Bay Area

[Jil]

How about this home ==> 164k to 648k? ==> Very close to RiverMark and New SF 49ers Stadium!

http://www.redfin.com/CA/Santa-Clara/1470-Nelson-Ct-95054/home/1465279

[MyCousinVinny]

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Jil wrote:

How about this home ==> 164k to 648k? ==> Very close to RiverMark and New SF 49ers Stadium!

http://www.redfin.com/CA/Santa-Clara/1470-Nelson-Ct-95054/home/1465279

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How about this one ==> 2.3M to 6.5M? ==> Very close to....nothing

http://www.redfin.com/CA/San-Jose/6113-Blackpool-Ct-95138/home/17292940

At least the Santa Clara home was bought at an auction and upgraded (ahem). This Evergreen mansion was bought as an REO and I don't see any improvement.

[Jil]

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MyCousinVinny wrote:

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Jil wrote:

How about this home ==> 164k to 648k? ==> Very close to RiverMark and New SF 49ers Stadium!

http://www.redfin.com/CA/Santa-Clara/1470-Nelson-Ct-95054/home/1465279

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How about this one ==> 2.3M to 6.5M? ==> Very close to....nothing

http://www.redfin.com/CA/San-Jose/6113-Blackpool-Ct-95138/home/17292940

At least the Santa Clara home was bought at an auction and upgraded (ahem). This Evergreen mansion was bought as an REO and I don't see any improvement.

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One difference, Nelson holding period is low and will sell quickly due to price, while blackpool held long four years (This is what people want here shadow inventory coming out! ) and may stay long on market due to its price.

Both are great deals for the current sellers...

[sakidd12]

The previous owner must be kicking themselves right now

[Michelle1x]

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sakidd12 wrote:

The previous owner must be kicking themselves right now

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Thats true for a lot of people who walked away in the bay area.  They are now worse off than had they stayed.

[ptiemann]

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Jil wrote:

How about this home ==> 164k to 648k? ==> Very close to RiverMark and New SF 49ers Stadium!

http://www.redfin.com/CA/Santa-Clara/1470-Nelson-Ct-95054/home/1465279

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well, it helps to look a bit behind the scenes. Yes, the investor paid $164k at auction. The bidding started at $90,443.

However, there was a senior loan that had to be paid off.

All the investor could know at the auction was

- senior loan was dated October 2006

- original loan amount was $250k

There was no NOD on the senior loan. It could have a balance of $240k (if the borrower made timely payments) or as high as 120% = $300k. Some lenders allowed negative amortization loans to go to 125% -- this loan could have had a balance of 125% = $312,500.

In fact, the loan could have a balance of $312,500 PLUS years of late fees/ deferred interest.

Now, there's a trick. The 2nd loan had a balance of $90k and once the investors bid it up, any overpay [in this case $74k] would apply to the first loan. Then again, the trustee and the auction company will keep some of that money.

The lender will not tell an investor how much a loan's balance is. The ex-owner did not tell either. As a possible maximum, I would say $400k, as a minimum $250k.

The auction's deed was recorded 6/4/2012 and the first lienholder filed his NOD only 10 days later.. the default amount was only $30,534. However, we don't know if the balance was $250k or $310k.. but the investor certainly found out at this point.

So, to re-capture

- investor bought house with unknown condition

- unknown occupants (tenants with long term lease or owner?)

- unknown first loan balance.

About 2 weeks after the auction, the investor most likely paid off that 1st loan.. probably ~$300k, at the most $343k.

Expenses:

$300k first ($340k minus $40k from overbidding on the 2nd loan)

$164k second

$2k to get squatters out

$50k to remodel/ carrying cost

--------------

$516k

Sale price $648k

Commission/ closing cost: 6% = $39k

Net $609k

Profit $93k

A bit better than normal. Probably because most investors will not bid on 2nd loans.

Keep in mind that there was the risk that the $30k default amount could have been $70k.

As we all know, someone can default on a loan and rack up a huge default amount and the bank never ever files an NOD.

In this case, it was probably intention.. because.. (drum roll)

second lender was the same as the first lender.

So, by not filing an NOD on the first, and foreclosing on the 2nd, the bank made sure that they got their FULL MONEY paid.

How much did the bank get? $164k on 2nd.. loan balance was actually only $90k..

