this house, and they didn't want to lose it. I was buying it eight days before December 15th when the local constables who handle evictions stop all activities for the holidays.

Was I going to be Grinch this year?

Cash-for-keys

I always prefer a negotiated settlement to eviction. It takes too much time to evict, and the occupants aren't too careful on their way out with their belongings.

These former owners have few tenant holdover rights. If i want them out, I can have them forcibly removed in short order. In Nevada, they get a 5-day notice to get out followed by a 3-day notice before the constable arrives to remove them by force if necessary. This is dangerous work, and they do carry weapons.

Technically, the former owners owe me rent from the day of the foreclosure sale. The typical negotiation is to offer free rent for three weeks with cash incentives if they move out quicker. The cost of money dictates that i can offer up to $500 per week if they are out early, and it improves overall revenues and profits.

I wasn't about to expedite an eviction to see if I could kick this family out two weeks before Christmas. We negotiated a deal where they could stay until January 10th if they agreed to leave certain appliances, be careful when moving furniture, leave the fixtures and fans, basically leave the place undamaged so we can do preparations for sale quickly and with limited expense.

Sue for unlawful foreclosure

We needed to exchange written documents, and they avoided meetings until it became apparent to us that these occupants did not intend to follow through on their agreement. Just before Christmas, we received a lawsuit notification, and with the justice system basically shut down the last two weeks of the year, we had no options, and the holdover owner got one last peaceful Christmas in their former dream home. I truly hope they enjoyed it. Denial has its rewards.

On the 3rd of January, we filed suit to get them removed, and after some legal finagling, we got a 30-day notice filed with a calendar set to expire in early March. These owners genuinely believed they were somehow going to keep this house. After more than two years with no payments, their house was called to auction, and now they are no longer on title. Only their bodies and their possessions remain.

As the eviction clock is winding down, we get a communication from the owners asking us if our original cash-for-keys offer was still on the table. They would get out that weekend if I gave them $1,500. Of course, my first thought is, screw you, you're willing to take my money after lying to me, suing me, and generally pissing me off. Go to hell! After a few moments to think rationally, I sent Jacki over with a big smile on her face to agree to their demands.

They got out in a weekend, I got the house in immaculate condition — I knew any loan owner in foreclosure who bothers to put out decorations and maintains their yard that well probably maintained the inside well. They did. We got the house on the market the next weekend (last weekend) with minimal fix up expense.

A bitter pill to swallow

These former owners loved this home. Jacki told me they were very bitter about the entire situation, the failed appreciation, the failed dodgy loan, the failed loan modification, the failed attorney savior. Despite the anger and bitterness, after telling their story, they were polite to Jacki when she inspected the property and paid them off.

When I think about borrowers like these, I do wish it had turned out differently for them. This particular family were peak buyers. They paid $399,991 for a property I bought 5 years later at auction for $170,000. The comps have weakened since I bought this property, and I will likely have to discount it to move it. These owners owed double what this property is worth today. What were they supposed to do?

The new family that buys here will enjoy a substantially lower cost of ownership. instead of the $2,500+ monthly cost the former owners had, the new buyer will spend less than $1,200 a month to live in this place. These people won't have HELOC riches any time soon, but they will have a cost-of-living that leaves them enough spending money that the HELOCs aren't necessary.

What is the best resolution for properties like this one? Do we give every existing loan owner principal reduction to keep them in place? Forgive the Ponzis their debts at my expense? I wouldn't feel very good about that one. Would you?

Do we allow them to squat forever and deny the new family their home? Perhaps foreclosure is a good solution after all.

The angry immigrant

When I bought 1915 Canterbury, the house looked unoccupied from the photographs. When Jacki went over and had the locks changed, she found an empty house. No furniture, no beds, not kitchenware, no obvious signs of habitation. However, she noticed the coffeemaker had recently been used. There were a few items of food in the refrigerator, and the bedroom floor had a bedroll sitting on the bare wood floor. She thought this was odd, but there were no other signs of occupancy.

About 30 minutes goes by when a little Russian guy pulls up, barges in the house and starts screaming at Jacki. Fortunately, she was there with the locksmith and the burly landscaper who weren't keen on the way this man was speaking to Jacki. It nearly came to blows.

The police came in and Jacki negotiated the deal of cash for keys with two law enforcement officers standing over them. He got $750 of the $3,000 he was asking for, and we got to keep some of his appliances. It turned out okay, but it was a harrowing experience.

The unemployed

Most of the occupied houses I have purchased have unemployed former owners squatting in them. From what I have observed, strategic defaulters tend to move out before the foreclosure date and get on with their lives. It's the people who have no other options that stay on in the property. I offered all these people the chance to stay on as renters, but none of them could afford it.

