We all came out to montreux

On the lake geneva shoreline

To make records with a mobile

We didnt have much time

Frank zappa and the mothers

Were at the best place around

But some stupid with a flare gun

Burned the place to the ground

Smoke on the water, fire in the sky

They burned down the gambling house

It died with an awful sound

Funky claude was running in and out

Pulling kids out the ground

When it all was over

We had to find another place

But swiss time was running out

It seemed that we would lose the race

Smoke on the water, fire in the sky

Smoke on the Water — Deep Purple

The smoke on the water will the smoldering ashes of the neighborhood comps when today’s property finally sells.

This is the Irvine Housing Blog, and I very rarely, if ever, profile properties outside of Irvine. However, since it is a weekend, and since this property was such a find, I thought I would make an exception today. I would like to thank Chuck for emailing me this link. BTW, the guitarist in the video is fantastic. It is worth watching.

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Asking Price: $1,300,000

Income Requirement: $260,000

Downpayment Needed: $325,000

Purchase Price: $2,500,000

Purchase Date: 1/23/2007

Address: 26 Stillwater, Newport Coast, CA 92657

Beds: 4

Baths: 3.5

Sq. Ft.: 2,000

$/Sq. Ft.: $650

Lot Size: –

Type: Single Family Residence

Style: Other

Year Built: 2005

Stories: Two Levels

View(s): Valley, Has View

Area: Newport Coast

County: Orange

MLS#: M107854

Status: Active

On Redfin: 128 days

Unsold in 90+ days

From Redfin, “Beautiful Newport home. Jack & Jill bed & bath detached Casita could be office or guest quarters. Short sale subject to bank approval.”

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I thought the high end was immune? This isn’t supposed to happen in Newport Coast. This is a 48% loss in less than one year! The 2007 transaction looks suspiciously like fraud, but it could just be a really stupid flipper. Based on available information, the purchase seems legitimate. In either case, this house is listed at nearly 1/2 off its sale price from just one year ago. Apparently it was listed for a time at $1.8M and wasn’t selling, so the price was dropped all the way to $1.3. Check out this listing where they were trying to get $2,112,308. If you think this is a one-off, check out this listing for 10 San Sovino with its $550,000 reduction. (Thank you, SOC.)

This will be a new record: the total loss assuming a 6% commission will be (drumroll please) $1,278,000. Some party is going to absorb a HUGE loss. Does that satisfy your schadenfreude fix for the day?

Well, I heard some people talkin’ just the other day

And they said you were gonna put me on a shelf

But let me tell you I got some news for you

And you’ll soon find out it’s true

And then you’ll have to eat your lunch all by yourself

’cause I’m already gone

And I’m feelin’ strong

I will sing this vict’ry song, woo, hoo,hoo,woo,hoo,hoo

The letter that you wrote me made me stop and wonder why

But I guess you felt like you had to set things right

Just remember this, my girl, when you look up in the sky

You can see the stars and still not see the light (that’s right)

And I’m already gone

And I’m feelin’ strong

I will sing this vict’ry song, woo, hoo,hoo,woo, hoo,hoo

Well I know it wasn’t you who held me down

Heaven knows it wasn’t you who set me free

So often times it happens that we live our lives in chains

And we never even know we have the key

Already Gone — The Eagles

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Today’s post is another in a series of properties where the owners refinanced at the peak taking all their equity and now they are short selling and walking away. In a sense, it has already been sold to the bank. It was sold the day they refinanced, the bank just didn’t realize it at the time. I had the Eagles’s song above pop into my head when I was researching the property. It is an ode to the lenders out there from all their short-selling borrowers. They don’t care anymore. They are already gone…

Asking Price: $799,000

Income Requirement: $159,800

Downpayment Needed: $199,750

Purchase Price: $770,000

Purchase Date: 9/1/2004

Address: 9 Utah, Irvine, CA 92606

First Mortgage $651,000

Second Mortgage $279,000

Total Debt $930,000

Beds: 5

Baths: 3

Sq. Ft.: 2,240

$/Sq. Ft.: $357

Lot Size: 4,200 sq. ft.

