3-time failure in Laguna Niguel

The Redfin listing for this Laguna Niguel preforeclosure home does not designate it as a short sale, but how can it not be one? The owner put $0 down when he bought it during the bubble, and he is now trying to sell it for more than $150,000 less than he paid about two years ago.

As you will see, there is much more to this story than meets the eye.

28281 Via Alfonse, 92677
Asking price: $649,900
Asking price/ sq ft: $375
Income requirement: $162,475
Purchase price: $830,000
Purchase date: 5/19/06
Size: 3 beds, 3 baths, 1,731 sq ft (built in 1989)
MLS: S532406 (3 days on Redfin)
Zillow Zestimate: $645,500
2006 property tax: $7,207
HOA dues: $142
Type: Single Family Residence
Stories: 2 Levels
Lot size: 4,040 sq ft
From listing: Wonderful two story home in Laguna Niguel. This home features 3 bedrooms, 2.5 bathrooms, a family room with a fireplace, a formal dining room, mirrored closet doors, and a great view of the surrounding city. Home has access to association amenities, which include a pool, spa, tennis court, and work-out center. Come and enjoy all the wonderful things this home has to offer.

Considering how the photos look, it appears the property is already vacant, so it seems unlikely the owner will be trying too hard to keep the house. Does the bottle of alcohol in this picture come with the house, or does that have to be negotiated separately?

As we mentioned, the owner obtained 100% financing (78/22) from JPMorgan Chase. The notice of default was filed on New Year's Eve.

Assuming it is possible to successfully sell the property for the full asking price, the loss would be $219,094, including 6% sales costs. Not a good day for the lender. And it's not the only one who will be out a lot of money.

Think this is an isolated incident in this neighborhood? On this street? Wouldn't you believe it: 28272 Via Alfonse is also headed towards foreclosure. And, 28371 Via Alfonse is an REO that is not yet listed for sale.

All $0 down deals using virtually identical means of financing. All purchased in mid-May through early June of 2006. All by the same investor.

That's right: In a span of less than a month, our real estate investor "bought" three properties on the same street - for a total of $2,390,000 - using none of his own money. Carleton Sheets would be proud!

But the fantasy of real estate riches soon ended, and each of the three homes began the foreclosure process by early January. Fortunately for the investor, he didn't have to sacrifice his home. In fact, his primary residence is in another, very wealthy South OC city.

All told, the loss on these properties will be significant, and the lenders will be left holding the collective bags. Who do you get angry at here? The investor for walking away and potentially not disclosing on their loan applications that they were buying so many properties and leveraging themselves to the hilt? Or do you cry foul on the lenders who enabled this behavior by funding the loans?

No matter what your personal opinion, there is no denying it is the lenders that will be taking the brunt of it in the shorts. And the neighbors can't be too happy to have three homes possibly sitting vacant on the street, either.

REO in Coto

It's not a myth: There are bank-owned properties in Coto de Caza, and today's property is one of them. This is an unfortunate story of poor market timing, but it is not one of 100% financing. This owner actually put 5% of their own money into the ill-fated transaction.

23302 Via Pardal, 92679
Asking price: $640,200
Asking price/ sq ft: $203
Income requirement: $160,050
Bank purchase price: $658,429
Purchase date: 3/25/08
Size: 3 beds, 5 baths, 3,150 sq ft (built in 1976)
MLS: P633857 (21 days on Redfin)
Zillow Zestimate: $654,000
2007 property tax: $4,184
HOA dues: $60
Type: Single Family Residence
Style: Contemporary
Stories: 3+ Levels
Lot size: 6,000 sq ft
From listing: Wonderful Property in Coto De Caza, This lovely home features 3 master bedrooms with 3 full baths, another 1 1/2 baths throught the house, two of the bedrooms have balcony's, this home boasts a living room with a brick fireplace and a balcony, a large family room, a formal dining room with it's own balcony, a game room and a recreation room, inside laundry room, a light & bright kitchen, 2 car direct access garage

The property was purchased in March 2007 for $775,000. The financing took the form of a $620,000 first loan and a $116,250 second (80/15). The former owner put $38,750 down.