370 Manzanita was occupied by a musician who worked infrequently during the recession and didn't make his mortgage payments consistently. He also tried to get $3,000 cash-for-keys, but when we explained to him we could evict him for $500, he thought it wiser to take the money.

3225 Rose Valley was occupied by an unemployed construction worker. He had no money and no prospects. We gave him $500 and sent him on his way. I have no idea where he ended up, but it was undoubtedly not as comfortable as the place he left.

112 Rancho Vista was occupied by a construction worker who recently found work in Mexicali, Mexico. He was coming home on weekends to see his wife and kids. Rather than take the cash, we offered them to stay on for three weeks. They got their affairs in order and moved out by the agreed upon date. They were struggling, but the father was a hard worker doing what he could to support his family. I hope they make it.

I could go on, but this post is long enough.

Evictions may seem heartless, but we have these laws in place for a reason. If occupancy was the only requirement for ownership, our entire system of property ownership and finance would cease to function, and thuggery would determine who got to live where. Most often people who are being evicted have made poor choices. Remember, Responsible Homeowners are NOT Losing Their Homes.

This guy needs to be kicked to the curb

My parents have embraced the political Left for as long as I can remember. The housing bubble has caused them to disagree with the anti-foreclosure nonsense coming from the extreme Left. When I end up foreclosing on someone, they tell me they don't have much sympathy for someone who took hundreds of thousands of dollars of free money then got to squat for two or more years. Quite honestly, I don't feel much sympathy for that group either.

The property records on today's featured property are rather unusual. The last recorded sale was on 9/15/2000, but the owners at that time issued a Quit Claim deed to a different family on 12/18/2001. If it was an all-cash sale, no amount was recorded. The new owner waited about a year then took out a $397,500 first mortgage. Then the fun began.

• On 10/6/2003 he refinanced again with a $472,000 first mortgage.
• On 11/15/2004 he opened a $183,000 HELOC.
• On 9/20/2005 he refinanced with a $650,000 first mortgage.
• On 1/11/2006 he opened a $100,000 HELOC.
• On 3/1/2007 there is another loan for $409,000. It is difficult to tell if this was a first, second, or third mortgage. It doesn't seem likely the guy paid the mortgage down $350,000 to make the $409,000 a first mortgage, but it also doesn't seem likely this house once appraised at $1,050,000 to put this mortgage in second position either. Very strange.
• In any case, the guy stopped paying before July 2010 and was issued an NOD in October. He has been squatting ever since.

Foreclosure Record

Recording Date: 01/24/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/21/2010

Document Type: Notice of Default

So what do you think? Should this guy be allowed to continue to squat, or should he be kicked to the curb?

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 64 GRANT Irvine, CA 92620

Resale House Price …… $640,000

Beds: 4

Baths: 3

Sq. Ft.: 2675

$239/SF

Property Type: Residential, Single Family

Style: Two Level, Other

Year Built: 1978

Community: Northwood

County: Orange

MLS#: P788875

Source: SoCalMLS

Status: Active

On Redfin: 56 days

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Prime Location in Northwood. Fabulous Floor Plan with Spacious Bedrooms. Bright and Airy Floor Plan with Great Layout. Open and Stunning Kitchen. Loverly Oversized Master Bedroom and Great 2nd Master Bedroom on Main Floor. Gorgeous Wood Flooring and Carpet. Beckyard Features Beautiful Pool and Hacuzzi that Perfect for Entertaining. Attend Irvine's Award winning Schools. Great Opportunity for a Great Neighborhood. 'No HOA and No Mello Roos'

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Proprietary IHB commentary and analysis

Resale Home Price …… $640,000

House Purchase Price … $358,000

House Purchase Date …. 9/15/2000

Net Gain (Loss) ………. $243,600

Percent Change ………. 68.0%

Annual Appreciation … 5.3%

Cost of Home Ownership

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$640,000 ………. Asking Price

$128,000 ………. 20% Down Conventional

4.20% …………… Mortgage Interest Rate

$512,000 ………. 30-Year Mortgage

$123,552 ………. Income Requirement

$2,504 ………. Monthly Mortgage Payment

$555 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$133 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$0 ………. Homeowners Association Fees

============================================

$3,192 ………. Monthly Cash Outlays

-$411 ………. Tax Savings (% of Interest and Property Tax)

-$712 ………. Equity Hidden in Payment (Amortization)

$192 ………. Lost Income to Down Payment (net of taxes)

$180 ………. Maintenance and Replacement Reserves

============================================

$2,441 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$6,400 ………. Furnishing and Move In @1%

$6,400 ………. Closing Costs @1%

$5,120 ………… Interest Points @1% of Loan

$128,000 ………. Down Payment

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$145,920 ………. Total Cash Costs

$37,400 ………… Emergency Cash Reserves

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$183,320 ………. Total Savings Needed

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