According to the listing agent (she has worked with the IHB before, and we trust her), this property has over 20 offers, and several of them are over the asking price. She is no longer taking bids. Let’s take a look at an IHB property valuation report and see what the fuss is all about.
Beds 4 Baths 2 full 1 part baths Size 2,245 sq ft ($289 / sq ft) Lot Size n/a Year Built 2001 Days on Market 4 Listing Updated 9/24/2009 MLS Number S590041 Property Type Condominium, Residential Community Northwood Tract Ard
According to the listing agent, this listing is a bank owned (foreclosed) property.
What a beauty! Shows beautifully! Laminate wood flooring, plantation shutters, granite countertops in the kitchen. Master bedroom balcony, bathtub has spa jets, tile flooring in baths and more! Separate living and dining rooms, fireplace in living room. Kitchen opens to family room. Low maintenance front and backyards. Two car garage plus a long driveway. Walking distance to the assocation pool. Be sure to see this home!
Something went wrong along the way Everybody’s waiting for judgment day So they can go “Told you so” They can go “Told you so”
Standing in line, the blind lead the blind Waiting and waiting for an overdue sign Brothers and sisters playing Chinese Whispers If things aren’t suited then they’ll get diluted
I started writing for the IHB in February of 2007, but there were many other blogs preaching about the impending housing price crash before that. Now that it has been over 2 1/2 years, we are starting to see the bloody knife catchers.
There were ample warnings about the problems, but like Lemmings following the herd, buyers jumped at properties because they believed prices would rise forever. Fast forward to now, and there are whispers of foreign cash buyers and
the firm believe in price drop immunity. We are creating the next wave
of knife-catchers.
I am not sure how to feel about 2007 knife catchers. Part of me wants to gloat because I was right and they were wrong, but that doesn’t help much, and I could have been wrong. I should probably feel more sympathy and compassion for these people, but they were warned to the problem, and they ignored the warnings. What should I feel toward these people?
I am sure there is some simple spiritual answer; it eludes me at the moment.
Beds: 2 Baths: 2 Sq. Ft.: 917 $/Sq. Ft.: $327 Lot Size: – Property Type: Condominium Style: Contemporary Stories: 1 Floor: 2 View: Park or Green Belt Year Built: 1980 Community: Woodbridge County: Orange MLS#: P702490 Source: SoCalMLS Status: Active On Redfin: 2 day
2 Bedroon and 2 Bathroom. LOCATION,LOCATION,LOCATION, This Upper single level Condo is one of the best locations in Woodbridge (Inside the Loop) Your View is of the Park across the Street, Only a few blocks from the Desirable South Lake Beach Club, Lagoon and tennis club.
LOCATION,LOCATION,LOCATION… What does this tell me? The realtor used ALL CAPS to call attention to the fact that real estate is located somewhere. Hmmm… that is helpful, isn’t it? Doesn’t all real estate have a location?
The property was purchased with 100% financing right at the peak. It isn’t surprising the owner gave up.
This property took 11 months from NOD to foreclosure auction. It looks like there was one modification granted in January of 2009, but it doesn’t look as if the owner made any payments as the a follow-up NOD was filed 4 months later. Based on the purchase date, it looks as if the owner made payments for about a year and a half before giving up. The last 18 months have been about living rent-free.
Foreclosure Record Recording Date: 09/01/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000471474
Foreclosure Record Recording Date: 05/29/2009 Document Type: Notice of Default Document #: 2009000272607
Foreclosure Record Recording Date: 01/26/2009 Document Type: Notice of Rescission Document #: 2009000033296
Foreclosure Record Recording Date: 11/10/2008 Document Type: Notice of Default Document #: 2008000525729
Seal the door (of which only one lock works) What is expected of me now…who knows With tacks stuck in toes Debating on what’s likable But certainly this isn’t home Certainly not
This isn’t home. Certainly not. It is a hidden ATM machine. Someone took one of the least desirable properties in Irvine and managed to milk it for $384,640 in cash withdrawals through HELOC abuse. As we have all seen here at the IHB, this homeowner was not alone. Now that houses are viewed as great investments that enable owners to borrow and spend, people may be willing to pay more to get one.
Real estate in California is magic. Ordinary tract homes can attain Manhattan Island values. Houses are not merely shelter, they are investments with unlimited wealth potential that can double your income — at least in the kool aid intoxicated world of most would-be owners.
Does kool aid intoxication add value? It does cause people to overbid because they believe they will be compensated for the additional “investment” through mortgage equity withdrawal. Can the collective action of the foolish herd sustain inflated prices forever?
We will see. I doubt it.
