Due to the foreclosure moratoria, overwhelmed REO departments and a reluctance to take losses on bad loans, the foreclosure and disposition process is taking much longer than it should. In the interim, homedebtors facing foreclosures get to live rent-free in $1,000,000 properties.

Asking Price: $995,000

Address: 25 Rose Trellis, Irvine, CA 92603

Here It Goes Again — OK Go

Just when you think that you’re in control,
just when you think that you’ve got a hold,
just when you get on a roll,
here it goes, here it goes, here it goes again.

The foreclosure moratoria we have witnessed over the last year were sold as a way of keeping responsible homeowners in their properties. That is a lie. The truth is Responsible Homeowners are NOT Losing Their Homes, so the real reasons for the moratoria are different than what is stated.

From a political standpoint, foreclosure moratoria are an easy sell because more than half the population are homeowners, and it has a veil of compassion that plays well in the media. Politicians who embrace the moratoria are rewarded with support (not from us but from others.) However, the real reason for the moratoria is to save the banks.

Our banking system is insolvent. Anyone who reads real estate and financial blogs knows that. We are supporting zombie institutions in the hopes that if they can make enough money on the huge interest rate spreads they are enjoying right now that they may be able to revive themselves. The verdict is still out on that one.

In order to disguise the banks insolvency, the government, through pressure on the Financial Accounting Standards Board (FASB), is allowing banks to mark their assets to the value they want them to be rather than to what they are really worth. This provides the appearance of solvency.

To maintain the illusion, banks do not want to get many more data points that show their valuations to be an illusion. The easiest way to accomplish that is to avoid foreclosure and asset disposition because then they must recognise the loss. As long as they haven’t gone that far, the mark-to-fantasy accounting rules allow them to keep the loan on their books at fantasy values, even if the loan is not performing.

The avoidance of foreclosure will be an ongoing problem with high end properties because the losses on these will be so large. The high end, particularly in the beach communities, is so inflated that the drop to traditional valuations is going to cause catastrophic losses with the lenders. Obviously, they are in no hurry to incur or recognize these losses. The lenders are in just as much denial as the homeowners. If it wasn’t for those pesky defaults, they could maintain their denial for a very long time.

Foreclosure Record
Recording Date: 11/26/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000552034

Foreclosure Record
Recording Date: 08/22/2008
Document Type: Notice of Default
Document #: 2008000401664

Today’s featured property was issued a notice of Trustee Sale around Thanksgiving of last year. The lender could have foreclosed at Christmas time (I could see delaying that one). This property should have been at auction in early January, but here we are in June, and the freeloading homedebtor likely still occupies this property (I don’t know for sure). I don’t know why they are trying, but it is for sale.

Some responsible buyer may bid on this property, although it is most likely going to be a foreclosure. Who knows, perhaps this homedebtor will be given a loan mod and allowed to stay in this place. The lenders can maintain their denial a bit longer that way.

Asking Price: $995,000

Income Requirement: $248,750

Downpayment Needed: $199,000

Monthly Equity Burn: $8,291

Purchase Price: $1,274,000

Purchase Date: 11/24/2004

Address: 25 Rose Trellis, Irvine, CA 92603

This description illustrates how clueless realtors are to the changes in their marketing environment. They still believe the MLS is some kind of private communication between agents when in fact, it is now the primary way buyers find properties. Rather than take advantage of the medium, most realtors don’t even realize it is being used. If they did, perhaps they would not write such horrible descriptions and address comments to the other agents.

BTW, someone commented recently that I do not capitalize “Realtor” when it should be. If you think about it for a moment, you might see why I do not bother….

This is another pretender living the good life in Turtle Ridge. It is faux owners like this one that will bring down pricing in Turtle Ridge.

• This property was purchase on 11/24/2004 for $1,274,000. The owner used a $1,000,000 first mortgage and a $274,000 downpayment. That much was real enough.
• On 12/20/2005 the property was refinanced for $1,170,000 with an Option ARM with a 1.25% teaser rate.
• On 12/2/2005 he also opened a HELOC for $90,000.
• On 9/12/2006 Countrywide gave this guy a $533,250 HELOC. Brilliant.
• Total property debt is $1,703,250 plus negative amortization.
• Total mortgage equity withdrawal is $703,250 which includes the downpayment.

If this property sells for its current asking price, the total loss to the lenders will be $767,950 after a 6% commission.

Not every neighborhood in Irvine is well planned. In fact, the section of El Camino Real between Yale and Jeffrey is rather poorly planned, and the property values suffer there as a result.

Asking Price: $559,000

Address: 4882 Flagstar Circle, Irvine, CA 92604

Subdivisions — Rush

Sprawling on the fringes of the city
In geometric order
An insulated border
In between the bright lights
And the far unlit unknown

Most of the Villages of Irvine are very well planned. The Irvine Homes blog recently featured my Community Profile of Deerfield. It is a little known but extremely well-planned community.