The notice of default on the first loan came in November, and the notice of trustee sale in February was in the amount of $641,068 - meaning accrued interest and fees surpassed the original loan balance by more than $20,000. Nobody wanted this property at its opening bid of $658,429.85 at auction in March, and it went back to the bank.

If we apply Case-Shiller methodology, we find out the lender asking price of $640,200 places it at roughly late 2004/early 2005 pricing. It's hard to place a specific rental value on this property, but our best guess is that it could probably go for about $3,400 per month. That would mean our rough target price for an owner-occupant to achieve approximate rental parity would be around $544,000 (using a GRM of 160).

Assuming a sale for the full asking price, this home would be $134,800 or 17% off the 2007 price, not including sales costs.

Another good deal in Laguna Niguel

Yesterday, we profiled a property in Laguna Niguel that is a good real estate investment for an owner-occupant because the monthly cost to own is roughly equal to the monthly cost to rent a comparable property. Guess what: Today's condo is even more attractively priced.

23732 Hillhurst Dr #71, 92677
Asking price: $218,500
Asking price/ sq ft: $218
Income requirement: $54,625
Purchase price: $405,000
Purchase date: 8/29/06
Size: 2 beds, 2 baths, 1,000 sq ft (built in 1975)
MLS: S526568 (48 days on Redfin)
Zillow Zestimate: $327,500
2007 property tax: $2,334
HOA dues: $295
Type: Condominium
Stories: 1 Level
Lot size: 1,050 sq ft
From listing: Don't miss out on a Golden Opportunity to own this magnificent condo with the well planned layout for living ease. 2 Master Bedrooms, 2 Bathrooms. Part of the living room has been converted in a small sleeping room.(maybe illegal) Close to Shopping Center, Bus Stop, Freeway and just a few minutes to the Beach, excellent for this summer time. Community swimming pool. Washer and Dryer hookups. The best of everything. Easy to show. Won't last long. And have you check the price?...Oh what a price!


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"Oh what a price" is absolutely right, because in today's market this property is an excellent value for an owner-occupant. The property is already priced below the $240,000 mark we believe a non-investor should target as a value for this condo, (using a GRM of 160 and a rental value of $1,500 per month). Actually, this property has a GRM of about 146 as it is currently priced.

This means by our rough math, rental parity has been achieved: An owner who puts down a legitimate downpayment would be paying about the same each month to own as they would to rent. Can you believe someone paid more than $400,000 for this place not too long ago?

If we were to instead assume the property could rent for as much as $1,600, then the math gets even better - the property would have a GRM of about 137 as it is priced now. An even better deal! Just be careful - we wouldn't want you to get in trouble for the small sleeping room that is "maybe illegal."

The question is whether you can get this 2003 rollback for the asking price and successfully complete a sale. That certainly is no given considering the trouble with closing short sales - particularly ones like this that are priced significantly below the previous sales price.

Assuming the property does get sold for the current full asking price, the loss would be $199,610, including 6% sales costs. Not including sales costs, it would equal a depreciation of 46% in less than two years.

43% off in Laguna Niguel

More evidence that small condos are not faring well - virtually no matter where the location in South Orange County. Here is a short sale that also is a major rollback in Laguna Niguel.

119 Pearl, 92677
Asking price: $199,000
Asking price/ sq ft: $256
Income requirement: $49,750
Purchase price: $349,000
Purchase date: 4/29/05
Size: 1 bed, 1 bath, 776 sq ft (built in 1983)
MLS: S525277 (60 days on Redfin)
Zillow Zestimate: $253,500
2007 property tax: $3,552
HOA dues: $300 + $45
Type: Condominium
Style: Contemporary/Modern
Stories: 1 Level
From listing: Great area with association pool, really nice complex. Priced to sell!