Asking Price: $430,650
Income Requirement: $81,534 Downpayment Needed: $86,130
Purchase Price: $169,500 Purchase Date: 5/13/1997
Net Gain (Loss): $235,311 Percent Change: 154.1% Annual Appreciation: 12.5%
Beds: 2 Baths: 2 Sq. Ft.: 1,216 $/Sq. Ft.: $354 Lot Size: 3,240 Sq. Ft. Property Type: Single Family Residence Style: Traditional Stories: 1 Year Built: 1980 Community: Woodbridge County: Orange MLS#: S589372 Source: SoCalMLS Status: Active On Redfin: 3 day
Possibilities abound in this single-level Woodbridge home! Vaulted ceilings in living room and master bedroom, fireplace in living room and a family room or large dining area/breakfast-nook off kitchen.
Possibilities abound…
This is one of the worst locations in Irvine…
Think about the noise and pollution at this location. When you are right at the intersection, the noise is not a consistent drone, but rather an endless series of stopping and starting movements. People will squeal tires, lock up brakes, grind through gears and show off their new exhaust pipes. Have you ever noticed that first puff of smoke that comes from a car or bus when they first step on the gas? That is the air you would breathe here.
This owner was an epic HELOC abuser, not for the amount, but for the frequency of the withdrawals and percentage of original value — this homeowner refinanced twelve times and borrowed more than three times what he paid for the house.
This property was purchased on 5/13/1997 for $169,500. The owner used a $135,360 first mortgage and a $34,140. At least he did have some of his own money in there for a while.
On 5/21/1998 he opened a HELOC for $18,800.
On 9/1/1998 he took out a stand-alone second for $52,500.
On 12/31/1998 he refinanced the first mortgage for $198,500. As you can see, he learned HELOC abuse early.
On 2/8/1999 he opened a HELOC for $12,400.
On 9/27/1999 he opened a HELOC for $40,000.
On 10/21/2002 he refinanced the first mortgage for $254,000.
On 5/16/2003 he refinanced the first mortgage for $292,500.
On 11/13/2003 he refinanced the first mortgage for $318,000.
On 10/1/2004 he refinanced the first mortgage for $353,000.
On 2/22/2005 he opened a HELOC for $45,500.
On 8/30/2006 he refinanced the first mortgage for $472,500.
On 4/18/2007 he refinanced the first mortgage for $520,000.
Total property debt is $520,000
Total mortgage equity withdrawal is $384,640.
This owner was not finished playing the game when the ATM closed down. He arranged for a loan modification to extend his time and then defaulted again.
Foreclosure Record Recording Date: 03/06/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000105992
Foreclosure Record Recording Date: 12/04/2008 Document Type: Notice of Default Document #: 2008000559854
Foreclosure Record Recording Date: 06/06/2008 Document Type: Notice of Rescission Document #: 2008000271889
Foreclosure Record Recording Date: 04/22/2008 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2008000187359
Foreclosure Record Recording Date: 01/17/2008 Document Type: Notice of Default Document #: 2008000025457
This owner was hopelessly addicted to the home ATM. Obviously, he did not intend to pay back this money. His plan was to transfer this debt to someone else when he sold the home — if he sold the home. Most people believed the housing ATM was going to keep giving twice-yearly cash infusions to support the lifestyle to which they have become entitled.
Do you think the lenders will enable this again?
I am quite certain that many, many people in California expect lenders to go back to their foolish ways soon. Houses are much more than a place to live, it is a great cashflow investment that can support significant supplemental spending. The only drawback is that you must lose the home, your income and your credit score when the Ponzi Scheme blows up. Many will gladly pay that price if given another opportunity.
I can see clearly now, the rain is gone, I can see all obstacles in my way Gone are the dark clouds that had me blind It’s gonna be a bright (bright), bright (bright) Sun-Shiny day.
I think I can make it now, the pain is gone All of the bad feelings have disappeared Here is the rainbow I’ve been prayin?for It’s gonna be a bright (bright), bright (bright) Sun-Shiny day.
Financial markets must discover a clearing price in order to find an equilibrium where prices no longer fall. When there is excessive spreads between the asking prices of sellers and the bids of potential buyers, the market has not found a clearing price, and prices will continue to fall.
When lenders enabled people to borrow whatever they wanted to buy houses, people were able to outbid one another for properties and drive prices up quickly. Once the toxic financing that enabled this to occur was removed from the market, borrowing power plummeted, and bids went down with them.
Sellers miss the memo, and their asking prices remain in a strange fantasy-land where the bubble never occurred.
The result is a widening of the spreads between bids and asks and a decline in transaction volumes. As we have seen here in Irvine, spreads can remain wide as long as transaction volumes are low.
If you look at the long-term chart of Irvine sales, you see that transaction volumes were steady from 2000-2005. Then in 2006, volume went on a three-year decline down to approximately 60% of its historic norms. That is where we are today. The market may seem “hot” due to the lack of available inventory, but the transaction volume says the market is anything but healthy.
