Running seems like the best offense; take all your gold and go… Isn’t that the story of California real estate?
Are we going to become a split society? Is one group of people going to be encased in their debt bunkers while another group rents like Gypsies floating from one opportunity to another without roots beneath their feet? A home is supposed to be a solid foundation, a place to store wealth, and a place to live your life. Will it ever be again?
For many it has become a casket buried beneath a pile of debt entombing them, draining their monthly cash, and leaving them feeling trapped and despondent. Who wants to live that way?
For others it has become a symbol of stability and security they may never obtain. They worry they might be priced out forever, so they lose patience and overpay. Those that have the patience wait silently for the time when they too can have a place to call their own. The Gypsy life will someday end.
{book5}
I had an interesting experience yesterday related to patience. I have been waiting to buy a home for quite a while, but there is something I have been waiting for even longer: a hole-in-one playing golf. I started playing golf 33 years ago at age 9. I played much golf in junior high and high school, and I got my handicap down to 4 at one time. In all those years, I never had a hole-in-one. Yesterday, my 190 yard tee shot on the 3rd hole at Strawberry Farms was all I needed. My long wait is over.
Bank Owned Beauty! Enjoy the relaxing lifestyle that will come along
with this beautiful single level home. Property features rich wood
flooring, stunning crown moldings, upgraded kitchen that boasts a
spacious breakfast bar. Inside Laundry Room and attached garage. Large
spacious rooms. This home is perfect for the tech savvy and is wired
and ready to go! Enjoy entertaining your guests in the relaxing court
yard, take a dip in one of the many association pools, roast marsh
mellows in the fire pit and end the evening soaking in the association
spa at sunset. Close to shopping and award winning schools!! Home Sweet
Home! Near shopping and Irvine Spectrum. Wheelchair accessible from the
garage.
If the bank owns it, it is a beauty…
This property was purchased on 2/14/2006 for $430,000. The owner used a $343,700 first mortgage, an $85,900 second mortgage, and a $400 downpayment. I imagine she spent more to move in than she spent on the downpayment.
If this property sells for its current asking price, and if a 6% commission is paid, the total loss to the lender will be $148,094.
This property is being offered for 30% off its peak purchase price.
The Ponzi Scheme spawned a societal sense of entitlement. It is likely that social safety nets will be created and enlarged to pander to this new demand.
Major cultural events like The Great Housing Bubble change people’s lives. The populace built mountains of paper through burning consumerism; paper that is now smoldering in the ashes of our economic fire. Statistics measure the economic fallout, but more interesting is the impact on the people.
One trend in our consumer society has been an increase in our collective sense of entitlement. People came to believe in the permanence of the supply of consumer goods they enjoyed, the exaggerated sense of self-importance they created, and the unsustainable level of lifestyle spending they deserved. Since this sense of entitlement was only enabled by a massive Ponzi Scheme, many people in the aftermath must adjust to a new lifestyle that is considerably less affluent than the one to which they feel entitled.
Rather than retreat from a sense of entitlement, it is likely we will enact even more social safety nets to pander to this societal desire. Good or bad is in your perspective. Many European countries are suffering less because they have an expensive safety net that supports those in need. The European Socialist model may prove less traumatic to the society and the economy because the safety net provides liquidity and consumer demand — at a tremendous cost. With Democrats in full control of the House, Senate and the Presidency with a filibuster-proof majority, nothing stands in their way. We will almost certainly take a step toward Socialism.
These circumstances have precedence. During the 1920s, laissez-faire economic policies with little or no financial regulation resulted in a massive Ponzi Scheme in the stock market, widespread currency deflation, and a near collapse of our economic system. the deflation of that credit bubble was exacerbated by the passage of the Smoot-Hawley Tariff Act (enacted June 17, 1930) which decimated international trade. The resulting Great Depression saw a dramatic political shift with the landslide election of FDR in 1932 and the creation of much of our current and inadequate safety net; it was our first step toward Socialism.
Since the conditions now are so similar economically and politically, it is reasonable to expect the same response. Many of the social programs Conservatives fear most will be enacted or expanded. If these programs fail in the eyes of the electorate, Conservatives and Republicans will come back to power to “fix” things; however, if Progressives and Democrats succeed, they may consolidate power for a generation.
