Sunday, June 22, 2008

From HELOC To Foreclosure in Pequannock *See Update Below

Sorry for the late post today - life got in the way...

Today's story is of about a nice little starter house that failed. There was some serial equity extraction - but nothing out of hand. Maybe it the extraction pushed the owners over the brink. Maybe it was something more unfortunate like a job loss or illness or just some bad financial management practices. Whatever happened prior, today the lenders own the house and the former owners have seen their credit ratings have drop. Well, enough of the speculation, let's take a look at the property -



Here is the property info -

Property Features

  • Single Family Property
  • Status: Active
  • County: Morris
  • 3 total bedroom(s)
  • 2 total bath(s)
  • 2 total full bath(s)
  • 7 total rooms
  • Style: Ranch
  • 1 car garage
  • Parking features: Built-In Garage
  • Heating features: 1 Unit,Gas-Natural
  • Interior features: Eat-In Kitchen
  • Exterior construction: Vinyl Siding,Crawl Space Foundation
  • Approximate lot is 50X175
  • Approximately 0.2 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Septic,Public Water,All Utilities Underground
  • High School: Highview

Here are the financials -
  • The property was purchased in Jan. 2002 for $209,000
  • The original mortgage in Jan. 2002 was for $188,100 with Washington Mutual.
  • The property was refinanced with cash-out in July 2003 for a new mortgage of $215,000 with First Magnus Financial Corp.
  • It was refinanced again in October 2004 for $217,000 with Commerce Bank.
  • A HELOC was opened in November 2004 for $43,000 with Citibank.
  • The foreclosure process started Jan 2007.
  • The property is currently for sale with a realtor, listed at $279,900.
The owner was able to put 10% down ($20,900) when the property was purchased. A year and a half later they pulled out the down payment along with another $6,000 of equity. A second refinance 15 months later was probably for a lower rate since the equity out was only $2,000 more. The minimal cash-out could have easily been done to pay for the closing costs of the refi. One month after the second refi the owner set up a HELOC for $43,000. The total equity out listed on the house would be $260,000.

The lender took over the property in January 2008. The foreclosure judgment was only for $232,635.90. If the property sells for the full sale price the lender actually nets almost $30,000 ($29,624.10 to be precise). With the large difference between the judgment and the selling prices it looks like some portion (if not all) of the HELOC was used. A lender asking for significantly more than the judgment in a foreclosure case is very unusual. Could the HELCO lender negotiated a portion of the sale price? It does not appear that any price reductions have been taken. This property has been tracked for over a month prior to this posting and there have been no price reductions yet. Usually we see small yet frequent incremental reductions on these cases. We will see where it ends up selling for...

*Updated findings in Comments Thanks to Tom from Bergen Jersey Foreclosures. Here is what he found -
Since the house has been foreclosed, Citibank would have been out it's HELOC. When a senior lien holder takes possession of a property, all junior liens get wiped out in NJ.

Looking at the foreclosure details, it seems that Citimortgage actually took possession of the property and did the foreclosing. To protect it's interest in the HELOC, Citi most likely purchased the primary lien from Commerce Bank. There were probably also back property taxes that Citi paid off.
Interesting find - one question about this. It is reported that the foreclosure process often costs about $50,000 - with the costs incurred is it really in Citibanks interest to foreclosure with the costs in mind? Did Citibank take a gamble that it could get all the money back plus for this foreclosure?

Makes the story even more interesting...

3 comments:

Tom said...

I'm waiting to see if this turns into another suspected scam :)

I really enjoy these posts from you.

Since the house has been foreclosed, Citibank would have been out it's HELOC. When a senior lien holder takes possession of a property, all junior liens get wiped out in NJ.

Looking at the foreclosure details, it seems that Citimortgage actually took possession of the property and did the foreclosing. To protect it's interest in the HELOC, Citi most likely purchased the primary lien from Commerce Bank. There were probably also back property taxes that Citi paid off.

Fannie Mae is actually listed as the property owner in the tax records.

NJHH said...

Thanks!

I wish I could find more and the searches were easier. In the beginning I was posting examples sporadically - when I could find them. Now I try to have it be a Sunday feature (if it a good week I will do both days).

Its my favorite part - I think the article analysis during the week helps me put the stories and situation into perspective.

I will have to update the post with your findings - Thanks again!

Tom said...

Since Fannie Mae now has possession it is safe to assume they guaranteed the mortgage. Citi probably didn't make out so bad. If the house was foreclosed they lose everything.

This is hypothetical but lets say Commerce Bank has $217k left on the loan. Citi approaches them to buy the debt to protect their loan. Since it costs 50k to foreclose a property, they can go to Commerce and say we'll take the loan off your hands for $170.

So now Citi is in for $213 plus costs of foreclosure. I'm not sure what it really costs in BC but it's basically attorney fees and sheriff fees. I've seen the estimate saying it could be as high as 60k per but I think in reality it's probably a bit lower. We're mainly talking 3-4 attorney court appearances and some boilerplate paperwork.

Citi's HELOC was probably not guaranteed, so I'm guessing that the Commerce Bank mortgage was. So when Citi took possession they got the Fannie Mae protection and have already been paid off and don't need to worry about dealing with an REO. Maybe they took a loss, maybe they made a profit, maybe they broke even?

I'm still learning more about that side of the process but that's as best as I can figure.