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		Find Out More
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...