Spectacular view from this home! Make this your own palace! Prep
kitchen located behind the open family kitchen. Downstairs bedroom
perfect for guest/maid/mother in law. Main floor study, living room,
dining room, laundry room and family room. Upstairs family room in
addition to bedrooms. Unbelievable views from the master bedroom and
bathroom. Sold As-Is with no warranties expressed or implied.
The banks can’t be looking forward to taking back more properties like this one… This property was purchased on 12/11/2006 for $3,880,000. The owner used a $3,000,000 first mortgage and a $880,000 downpayment. A week later he opens a $350,000 HELOC, and a year later he expanded it to $477,000. These are probably just HELOCs to access money, and they may not have been used.
Then, this happened:
Foreclosure Record Recording Date: 07/09/2008 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2008000326533
Foreclosure Record Recording Date: 03/31/2008 Document Type: Notice of Default Document #: 2008000148091
The lender finally took the property back on 1/21/2009 for $2,635,000. They have been sitting on it since then trying to figure out what to do. Based on the date of the NOD, there has been no payment on this loan since 2007.
At the current asking price, if the property sells and a 6% commission is paid, the total loss to the lender will be $999,210. Let’s call it a million.
The mid-rise towers in Irvine and in all of Orange County are crumblin’ down. Prices there are in chaos; people are either getting bargains or catching knives, but the discounts from original purchase prices are astounding.
These towers were ahead of their time. Irvine has not reached an income level where $700,000 condos are supportable. When $700,000 condos are the norm — perhaps 25 years from now — mid-rise condos will take over areas of Orange County where people can walk around. For now, they stand as broken dreams and monuments to the folly of the Great Housing Bubble.
From a land planning perspective, I question whether or not densities greater than 25 units per acre can be properly serviced without rail to relieve the road traffic. Since these properties are completely car dependant, there are few opportunities for walking to eliminate vehicle trips. Jamboree Road may become a major traffic issue as all the people living in these properties move back and forth between home, work and shopping. Traffic problems will impact long-term desirability and value.
The resale values of these properties are falling so far so quickly for many reasons:
It is difficult to obtain financing in certain condominium situations (e.g. GSEs have occupancy requirements).
The HOA dues are very high. This dramatically reduces the cashflow value because a large amount of the rent goes to the HOA.
Buyer pool is mostly cash buyers “investing” in these properties.
Buyers are afraid of the uncertainties (potential for overshoot).
Investing in this context means different things to different buyers. Those investors who are speculating on the recovery and future increase in prices. We call them knife catchers because speculative buyers will purchase early and with the least amount of data and analysis. They are “betting” that prices will move their way. At the bottom, a different style of investor will purchase for positive cashflow and a return on investment.
For most of these towers, rental parity is nearly 50% off peak pricing. Positive cashflow for investment value is 65%-70% off peak pricing. IMO, that is where these towers find bottom.
Stunning Astor Court model located on the second floor with a view of
the Greenbelt. Home includes granite counters in Kitchen and Bathroom,
crown molding, window treatments throughout. Experience a sophisticated
lifestyle in one of the best condominiums in Orange County! The
Watermarke Community provides you with a bounty of amenities such as a
concierge service, top-of-the-line fitness center, movie viewing room,
pools, spas, and tennis courts.
I’ll stay with my unsophisticated lifestyle.
This property was purchased on 8/26/2005 for $310,000. The owner used $248,000 first mortgage, a $15,500 second mortgage and a $46,500 downpayment. There is a HELOC from 2007 for $68,404. If this guy took out the money, he got is downpayment back. If he didn’t max out the HELOC, he lost $46,500 in addition to having his credit trashed.
The above property is being offered for 35% off its 2005 price.
Don’t miss out on this sophisticated condo in the prestigious gated
community of AVENUE ONE! This 2 bedroom, 2 bath condo has the finest of
details throughout. Features include: granite kitchen and bathroom
countertops, rich dark wood cabinets, two panel doors, crown molding,
patio, very open and bright. The community ammenities include an
Olympic sized pool, Bar-B-Ques, fitness room, indoor half basketball
court and beautiful club house with full kitchen and flat screen TV.
Only built in 2006, this wonderful home and community are located close
to shopping, dining and entertainment. This is one great home you don’t
want to miss!
