Wednesday, October 13, 2010

One Foot Out the Door: UPDATE

As I predicted, this deadbeat skipped town and left the bank to deal with the mess.

The bank lent out $560,000 in 2005 for this joint, and is now asking a measly $379,900 -- a nearly $181,000 difference.

Anyway, I imagine the new REO price will entice some buyers.

Or will it?

Unless you've been living in a Chilean mine for the last few weeks (too soon?), you've heard about what some are calling "Foreclosuregate."

From what I understand, banks were wholly ill-prepared for the massive influx of foreclosures starting in 2007 ("Wait a minute. I thought prices only went up and people could 'just refinance' when they had trouble making payments.") and hired any jabroni off the street with a pulse (kind of sounds like their mortgage-issuance strategy too). And under pressure to process this ever-growing pile of foreclosures, these knuckleheads mishandled, fudged, or outright forged a lot of the paperwork.

For some reason the mainstream media is focusing on "illegal" foreclosures, and the prospect that some people were foreclosed on improperly. I assure you, other than a handful of anecdotal examples, THAT NEVER FUCKING HAPPENED.

The overwhelming majority of those being foreclosed on are delinquent and deserve to be kicked the hell out like these self-entitled scumbags (warning, do not read that if you're easily nauseated by victim-mentality deadbeats who expect you to pay their bills). So that's not the issue here.

The issue is: who actually has the right to foreclose?

In a nutshell, the ownership of mortgages (we've all heard of lenders bundling loans and selling them to investors, pension funds, etc.) was tracked electronically by MERS (Mortgage Electronic Registration Systems). So all of that information is there -- don't let anyone blow that out of proportion.

The problem is that in judicial-foreclosure states like Florida, the courts can be quite strict about paperwork requirements and sometimes require more than these electronic records.

Which brings us to title insurance.

Imagine you buy an REO like this one, move in your furniture, and are having a romantic evening with your lady. Luther Vandross, ice cubes in your Rosé, laying on a bear skin rug. You know, romantic.

You're swimming in bliss because in addition to the classy lady at your side, you're no longer a scum-of-the-earth renter, you have in-unit laundry, and the renters downstairs typically turn off their Oakenfold mixes by 1 a.m.

Then there's a knock at the door.

An investment group who bought your mortgage in one of JP Morgan's investment vehicles is claiming ownership of your new abode. Their paperwork shows they are the rightful title owners and this is their apartment.

Then there's another knock at the door.

The deadbeat family who got foreclosed on last year says they were improperly kicked out due to paperwork abnormalities -- completely ignoring the fact they refinanced, bought an Escalade, went to Tahiti, then defaulted on their loan when the going got tough -- and therefore these documentation issues (somehow) prove they are the rightful title owners and this is their apartment.

How excited do you think title insurers are going to be to sort all that shit out in the courts?

Answer: Not very.

Which is why large title insurers such as Old Republic have refused to issue title insurance on any property owned by GMAC or JP Morgan Chase, due to the difficulty establishing who actually owns the right to foreclose.

How many of you bought or plan to buy a home without title insurance?


What an unholy mess.


Address: 4649 E 4th St. #16, 90814
Asking Price: $449,000
Year Built: 1985
Size: 2 beds, 2 baths, 1,401 sq. ft.
$/Sq. Ft.: $320
HOA Fee: $390 (!)
Purchase price: $560,000
Purchase date: 10/2005
MLS#: P683862
On Redfin: 10 days
Down Payment: $90,000
Monthly Payment: $2,700
Income Requirement: $128,000
Description: This 2 bedroom & 2 bath gorgeous condo is a must see. Turn key pride of ownership. Foyer entry, to gorgeous distressed wood floors throughout. The entire home has been remodeled with exquisite taste. Chandeliers throughout the home. Mahogany fireplace. New Kenmore appliances. In wall safe. Tumble marble flooring in bedroom and bathroom.

Yeah, but does it have a chandelier above the toilet like this guy? I didn’t think so.

Er, well, actually, close enough:

And what's up with the sink in this (cluttered, messy) bathroom? Is that another toilet?

It looks like the Stay Puft Marshmallow Man's hemorrhoid pillow:

The most significant aspect of this apartment is the 2002 sales price. $291,000 ($208 per square) seems like a pretty good deal considering the bubble had already been picking up steam by '02. But what the holy hell was our current seller thinking when he determined paying $560,000 just three years later made good financial sense?