Low transaction volumes and a large bid-ask spread demonstrates that buyers and sellers are not in agreement on prices. This standoff will continue until bidders raise their bids or sellers lower their asking prices. Since bidders are not likely to have access to toxic financing again soon, bids will not be going up. Asking prices will need to come down.
Bids do not firm up again until prices are at fundamental valuations because it is at these price levels where there are a large enough number of qualified bidders to increase transaction volumes and clear out the inventory. We are not there yet.
It isn’t a big mystery as to what needs to occur; prices must fall. Let’s examine a couple of low end properties trying to find bottom support.
{book1}
Asking Price: $183,900
Income Requirement: $45,975 Downpayment Needed: $36,780
Purchase Price: $300,000 Purchase Date: 6/4/2006
Gain (Loss) after 6% Commission: -$127,134 Percent Change: -38.7% Annualized Appreciation: -11.8%
Beds: 1 Baths: 1 Sq. Ft.: 639 $/Sq. Ft.: $288 Lot Size: – Property Type: Condominium Style: Bungalow Stories: 1 Floor: 1 View: Creek/Stream Year Built: 1977 Community: Northwood County: Orange MLS#: P702788 Source: SoCalMLS Status: Active On Redfin: 1 day New Listing (24 hours)
This is a great bank owned 1 BR, 1 BA unit in The Springs complex, nicely located for easy access and guest parking. This home is a lower end unit in good condition. The patio allows for outdoor BBQ’s. Granite counters in the kitchen. Breakfast bar and dining area. Running streams, community pool, spa, club house and tennis courts are within the complex. Property being sold in ‘as is’ condition. There is a $75 doc fee paid by buyer at closing. All offers are ‘subject to’ and ‘contingent upon’ final review and acceptance by the investor and/or mortgage insurer.
You and I own this one… well, more accurately, IndyMac owns this one which is owned by the FDIC which is supposedly funded by the banks, but we all know that the US Taxpayer will end up holding the bag. Therefore, we all own a piece of this loss.
As this one is only 40% off the peak, it still has further to fall.
{book7}
This second one will not be marketed as “light and bright.” Hmmm… It is marketed as LIGHT AND BRIGHT!
OMG! Did the realtor even look at the pictures?
I am speechless.
Asking Price: $204,900
Income Requirement: $51,225 Downpayment Needed: $40,980
Purchase Price: $322,000 Purchase Date: 6/3/2005
Gain (Loss) after 6% Commission: -$129,394 Percent Change: -36.4% Annualized Appreciation: -8.5%
Beds: 1 Baths: 1 Sq. Ft.: 715 $/Sq. Ft.: $287 Lot Size: – Property Type: Condominium Style: Contemporary Stories: 1 Floor: 2 View: Greenbelt, Treetop Year Built: 1980 Community: Woodbridge County: Orange MLS#: L30910 Source: SoCalMLS Status: Active On Redfin: 1 day New Listing (24 hours)
WOW..THIS IS AN OUTSTANDING VALUE FOR WOODBRIDGE! REO BANK OWNED UPPER LEVEL SPACIOUS ONE BEDROOM LIGHT AND BRIGHT CONDO IN PRESTIGIOUS WOODBRIDGE COMMUNITY CLOSE TO FREEWAYS, UNIVERSITY, AWARD-WINNING SCHOOLS, MAJOR SHOPPING AREAS, AND WITH LAKE AND ASSOCIATION PRIVILEGES! CLOSE TO PARKING AND WELCOMING VIEWS OF THE GREENBELT, THIS UPPER LEVEL CONDO IS AN END UNIT WITH A PRIVATE ENTRY BALCONY PORCH, VISTA OF TREES, A LARGE LIVING ROOM WITH WINDOWS ON TWO WALLS, A SEPARATE DINING ROOM, A SUNNY KITCHEN WITH UPGRADED COUNTERS, A LARGE MASTER SUITE WITH SMALL BALCONY PLUS A DRESSING AREA WITH A WASHER/DRYER CLOSET, AND A SEPARATE BATHROOM WITH SHOWER/TUB.
VISTA OF TREES. Hmmm… I imagine you can see them, too.
ALL CAPS.
Look at how long this one has been moving through the system:
Foreclosure Record Recording Date: 05/09/2008 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2008000222010
Foreclosure Record Recording Date: 02/04/2008 Document Type: Notice of Default Document #: 2008000051931
Foreclosure Record Recording Date: 08/24/2007 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2007000526514
Foreclosure Record Recording Date: 05/16/2007 Document Type: Notice of Default Document #: 2007000318854
This owner stopped making payments in late 2006 or early 2007. It was not foreclosed on until June of 2009.
Nobody has made a payment on this unit for as long as I have been writing for the IHB. Unbelievable.