Another sophisticated condo!
ammenities?
I have no purchase or mortgage data for the above, but I do know than an NOD was filed in May.
That is individual capitulation. Will this become a mass movement?
The above property is being offered for 39% off its 2005 price.
One of the best views in the building with nearly 2100 square feet of
floor to ceiling views including a view of Catalina Island. 2BR + Den,
2.5 BA offers the finest in modern appointments with stainless steel
appliances, hardwood floors, granite counter tops and more. Pamper
yourself with full time concierge services, social events, gym, media
room, board room with Wi-Fi, billiards lounge, pool and spa. This
gorgeous home is the ultimate in living! And REALLY a great deal – to
be sold as is.
And REALLY a great deal – to
be sold as is. I find the linking of those incompatible ideas disturbing.
This is a two-bedroom condo that sold for $1,430,000. WTF?
I do not have the records for this one either, but someone involved is taking a $603,740 loss — assuming they get this asking price and pay 6%.
The above property is also being offered for 39% off its 2005 price.
{book1}
Conference Call Reminder
The IHB Community has been invited to an open conference call with Daniel Young, President of Community Development for the Irvine Company. The time is 7:00 PM. The call-in number is 877 269-7289. Callers will be asked to enter a
PIN, which is 13113. That allows them to listen to the conversation.
If they want to ask a question—and Dan will remind people of this
periodically—they need to hit *3. They can also e-mail questions to
Dan at info@cardinalhq.com.
Personal Note
I am taking a few days off and visiting with family, so I will be less available in the comments this week. Judging by the upsurge in comments lately, you all will carry on without me.
Your astute observations are greatly appreciated here. It is your participation that makes this blog special.
“So let me understand this. These folks are employed, have money and
live in a home that they apparently thought was king-dingalicious when
they bought it a few years back. But because the market slowed down
(like it always does) and hasn’t sped up (like it undoubtedly will)
according to their timeframe, they are just going to stop making
payments. Like children, they’re just NOT going to do it.”
Yes, he understands the situation very well, and so do the people who are walking away. Even with the financial consequences of walking away, the consequences of staying in some of these properties is even worse. I saw recently that Monterey County watched its median home price fall from $800,000 to about $185,000 — a 75%+ decline. If you bought at $800,000, and your property is now worth $200,000, what would you do? Would you really keep paying on that $800,000 mortgage?
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.
As more people go upside down on their mortgages, they will walk away. Whether you agree with their decision or not, it is going to happen because it still benefits people to do so.
Woodbridge Gem in Cottage Homes. Beautiful 3 bedroom with numerous
upgrades including totally remodeled kitchen with granite counter tops.
Ceramic tile flooring, recessed lighting and beautiful contemporary
track lighting. Epoxy flooring in garage. Secluded, extremely quiet
location in park-like setting. Close proximity to Blue Lake South Pool
and wonderful family friendly park. Access to all lakes, swimming pools
and parks in Woodbridge.
I want to compliment Debbie Podlas, the listing agent, for taking some great photographs (or having them taken professionally) and writing a clear and concise description that accurately captures the property. I wish all listings in Irvine could be displayed to this standard.
I like these little cottages. The neighborhoods are some of the finest in Woodbridge and perhaps all of Irvine. This is the kind of neighborhood where you would expect to make a profit after 5 years of ownership, but that isn’t how it is working out.
The owners of this property put down $250,000, and they never tapped their equity. Now they are going to lose at least a little due to commissions.
REO-BANK OWNED PROPERTY…WOW! OUTSTANDING VALUE FOR THE LARGEST MODEL
IN AMBRIDGE WITH PRIVATE PORCH ENTRY, DOWNSTAIRS BEDROOM AND BATH,
GREAT ROOM WITH DARK HARDWOOD FLOORING AND FIREPLACE, CAESARSTONE
KITCHEN AND BATH COUNTERTOPS, MOCHA COLORED CABINETS PLUS A TWO CAR
GARAGE WITH EXTRA STORAGE SPACE. UPPER LEVEL SPACIOUS MASTER SUITE WITH
ELEGANT BATH AND WALK IN CLOSET. THIRD BEDROOM SUITE AND FULL LAUNDRY
ROOM ON UPPER LEVEL. CONVENIENT QUAIL HILL LOCATION AND EXCELLENT
SCHOOLS, PARKS, POOLS, SPAS, SPORT COURTS!
