"Shouldn't be" short sale in Laguna

This Laguna Beach property is not the "bought at the peak and is now upside down" type of short sale. It's the other kind - when refinancing and mortgage equity withdrawl come home to roost.

533 Lombardy Lane, 92651
Asking price: $799,000-$849,000
Asking price/ sq ft: $695
Income requirement: $212,250
Purchase price: $494,045
Purchase date: 9/20/00
Size: 2 beds, 1 bath, 1,150 sq ft (built in 1927)
MLS: S515870 (209 days on Redfin)
ZipRealty price tracker: Price Reduced: 3/11/08 -- $899,000 to $849,000
Zillow Zestimate: $1,072,000
Type: Single Family Residence
Style: English
Stories: 2 Levels
Lot size: 1,800 sq ft
From listing: APPROVED SHORT SALE!!! LOOK AT THE PRICE ON THIS SFR IN HIGHLY SOUGHT-AFTER LAGUNA BEACH!!! The last word in style & charm this unbelievable home is tucked on a quiet street in great neighborhood. A perfect 10 in curb appeal you will fall in love with this great home from the moment you see it. Dramatic living room entrance showcases rich hardwood flooring, exposed beams, custom lighting & massive brick fireplace with elegant oversized mantle. Nifty chefs' kitchen with clean tile countertops, garden window & access to formal dining area. Main floor bedroom - a great perk! Other great features include: large office/den + enormous loft - an easy 2nd/3rd bedroom! This home will not stay on the market long - totally turnkey and priced to sell fast! WOW!



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As you can see from the purchase price, this property should not be in this situation. Shoulda, coulda, woulda right? The owner purchased this property in 2000 for $494,045 using $458,150 worth of financing in two loans. So far, so good.

But she refinanced in 2003 into a $640,000 loan. Between May 2004 and July 2005, $230,000 more worth of credit/loans were added to the property - one or both may be HELOCs and we don't know for sure if they were fully tapped.

But, it seems likely the money was pulled out since another loan for $200,000 - we think a standalone second - appeared in April 2006. Assuming all the cash was used, the total amount of loans added to the home over the course of just two and a half years could be as high as $1,070,000.

To give you an idea of the significance of tapping the house for money: If the owner never refinanced or pulled any additional money out, and they could sell the home for $849,000, they would earn a profit of about $300,000, including 6% sales costs.

Instead, the owner is underwater and had to lobby the lender(s?) for a short sale, which we know from the listing has been approved.

The $640,000 loan also is now delinquent, and a notice of default for $26,394 was filed against the property in May. Too bad the home did "not stay on the market long" as the listing proclaimed.

Million-dollar REO in San Clemente

Today we go back to Forster Ranch in San Clemente to show you a bank-owned property that, if sold for its asking price, would demonstrate more than a half-million dollar decline in value from its previous sales price during the bubble.

2525 Costero Magestuoso, 92673
Asking price: $1,149,000
Asking price/ sq ft: $280
Income requirement: $287,250
Bank purchase price: $1,439,287
Purchase date: 4/1/08
Size: 4 beds, 5 baths, 4,100 sq ft (built in 2003)
MLS: S533569 (25 days on Redfin)
Zillow Zestimate: $1,986,500
2007 property tax: $11,458
HOA dues: $248
Type: Single Family Residence
Style: Tuscan
Stories: 2 Levels
Lot size: 7,500 sq ft
From listing: Stunning home in a gated community. MOVE-IN CONDITION. Upgraded Travertine throughout downstairs. Bedroom and full bathroom + powder room downstairs. Master bedroom with retreat and romantic fireplace. Family room with built-in entertainment niche, cozy fireplace. Breakfast nook, breakfast counter. Gourmet kitchen with granite stainless steel appliances. Plantation shutters throughout. Huge bonus room with built-in entertainment center w/ 62'HDTV and queen size Murphy bed. Upgraded back yard with salt water dipping pool/spa, waterfall, fire ring and sitting area. Covered patio with ceiling fans, BBQ with fridge. Hurry on this one, this will not last.

It's not too often you see an REO listing mentioning what good shape the house is in (move-in condition, no less), but then again this is a luxury property. Nice of the previous owners to leave the huge HDTV.