Trustee/ auction company keep maybe $14k for their work [cheaper than a realtor commission!]

$60k get applied to first loan

First loan had maybe balance of $340k.. minus the 60 = $280k

Investor paid off $280k

--> the bank got paid in full.. all deferred/ past due interest, all late fees, and the investor even paid for the cost of foreclosure!

Good deal for the bank.

Question is.. why did the ex-owner not just list the place and sell?

The only conclusion is.. the house was in such a bad condition that it could not sell.. so.. maybe my $50k remodel number would need an adjustment upwards.

[ptiemann]

Well, I reviewed the photos.. no landscaping.. expense was probably between $45k and $50k.

However, it took them 6 months to get the property ready for sale.. they most likely had problems with the occupant, could have cost them more to get them out.

6 months is longer than normal for this kind of job.

It helped them that the market moved up.

When they bought this property in June for effectively ~$465k, this probably was a $550k property, or less with bad condition.

The investor was lucky that the market moved up since then.

[Jil]

If it is bank foreclosure court house sale, IIRC, all liens are wiped out except tax liens. If such is the case, why do they need to bother 2nd liens unless the 2nd bank bids at court?

On any case, $50k profit is not attractive for the hassle and cash payment an investor make.

[ptiemann]

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Jil wrote:

If it is bank foreclosure court house sale, IIRC, all liens are wiped out except tax liens. If such is the case, why do they need to bother 2nd liens unless the 2nd bank bids at court?

On any case, $50k profit is not attractive for the hassle and cash payment an investor make.

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It is not correct that all liens are wiped out.. this statement is incorrect in 2 aspects.

1) Only junior liens are wiped ..OFF.. the property.

2) OFF, not OUT. Meaning, the lien (debt) still exists, but it is no longer attached to the property.

i.e. house owned by Mr Smith has 2 loans, 1st loan forecloses, 2nd loan goes "away". New owner is Mrs Investor.

Mrs Investor fixes the house up and sells to someone else, and this person sells it.. to Mr Smith again.

Voila ! The old "second" loan comes back to live .. and is now actually in senior position, if I am not mistaken.

Mr Smith can avoid that by using his wife or other family member to take title.

This particular flip may yield more than 50k profit, depending on what it sells for. I don't know the value. Much of that comes from appreciation, as I stated earlier.

[Michelle1x]

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ptiemann wrote:

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Jil wrote:

If it is bank foreclosure court house sale, IIRC, all liens are wiped out except tax liens. If such is the case, why do they need to bother 2nd liens unless the 2nd bank bids at court?

On any case, $50k profit is not attractive for the hassle and cash payment an investor make.

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It is not correct that all liens are wiped out.. this statement is incorrect in 2 aspects.

1) Only junior liens are wiped ..OFF.. the property.

2) OFF, not OUT. Meaning, the lien (debt) still exists, but it is no longer attached to the property.

i.e. house owned by Mr Smith has 2 loans, 1st loan forecloses, 2nd loan goes "away". New owner is Mrs Investor.

Mrs Investor fixes the house up and sells to someone else, and this person sells it.. to Mr Smith again.

Voila ! The old "second" loan comes back to live .. and is now actually in senior position, if I am not mistaken.

Mr Smith can avoid that by using his wife or other family member to take title.

This particular flip may yield more than 50k profit, depending on what it sells for. I don't know the value. Much of that comes from appreciation, as I stated earlier.

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Purchase money seconds in California are attached to the property, non recourse loans, in the second position so that if the mortgagee defaults, that debt goes away (or to be more factually correct, that debt is paid with whatever proceeds after the first is paid, which in the recession meant none of these were worth anything).   If the owner refi's or does a cash out, etc, then that 2nd is a recourse second which follows the borrower like a credit card debt.

so in your scenario, #2, assuming a recourse second- the DEBT would still exist but no lien, in that scenario the debt is attached to Mr Smith and never Ms Investor, I believe.

Purchase money seconds and purchase money helocs seem like a flawed instrument from the beginning for California, I am surprised banks are reinstating some of these.  The purchase money second only has the property as collateral, in second position, but also net of all selling fees apparently.  So any underwater property, even if it is underwater by only a little bit, will net almost nothing to the second lienholder.  Recourse seconds are different, of course.