Type: Single Family Residence

Style: Contemporary

Year Built: 1999

Stories: Two Levels

Area: Walnut

County: Orange

MLS#: P614401

Status: Active

On Redfin: 14 days

From Redfin, “Beautiful Newer Home At Cul-De-Sec Location W/ Friendly Neighbors. Tons Of Upgrades, plantation Shutters, window Frame, crown Molding, security System, Custom Painting, 2.5 Car Garagew/ Blt In Storage Rack, huge Master W/ Walk In Closet, main Fl. Bedroom Can Be Used As Office Home does need a carpet cleaning.”

Can anyone figure out what rule or rules guided the realtor’s use of capital letters? Perhaps the random cap approach?

Do you like the new short sale graphic?

I don’t know where the refinance money went, but it doesn’t appear to have been spent on the property. The white tile and cheap cabinetry might be original construction.

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If the short sale goes through at the asking price, and the lender pays a 6% commission, they stand to lose $178,940.

Is this where I launch into a diatribe on why downpayments are going back to 20% because no lender will issue a second mortgage? Total losses on second mortgage loans like this one will have that effect.

Is this where I rant on the foolishness of lenders doing 100% CLTV cash-out refinancing? I must admit, after watching the S&L disaster, I never thought I would see equity requirements eliminated again. Back then it was commercial properties getting the wacky financing, but the lessons learned were universal. I guess each generation of lenders must make the same mistakes in the name of “innovation.”

(Note to self: refinance at peak of next bubble and rip off the lender…) Isn’t it just a bit too easy? Aren’t the consequences just a bit too light? (If there are any consequences at all.) It doesn’t keep the honest man honest when the lenders are just giving it away.

I would like to finish this week with a laugh (Warning four letter word ahead.) Does everyone remember David Lereah, the former economist for the National Association of Realtors? He wrote a book at the height of the bubble claiming there wasn’t one.

He came out with a new book now that the bubble has burst.

Thank you for joining us this 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.

🙂

So this is Christmas

And what have you done

Another year over

And a new one just begun

Ans so this is Christmas

I hope you have fun

The near and the dear one

The old and the young

A very merry Christmas

And a happy New Year

Let’s hope it’s a good one

Without any fear

And so this is Christmas

For weak and for strong

For rich and the poor ones

The world is so wrong

And so happy Christmas

For black and for white

For yellow and red ones

Let’s stop all the fight

A very merry Christmas

And a happy New Year

Let’s hope it’s a good one

Without any fear

Happy Xmas — John Lennon

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Asking Price: $499,950

Income Requirement: $124,987

Downpayment Needed: $99,990

Purchase Price: $546,000

Purchase Date: 7/19/2005

Address: 1703 Terra Bella, Irvine, CA 92602

First Mortgage $435,750

Second Mortgage $109,150

Downpayment $0

Beds: 2

Baths: 2

Sq. Ft.: 1,341

$/Sq. Ft.: $373

Lot Size: –

Type: Condominium

Style: Other

Year Built: 2002

Stories: Two Levels

Area: Northpark

County: Orange

MLS#: P609749

Status: Active

On Redfin: 28 days

From Redfin, “Beautiful Tuscan Village architech with desireable front entrance with small balcony. 2 bedroom 2 1/2 baths with a living area of 1341 Sq. Ft. in an incredibly well kept gated community with guard. Association Pool and spa with very low association fee. Ceramic tile and carpet flooring throughout. In very good condition with breakfast counter/bar and very spacious floor plan. Master bedroom with dressing area and walk in closet. Central A/C and Heating. And so much more!”

desireable? architech?

incredibly well kept? Is it really?

Shouldn’t the asking price be $499,999.99 and 9/10?

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Since this is another 100% financing deal, the lender will eat this one. Assuming a 6% commission, they will lose $76,047.

These sellers will probably not pay the bank back the $76,047, and they will just walk away. They probably could afford to repay the debt as it isn’t that large, but in many instances, the debt is overwhelming. Those are the circumstances I would like to discuss today.