Speaking of the previous owners, they paid $1.7 million in 2006, using 100% financing from Bear Stearns. Can you imagine being handed the keys to a property like that without having to chip in a dime of your own money?

It was indeed too good to be true. The notice of default on the first loan came in August 2007, and the notice of trustee sale was filed in November for $1,353,839 - which is above the original loan amount of $1,275,000.

Assuming the bank can sell the property for the current asking price, it would mean a depreciation of $551,000, or 32% off the 2006 price, not including any sales costs.

We'll leave you with a snapshot of the foreclosure activity in the 92673 ZIP code, courtesy of ForeclosureRadar.com. The green markers signify notice of defaults, the blues are notice of trustee sales, and the red ones are bank owned. For an explanation of the California foreclosure process, click here.

Pair 'o REOs in Lake Forest

These two properties in Lake Forest have essentially the same story to tell, so we're going to feature them together. Both were purchased during the bubble years with...let's call it a "limited" amount of downpayment money needed.

Now, they've gone through foreclosure and are back up for sale as bank-owned properties.

22981 Ditz Lane, 92630
Asking price: $239,900
Asking price/ sq ft: $202
Bank purchase price: $256,500
Bank purchase date: 4/4/08
Size: 2 beds, 2 baths, 1,189 sq ft (built in 1972)
MLS: S517362 (114 days on Redfin)
ZipRealty price tracker: Price Reduced: 2/01/08 -- $324,900 to $299,900
Price Reduced: 2/14/08 -- $299,900 to $289,900
Price Reduced: 3/02/08 -- $289,900 to $279,900
Price Reduced: 3/06/08 -- $279,900 to $269,900
Price Reduced: 3/07/08 -- $269,900 to $259,900
Price Reduced: 3/15/08 -- $259,900 to $258,800
Price Reduced: 4/19/08 -- $258,800 to $239,900
From listing: Large 2 story townhome!!!! Great area, quiet and secluded street!!! Large bedrooms!!! Lots of storage!!! Large family kitchen!! Nice yard!!!! This property comes with 2 car garage!!! Great school system!! Wonderful area! Community assoc. Offers great entertaining and recreation!!! Must see!!!

Exclamation point abuse is alive and well here. The former owner "paid" $439,000 in July 2006 (essentially the peak of the market) with $0-down financing - a $351,200 first loan and a $87,800 second (80/20) from Peoples Choice Home Loan in Irvine. Surprise, surprise: This company was a lender for people "with credit problems." It also is no more as it filed for bankruptcy in 2007.

This condo went back to the bank (HSBC) for $256,500 - well below the notice of trustee sale amount of $371,548. Assuming a sale for the full asking price, it would be a decline of 45% off the peak price, not including any sales costs.

23004 Ditz Lane, 92630
Asking price: $269,900
Asking price/ sq ft: $296
Bank purchase price: $248,940
Bank purchase date: 3/6/08
Size: 2 beds, 1 bath, 912 sq ft (built in 1972)
MLS: U8001820 (15 days on Redfin)
From listing: Single-story ground level end unit in nice neighborhood. Enclosed patio, two-car garage and lots of windows --- shows light and bright.

Notice the "vintage" kitchen on the right. The image at the top of this post is the exterior shot of this property.

Not to sound like a broken record, but here we go: This property was purchased by the doomed borrower for $430,000 in December 2006 (again, either right at the peak of the market or just after) using 100% financing from JPMorgan Chase. There was a $344,000 first loan and an $86,000 second (80/20).

The NTS (notice of trustee sale) amount was $365,964, but it went back to the bank in March for $248,940. Assuming a sale for the full asking price, the depreciation then would be 37%, not including any sales costs.

This is what the street looks like:

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There is also a preforeclosure on the same street - 23011 Ditz Lane. This condo is the same size as 23004 Ditz Lane.

The loan in default was made in May 2007 and is for $345,000 from WaMu. Do you think it would be wise for the borrower to struggle to keep the property with this much debt, considering banks can't unload homes here when they are asking in the low to mid $200,000s?

And, just for kicks: 23008 Ditz Lane has a "make me move" price on Zillow of $425,000. LOL.