20% annual appreciation seemed “normal” to you? Really? Hell, Bernie Madoff couldn't even hit those numbers.

And speaking of bloodsucking leeches, check out these creepy drawer pulls:

Is it just me, or do these bathroom cabinets look like the cheap-o 1985 originals with a half-assed paint job?

Anyhow, I still find it amusing when people compare current asking prices to peak-o-the-bubble prices and conclude it must be a "good deal” because it’s “X% off.”

What they don’t consider is what the property sold for pre-bubble. When we finally hit the bottom, most properties will have fallen (at least) to their pre-bubble prices and considering how much “equity” has been wiped off the face of the planet in such a short amount of time due to this unprecedented, now undeniable housing bubble, people need to use pre-bubble prices as the pricing starting point. Moving backwards from an artificial, reality-defying, Ponzi-scheme-derived sales price to determine "value" is as useless as a kickstand on a tricycle.

This condo is a perfect example. The current asking price of $449,000 is “20% off” the 2005 price of $560,000.

“Wow! What a steal!”

BUT, today’s price is an astounding 54% ABOVE the 2002 price (which isn’t even a “pre-bubble” price--it's two full years into the bubble). Considering most Long Beach condos are selling for 2003 prices and headed lower, is this still a “smokin’ deal?”

It’s all about perspective.

As you can clearly see, this individual picked a REALLY bad time to buy, and an even worse time to sell. If this seller can find a sucker to pay the current asking price of $449,000, the loss to the loanowner will be $137,000--not including the costs of upgrades.

If we’re nice and estimate the seller spent $40,000 on “distressed” (just like the seller!) wood floors and other upgrades (which will be fortunate to fetch $0.50 on the dollar in this highly-competitive, post-“Flip This House” environment), the seller will face a catastrophic loss of nearly $160,000.

Wow, that’s about $40,000 in depreciation for every year of ownership!

But it gets worse. That's because this place has ZERO chance of selling for $449,000. Sure, this large apartment is nicely appointed (bathroom cabinets notwithstanding) and has every amenity you could ever need (pool, inside laundry, two secure parking spots. etc.) but the days of half-a-million-dollar non-beachfront condos are dead like personal responsibility.

Some might point out that the price per square foot isn’t that crazy compared to the neighbors, but the point is the neighbors aren’t selling either!

I think this seller could find a knife catcher if they slashed $65,000 from the demand tonight. They don’t know it yet, but if they accepted $385,000 right now it would be the best thing that ever happened to them. My prediction is they’ll reject such “lowball” “scavenger” offers throughout the year only to discover in winter that the market has completely passed them by. Only then will they realize that $385,000 would have been a phenomenal deal.

But they can't go down to $385,000. Because although they might have enough equity to absorb a $160,000 loss (keep in mind this is not a short sale!), a $225,000 loss is a completely different animal. Which means this will eventually become a short sale.

And given the ever-growing volume of distressed properties lenders must contend with, the bank probably won’t be able to act quickly enough to prevent this from going into foreclosure.

Hell, some of the photos make me think the seller already has one foot out the door:

Gold records stacked neatly along the wall...

Crap in boxes (lit beautifully by that chandelier, by the way) ready to go...

It appears as if they're already waving the white flag. And with a ~$3,400 monthly payment, it's not difficult to see why.

The good news is, once wannabes like this are purged from the market and Long Beach real estate values return to some semblance of reality, you and I will be able to snag swanky little apartments like this for reasonable, affordable prices.

Be patient. We'll get there.


  1. Thanks for the MERS mention. I wasn't aware of that. We have a house across the street that was bought by a developer to tear down and put in a strip mall. He abandoned the project (thank god), but the town cannot figure out who owns the property in order to force them to at least cut the grass.


  2. Rick,

    That's a perfect example.

  3. This is off topic, but hoping someone will respond -

    Am I the only one who doesn't like those kind of bowls on top of the counters, in the bathrooms, that seem to be all the rage?

    What the fuck is wrong with a sink? Sure seems like it's a lot easier to use.....

    and don't those bowls create a huge mess? I can just see trying to brush teeth or shave, and constantly having to wipe down the counter, because there is no real sink.

    I've never used one, so maybe I just don't know what I'm missing.