There is a “strictly business” aspect to the decision that most often points to walking away, and there is a moral aspect that never points to walking away. This is a complex dilemma, and it is easy to moralize when one is not in the dire financial straits a massive home debt can bring about. However, people often find it far too easy to just walk away and justify their immorality.

IMO, walking away and declaring bankruptcy probably go together. There is probably not much distinction between the two as it impacts one’s credit score (perhaps some, I don’t know, but they are both bad.) Bankruptcy law was put in place to give people a fresh start when life’s circumstances create a debt that could not be repaid in any reasonable amount of time (7-10 years.) We can debate whether or not these circumstances were self created, and we can debate the morality of bankruptcy law, but these laws are on the books because debtor’s prisons were not serving the greater good (we can debate that too if you want.) Therefore, it can be argued that society has determined it is desirable — and thereby moral — to wipe the slate clean and give people a second chance. Lenders knew what the bankruptcy laws were when they chose to make the loan. If they chose to extend the credit, do they bear any moral responsibility to the outcome?

IMO, when faced with a debt that cannot reasonably be paid off in 7-10 years (which will be very common in the aftermath of the housing crash,) it is the right financial decision to walk away from the debts. It is in society’s best interest to have a productive citizen whose income is going toward restrained (due to lack of credit) consumer spending rather than unrelenting debt service. Is this moral? You tell me.

The moon is right

The spirits up

Were here tonight

And thats enough

Simply having a wonderful christmastime

Simply having a wonderful christmastime

The partys on

The feelins here

That only comes

This time of year

Simply having a wonderful christmastime

Simply having a wonderful christmastime

Wonderful Christmas Time — Paul McCartney

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Today we are off to the races. We have a pair of small condos priced almost 20% off the peak racing to find a knife-catcher…

Asking Price: $369,900

Income Requirement: $73,980

Downpayment Needed: $92,475

Purchase Price: $430,000

Purchase Date: 8/24/2006

Address: 43 Alberti Aisle #348, Irvine, CA 92614

Beds: 2

Baths: 2

Sq. Ft.: 900

$/Sq. Ft.: $411

Lot Size: –

Type: Condominium

Style: Other

Year Built: 1987

Stories: One Level

View(s): Park or Green Belt

Area: Westpark

County: Orange

MLS#: P610348

Status: Active

On Redfin: 24 days

From Redfin, “Welcome Home! Nobody above or below! Peaceful interior location above the garage. Two balconies, cathedral ceilings, pergo flooring throughout this home, cedar-lined closets, mirrored wardrobes, two full baths, two master suites. Nice, clean, and bright home. One of the nicest units in the entire complex! New interior paint, kitchen light fixture, and cabinet makeover. New bathroom floor and mirror. “

That first picture is my nomination for the worst, most useless photo on the MLS.

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I have stated on this blog that the leading edge of the decline is 15% to 20% off the peak. Here is more proof. The property above is priced 14% off the July 2006 purchase price. If they get their asking price, they stand to lose $82,294 — a little over 20% in about a year and a half.

Asking Price: $375,000

Income Requirement: $75,000

Downpayment Needed: $93,750

Purchase Price: $431,000

Purchase Date: 9/21/2006

Address: 105 Castero Aisle #258, Irvine, CA 92614

Beds: 2

Baths: 2

Sq. Ft.: 871

$/Sq. Ft.: $431

Lot Size: –

Property Type: Condominium, Attached

Year Built: 1989

Stories: One Level

Area: Out Of Area

County: Orange

MLS#: C07174665

Status: Active

On Redfin: 1 day

New Listing (24 hours)

From Redfin, “Short Sale, Indymac Bank has to approve sale amount. Seller is highly motivated. 2bed 2bath.”

Short but sweet.

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Indymac bank stands to lose $78,500, just slightly under 20%. Have you seen the new Indymac bank branch in the Oak Creek plaza. Perhaps it will help them process all the Alt-A REOs they have in Irvine?

This short sale is providing some competition to the first property. Since it is a new listing, the race has just begun.