Deerfield is north of Woodbridge bounded by Irvine Center Drive,
Culver Drive, Yale Avenue and the rail line which bisects Irvine.
Deerfield Avenue is the main collector street moving traffic throughout
the community. There is an apartment complex at the corner of Irvine
Center and Culver, and there is other high-density housing north of
Deerfield Avenue near the railroad tracks. The remaining housing is a
mixture of one and two story dwellings. Deerfield was one of the
earlier communities developed. It’s buildout was complete in 1976.

Life in Deerfield revolves around the large community park. This
park together with an elementary and middle school comprise a large
central greenspace. There are a series of pathways linking three
satellite parks to the community park. This is a great master plan
which allows children to walk or bike to school or the park without
crossing busy streets.

Another important feature of Deerfield is the way vehicular circulation is handled. There is no property in Deerfield that requires you to drive by more than 20 houses before you reach a collector street which leads you to a main arterial. Most people do not notice subtleties like that, but it is important from both a traffic standpoint and an aesthetic one. Driving past 100 or more garage doors while traveling to or from your property is often a traffic nightmare, and it is never an attractive journey.

{book2}

There are some communities in Irvine that are not very well planned. As mentioned in the introduction to this post, El Camino Real is one of them.

Subdivisions like this are created because they are very cost efficient. Long straight double-loaded streets in a grid formation with a minimum of intersections provides the biggest lot yield with the lowest possible cost. That is why you see grids with long streets in old neighborhoods. Builders and developers could not care less about how ugly neighborhoods like this are because they want to produce houses for the lowest possible cost in order to maximize their profits. It is only in master-planned communities where developers believe they can obtain a premium for good planning where you will see layouts other than generic grids.

The map above is the section of El Camino Real between Yale and Jeffrey. At the bottom right of the subdivision, there is a street called Dahlquist. Imagine you live in the middle of that street, and you want to go somewhere. How many turns do you make and how many houses do you pass before you exit the subdivision on either Walnut or Yale? I count at least three internal intersections plus at least one 90 degree turn before coming to the intersections at either Yale or Walnut. Plus, I don’t see a route where you would pass less than 80 driveways on your way out. Scroll back up to the Deerfield map and look how much different (better) the street layout is.

When you drive around this section of El Camino Real, you also notice a lack of street trees or consistent landscape maintenance. Also, over time, residents fill up their garages with crap, and acquire vehicles for teenagers, so the driveways and streets are always full of cars. You don’t get a warm fuzzy feeling driving through neighborhoods like that. Of course, the flipside is that you have no HOA to deal with: no fees and no hassles. The lots and the houses on them are among the largest in Irvine. If you hate HOAs and you want the biggest house on the biggest lot for the least amount of money, El Camino Real is the neighborhood for you.

El Camino Real was planned and built out before Donald Bren bought the Irvine Ranch and committed to utilizing superior community planning to create the Irvine premium. Obviously Donald Bren’s plan has been very successful, and it has justified the additional expense for creative street patterns and additional acreage in parks.

Asking Price: $559,000

Income Requirement: $139,750

Downpayment Needed: $111,800

Monthly Equity Burn: $4,658

Purchase Price: $649,000

Purchase Date: 2/28/2006

Address: 4882 Flagstar Circle, Irvine, CA 92604

This property was purchased on 2/28/2006 for $649,000. The owner used a $519,200 first mortgage, a $129,800 HELOC and a $0 downpayment. If this property sells for its current asking price, and if a 6% commission is paid, the total loss on the property will be $123,540 which basically wipes out the HELOC.

{book4}

Sprawling on the fringes of the city
In geometric order
An insulated border
In between the bright lights
And the far unlit unknown

Subdivisions —
In the high school halls
In the shopping malls
Conform or be cast out
Subdivisions —
In the basement bars
In the backs of cars
Be cool or be cast out
Any escape might help to smooth
The unattractive truth
But the suburbs have no charms to soothe
The restless dreams of youth

Subdivisions — Rush

Once an owner has extracted every penny of equity and “put” the property to the bank, they don’t care anymore because they think, “I Got Mine.”

Asking Price: $450,000

Address: 51 Lakeshore #20, Irvine, CA 92604

{book6}

I Got Mine — Motorhead

Right now, this time,
You got yours and I Got Mine

It is human nature to be more concerned with your own problems than the problems of others. Many HELOC abusing homedebtors already extracted all their money out of the house, so the losses really aren’t their problem any more. Some stupid lender or crazy CDO investor somewhere is eating a huge loss, but the borrower is walking away with what is left of the cash. What reason would they have to care–other than perhaps for their credit score.