What not to do

Depending on one's point of view, this can be either a sad tale of things gone awry, or a biting case of poetic justice.

26432 San Ramon Way, which is a 4-bedroom, 3-bath house in Mission Viejo, is up for sale with an asking price of $699,000.
Here's the listing description: GREAT COMMUNITY, SINGLE LOADED, CUL-DE-SAC STREET. SPACIOUS FLOORPLAN. HIGH CATHEDRAL CEILING ENTRY OPENS TO LUXURY LIVING AND DINING ROOM. FROM ENTERTAINING FAMILY ROOM WALK INTO BREAKFAST AREA & GOURMET KITCHEN. CUSTOM SHUTTER WINDOWS THROUGHOUT. MAIN FLOOR BEDROOM CONVERTED TO OFFICE WITH BUILT-IN DESK & CABINETS. FULL BATHROOM DOWNSTAIR. COZY BACK YARD W/ MANY FRUIT TREES & ROSES. NEAR BY SIERRA & MONTENOSO RECREATION CENTERS.

Reader mja considers this property to be "a better-than-average home, and (it's) priced 15-20% below all the other homes in the area." The property has been on Redfin for 93 days now and the listing is still active.

You guessed it: There's more to the story.
Original list price: $989,000
WTH? On the surface, this seems insane. Did the owners really think their property had increased in value by $350,000 since they purchased it in 2003 for $639,000 - particularly since many other Mission Viejo properties are asking below 2004 prices at this point?

Well, no and yes. No, probably, because this was obviously a wishing price and had no basis in reality. Yes, because they were wishing for a bailout. Why?

Mja was wondering why this place wasn't already sold, and did a little digging. Here's what they found: "I called the agent, and she said that they have a number of offers and it's up to the bank to approve it. I asked why it is a short sale, being that they have received offers above the purchase price in '03 for $635k... well is turns out that the seller has over $1 million in loans on this property."

Another victim of the debt monster. Telltale signs in the photos include the flat-screen TV and all stainless steel appliances. Props to the owners, though, who managed to rack up debt to the tune of at least about $500k more than the purchase price of their home in a matter of four short years.

Easy money

Since it's the weekend, we're going to go out of town for a day and feature a property in Los Angeles County. There's no photo available of the property, so instead I'm using a generic picture of the city of Norwalk from the 1950s, right after this house was built.

The basic details:
11912 Cresson Street, Norwalk, 90650
Asking price: $459,000
Purchase price: $400,000
Purchase date: 6/27/2005
Size: 2 beds, 1 bath, 749 sq ft (built in 1949)
MLS: P604142 (26 days on Redfin)
Description: Charming home in quiet neighborhood walking distance to Park and Elementary school. The garage has been converted to an extra large bedroom, you get 3 bedrooms for the price of 2. Inside has been remodeled with new paint, carpet, crown molding, tile counters, and cieling fans. Large grass area in backyard along with a nice patio for relaxing.

On the surface, this property is unremarkable (especially since we don't have too much of an idea of what it actually looks like, other than the fact that it's a modest 2-bedroom*, post-WW II house in Norwalk). *-Nothing says class like a property with its garage converted into an additional bedroom.

If we assume the usual 6% sales costs, the gain would be $31,460. Since there is a relatively small potential gain, we would guess the owners don't have too much room to lower the price, despite the fact that larger neighboring 3-bedroom properties are asking $49,100 less and $43,100 less.

That doesn't tell the whole story. Here is the mortgage information for 11912 Cresson, courtesy of PropertyShark:
Purchase price in 2005: $400,000
1st mortgage: $320,000 (adjustable)
2nd mortgage: $80,000 (fixed)
Downpayment: $0
Refi (8/28/07): $417,000 (fixed)

So the owner put nothing down, and then re-fied into a bit larger loan to squeeze some more money out (notice they maxed out on the conforming loan limit of $417k). The current asking price is about 15% more than the current owner paid in '05, when the market peaked. By the way, this property sold for $136,000 in mid 2001, meaning that over the course of four years, this property shot up in value by 194%.

Can you imagine what could happen as prices in LA continue to turn around and head back down?