This ALL CAPS description is not so good…
This property is REO, and the bank is hoping to get what was paid in 2004. This was a 100% financing deal (actually, the people put $350 down), and the owners defaulted. No HELOC abuse.
Five years gone by, no appreciation, and the market is still weak. This recovery is going to take a while.
Back in February of this year, I wrote a post titled The Financial Implications of Short-Sales and Foreclosures. It links to a post written by an attorney on what happens to those who cannot or will not sustain their mortgage payments. To paraphrase the attorney, when people are in these circumstances, they break down into one of four groups:
Those who still owe the bank much money;
Those who have a big income tax bill with no cash to pay it;
Those who owe the bank much money and have a big tax bill
Those who owe the bank nothing and who do not have a tax bill.
Everyone wants to be the last case. Many end up as the third case.
Very few research the implications in advance. Since most people do not have any other options, it really does not matter because it does nothing to change their decision.
Even fewer take any initiative to do the right thing. Legally, it is the duty of the debtor and taxpayer to determine if they have any liability and pay it. Realistically, everyone will “keep their head down” and hope they do not get any letters from the bank or the IRS. No letter, no liability. The amount of tax cheating is enormous.
Most of the properties I profile would be the third case from above that owe the bank and the IRS because they were recourse loan refinances, and many were not primary residences. How many people do you think are going to pay either the bank or the IRS? Not many, IMO.
I know one person who walked away from a 100% financing deal on an investment property in Corona. His tax advisor told him not to pay taxes on the shortfall because he listed it as him primary residence on the loan application. That is one hard-working lie. He used it to qualify for an interest rate he did not deserve (owner-occupied housing gets a better rate), and he is using the same lie to dodge a tax bill. He isn’t the only one.
So what do we do about this problem as a society? If we hold all these debtors liable to the banks and to the IRS, we keep them in a financial hole for a very long time, or we force them into bankruptcy. The societal effect will be diminished economic growth because so much disposable income will be diverted from consumer spending to debt service. However, if we just let these people slide, the moral hazard will be huge. If people see no consequences come from this behavior, they will repeat it. The societal effect will be endless Ponzi Schemes and periodic economic near-depressions as the financing collapses.
No matter what we do, the winners and losers will be determined by caprice. Those who owe either the lender or the IRS and get away without paying will be unjustly rewarded. Those who do the right thing will be punished. There will be no pattern of reward or punishment for behavior good or bad. It is a dysfunctional system, and nobody knows how to fix it.
What is your solution? Let ’em slide? Crush ’em with debt?
!!Attention All Buyers and Agents!! This is the home that you have been
waiting for. Where else are you going to find a home in IRVINE that is
in a gated community, that has 4 bedrooms, 2.5 bathrooms, 2,700 sq ft
with a 2 car attached garage, on a Cul-D-Sac for this price. RIGHT
HERE!!! This great Ashford Place home will not be on the market long so
HURRY and get one of the best deal in Orange County.
Multiple exclamation points, ALL CAPS, HURRY — all standard realtorspeak is present.
This property was purchased on 12/14/1999 for $404,000. The owners used a $322,850 first mortgage, a $80,700 second mortgage, and a $450 downpayment.
On 7/3/2001 they refinanced the second mortgage for $170,000.
On 9/14/2004 they opened a $280,000 HELOC.
Total property debt is $772,580 assuming they maxed out the HELOC.
Total mortgage equity withdrawal is $369,030 including their $450 downpayment.
If this property sells for its current asking price, the lender will recoup all of their money and make $26,420 after a 6% commission. I don’t think anyone believes that is going to happen. Check out the listing price history:
Date
Event
Price
Jul 06, 2009
Price Changed
$850,000
Jul 06, 2009
Listed
$580,000
Mar 20, 2009
Sold
$640,000
Dec 14, 1999
Sold
$404,000
They listed this property for $580,000, then changed their mind and listed it for $850,000. Perhaps this was a transposition error, or perhaps it was a Freudian Slip where the lender put down what the property is really worth…
Bank Owned Beauty! Enjoy the relaxing lifestyle that will come along