The whole situation reminds me of a brief scene from “King of Queens” I saw a few nights ago. Doug goes into an ice cream parlor and orders an ice cream cone. The attendant gives him the ice cream cone, and Doug hands him a $20 bill. The guy tells him he can’t break a $20, and Doug responds that it is all he has. After going back a forth a few times, it becomes apparent they are at an impasse. Doug looks at his ice cream cone and licks it a few times as if to tell the guy “I got mine, the money is your problem.” So it is with our housing market.

Asking Price: $450,000

Income Requirement: $112,500

Downpayment Needed: $90,000

Monthly Equity Burn: $3,750

Purchase Price: $551,000

Purchase Date: 4/12/2004

Address: 51 Lakeshore #20, Irvine, CA 92604

The word nestled must come out of the realtor vocabulary.

Doesn’t the single picture of a glass door make you wonder what is inside? Perhaps this is a genius realtor ploy to pique our interest and schedule a showing… or not.

• This property was purchased on 4/12/2004 for $551,000. The owner used a $440,800 first mortgage, a $27,550 second mortgage, and a $82,650 downpayment.
• On 6/1/2004 he opened a HELOC for $55,100.
• On 1/6/2006 he refinanced with a $600,000 Option ARM with a 1.75% teaser rate.
• Total debt is $600,000 plus negative amortization.
• Total mortgage equity withdrawal is $49,000.

If this property sells for its current asking price, the lender will lose $177,000 plus negative amortization after a 6% commission.

{book2}

Here’s the story, there’s only me,
No other place for you to be,
I’ts only you babe, it’s only you,
I can’t believe the things you do,
Right now, right here,
Ain’t gonna let you disappear,
Right now, this time,
You got yours and I Got Mine

I Got Mine — Motorhead

The sun is shining, the bluebells are blooming, and prices are crashing back to 2003 levels.

Asking Price: $450,000

Address: 14 Bluebell, Irvine, CA 92618

{book7}

Irvine Homes has my profile on Deerwood in Irvine.

Bluebell Polka

Growing up, I used to listen to polka music at my grandparent’s house. There were lifelong fans of polka, and I have fond memories of them whenever I hear it. Days gone by…

Today, I want to show you just how long the foreclosure process takes in the real world. I have charted the theoretical foreclosure process for you before:

The time between filing an Notice of Default and the actual trustee sale can happen in as little as 111 days. However, with all the foreclosure moratoria and processing delays, the process actually takes much, much longer. Look at the records on today’s featured property; it took almost two years to move from Notice of Default to Notice of Trustee Sale, and apparently, the foreclosure has not happened yet.

If this is how long foreclosures are taking, think about how long the foreclosure debacle is going to stretch out. Moratoria and other delaying mechanisms do just that; they delay the process. Very few are “saved” during these delays, mostly people just get free rent for a few extra months. What a great system we have… not.

Foreclosure Record
Recording Date: 12/03/2008
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2008000557064

Foreclosure Record
Recording Date: 08/28/2008
Document Type: Notice of Default
Document #: 2008000408844

Foreclosure Record
Recording Date: 08/08/2007
Document Type: Notice of Rescission
Document #: 2007000493224

Foreclosure Record
Recording Date: 05/25/2007
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Document #: 2007000338375

Foreclosure Record
Recording Date: 01/24/2007
Document Type: Notice of Default
Document #: 2007000048591

The owner of this property stopped making payments sometime in late 2006. It has been over two and one-half years since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property. That is two and one-half years without a housing payment–a bill we will all pick up as taxpayers at some point. How does that make you feel? Did you pay for your housing since 2006? I did.

{book4}

Asking Price: $450,000

Income Requirement: $112,500

Downpayment Needed: $90,000

Monthly Equity Burn: $3,750

Purchase Price: $465,000

Purchase Date: 10/10/2003

Address: 14 Bluebell, Irvine, CA 92618

I can’t criticize that description, although I could point out that there isn’t one.

This property was purchased on 10/10/2003 for $465,000. The owner used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 downpayment. On 12/30/2004 she refinanced with a $486,500 Option ARM, and on 2/3/2005 she got a HELOC for $67,000.

Within 16 months of taking ownership–something that required no money from her–she managed to withdrawal $88,500 from the housing ATM.

She made payments for about three years–tiny payments because she used an Option ARM–and then she defaulted. If you count her mortgage equity withdrawal toward her payments, and if you add up the time she spent living free in the house, she is approaching 6 years of living with no net housing payment. Sometimes I really feel like a fool paying rent for all these years…

I hope you have enjoyed this week at the Irvine Housing Blog. Be sure
to come back tomorrow as I explore HELOC Abuse San Clemente Style, and
come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