Short and sweet description, but that's the point: It's all about price. This is the type of unit that could become attractive to an investor when it falls in value enough, because its size and setup (virtually identical to an apartment) could make for a good rental for perhaps a young person just starting out who is saving up for a downpayment to buy a home.

But are we there yet? Looking at other properties currently offered for rent in Laguna Niguel, we estimate the market rent at around $1,500. That then would value this property at about $180,000 to an investor, assuming a GRM of 120. Very close! But, the fact that this property is a short sale (that must be approved by the lender) makes us hesitant to believe the property could actually complete the sales process for even the full asking price.

If we were to assume the property appreciated consistently at the ridiculous 15.5% yearly pace it did between its previous sales in 1995 and 2005, the "value" would have been $205,356 in 2001 and $237,187 in 2002 - though we know much of the appreciation took place between 2003 and 2005. The asking price now is already below both of these, and likely will fall a bit further before the absolute bottom.

Assuming, though, that the sale does go through for the full asking price, it would represent a loss of $161,940, including 6% sales costs. The depreciation, not including sales costs, would be about 43%.

29% discount in Ladera Ranch

Merrill Lynch, which owns this REO in Ladera Ranch, has priced this property at 29% off the 2006 peak purchase price. Who will step in and purchase this home that sold for almost $950,000 just two and a half years ago?

25 Sachem Way, 92694
Asking price: $664,950
Asking price/ sq ft: $260
Income requirement: $166,237.50
Bank purchase price: $680,000
Purchase date: 1/9/08
Size: 5 beds, 4 baths, 2,560 sq ft (built in 2003)
MLS: U8001199 (61 days on Redfin)
ZipRealty price tracker: Price Reduced: 4/19/08 -- $699,900 to $664,950
Zillow Zestimate: $822,000
2007 property tax: $14,017.78 - 2006 taxes also unpaid
HOA dues: $165
Type: Single Family Residence
Stories: 3+ Levels
Lot size: 2,600 sq ft
From listing: WOW, THIS IS ONE OF THE VERY BEST VALUES IN ORANGE COUNTY. THIS IS THE COMMUNITY OF LADERA RANCH. LADERA RANCH HAS IT ALL, PARKS, RECREATION, SHOPPING, ENTERTAINMENT AND SO MUCH MORE YOU AND THE FAMILY WILL LOVE THE ARE. THE HOME FEATURES FIVE BEDROOMS AND FOUR BATHROOMS, A GREAT VIEW, AND A REAR YARD THAT IS JUST RIGHT FOR ENTERTAINING, YOU EVEN HAVE A FIRE PIT AND A SPLASH POOL... COME HOME TO LADERA RANCH AND START LIVING THE SOUTHERN CALIFORNIA LIFESTYLE TODAY!!

A fixer that's five years old and last sold for nearly $1 million. Go figure. Considering there are no interior photos, we wonder if this one might have been trashed on the way out.

The previous owner paid $940,000 in 2006, but didn't have to pay a dime of his own money. He received 100% financing from People's Choice Home Loan - another (now defunct) subprime lender. The funding came in the form of an 80% first loan ($752,000) and a 20% second ($188,000).

Wait a minute: Someone went to a subprime lender and was granted loans totaling
$940,000 to buy a luxury property? Something seem wrong with that picture? Is it any surprise the property ended up as a foreclosure?


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The owner made very few (if any) payments on the first loan, as the notice of default came in the first week of April 2007 - less than six months after the purchase. The notice of trustee sale was filed in July in the amount of $794,822 - $42,822 more than the original loan - and the bank ended up taking the property back for $72,000 less than the original loan, though unpaid interest and fees had accrued.

Assuming a sale for the current full asking price, it would represent a decline of $275,050 or about 29% off the 2006 purchase price, not including any sales costs.