Looking to the sky to save the values in the towers on Jamboree? I don’t think there will be pennies from Heaven — dollars from Washington maybe — but the market for these units will continue to crumble. I first documented the problems in The Plaza in the post, School of Hard Knocks.
The owner of today’s featured property is learning a tough lesson as well. When the foreclosure went through, he lost his $295,600 downpayment. That must have hurt.
Just Say Nothing?
When I wrote last Friday’s post Good Karma, it was astutely pointed out that for every buyer I saved I made life more difficult for a seller. This is true. In my defence, I note that the seller already made their decision when they bought previously. The decision to sell is about mitigating consequences. It is the buyer who is agreeing to take on the consequences of the decision anew, and they deserve good information to make that decision.
Does educating buyers to consequences make it good and right to sellers? It works for me. I will let you decide for yourself. Isn’t choosing to say nothing and failing to help when you can an action for which you must answer to yourself?
The astute observation points to a deeper issue; what should the Cassandra’s of this world do? The School of Hard Knocks is expensive education. Would you dissuade buyers if you thought they were making a mistake?
I received the following from an anonymous reader:
Hello IHB,
I’m a renter in the Bay Area. One of my coworkers recently announced he was going to buy a condo. It’s a new building, just recently thrown up, and he announced he was purchasing a unit, 1300 sq ft, a one car garage and a patio big enough for 2 chairs and no bbq allowed (but it’s got granite and stainless!) for the low low price of $400K.
I lived in this neighborhood for 2 years until last May. It’s awful. the 7-11 across the street routinely has vagrants drinking and sleeping in the parking lot. There is a light rail track that constantly stops traffic. And, as it turns out, the condo building is across the street from a halfway house where the state of California releases mentally challenged inmates that cannot be reintroduced directly into the community. The police used my driveway twice to conduct searches of cars they pulled over because they knew that we were not violent criminals and felt safe about using our space. My neighbor was attacked in broad daylight and his truck was stolen. Someone pulled a gun on my other neighbor at 7:30 AM, but then ran away, and the police assured us it was a mistake and the gang bangers had the wrong house (Oh, you mean they could have accidentally come to my house?)
My point/ question is, that when someone announces that they’re going to be homeowners, and especially first time homeowners, everyone oohs and aahs and congratulates and smiles. I was the only one who did not. I asked a coworker if it’s proper for me to pull him aside and think long and hard and tell him my experiences in that neighborhood. Everyone, including my mother, told me that would be rude and that it’s absolutely not my place to do so.
Anyway, on the day they signed the papers, they discovered the halfway house for mental inmates, which was buried in flowery language somewhere in the CC&R’s, and their second night their garage was broken into and all of my coworker’s prized musical instruments and lots of personal effects like good winter jackets, etc. were stolen.
I have also had other friends buy pointless, horrible property in other places and one has chosen foreclosure and walked away to live with her parents, destroying her and her husband’s credit for years after the condo they bought for $450 was appraised in the low 200s. Another is having their marriage dissolve after the wife nagged the husband into buying a house in a highly overinflated area at the peak, where the house has lost 50% of its value.
When is it proper for someone to speak up and stop the madness? Had I had the balls to tell my coworker not to buy there, I might be an a-hole raining on his parade, but he wouldn’t have lost $10K in musical instruments and be living across from a minimum security psych ward. Was I wrong not to speak up, put a fake smile on and congratulate?
How would you deal with this situation?
Asking Price: $702,900
Income Requirement: $133,078 Downpayment Needed: $140,580
Beds: 2 Baths: 3 Sq. Ft.: 1,790 $/Sq. Ft.: $393 Lot Size: – Property Type: Condominium Style: Other Stories: 1 Floor: 8 View: City Lights, Mountain, Panoramic Year Built: 2007 Community: Airport Area County: Orange MLS#: S588594 Source: SoCalMLS Status: Active On Redfin: 3 day
Super mountain, city lights and horizon views! Corner unit featuring a grand foyer and gallery. The kitchen has granite countertops, Viking appliances and beautiful cabinets. Floor to ceiling windows and wrap around balcony. Wood flooring throughout most of the unit, carpeting in the bedrooms. Fireplace in the living room. The building has a lobby entrance, two pools, jacuzzi, conference room, gym and more. On-site management.
They didn’t waste much time foreclosing on this guy.
Foreclosure Record Recording Date: 04/17/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000189064
Foreclosure Record Recording Date: 12/26/2008 Document Type: Notice of Default Document #: 2008000590159
It looks like he gave up about a year ago. It must have been tough to accept that he lost almost $300,000 in 18 months.
Real estate in California is magic. Ordinary tract homes can attain Manhattan Island values. Houses are not merely shelter, they are investments with unlimited wealth potential that can double your income — at least in the kool aid intoxicated world of most would-be owners.
