An Addition to Foreclosure in Rockaway

Today's example is about homeowners who seemed to have purchased a starter home. They were faced with a dilemma common for owners of small homes - move up or renovate up. There are many factors owners need to consider in making the choice. For this homeowner the choice appears to be the addition of a second floor. They converted the house from two bedrooms to five. From the picture it looks like cute home. From the description it sounds like a decent place. What could the homeowners lose ... unfortunately for these owners the house. Since it is a foreclosure we get the front view only.


Here is the property info -

Property Features
Single Family Property Status: Active County: Morris Year Built: 1957 5 total bedroom(s) 3 total bath(s) 3 total full bath(s) 10 total rooms Style: Colonial Living room Family room Kitchen Basement	Laundry room Bathroom(s) on main floor Bedroom(s) on main floor Kitchen is 19x10 Basement is Full Fireplace(s) Fireplace features: Living Room, Wood Burning Parking space(s): 1 1 car garage Attached parking Heating features: 2 Units,Gas-Natural Forced air heat Central air conditioning	Interior features: Dishwasher, Refrigerator, Carpeting, Basement Level Rooms: Bath(s) Other, Exercise Room, Laundry Room, Walkout, First Level Rooms: 2 Bedrooms, Bath Main, Family Room, Kitchen, Living Room, Second Level Rooms: 3 Bedrooms, Bath Main, Master Bath Features: Jacuzzi-Type, Stall Shower Exterior features: Deck, Storage Shed Exterior construction: Vinyl Siding Roofing: Asphalt Shingle Approximate lot is 100X205 Lot features: Open Lot Approximately 0.47 acre(s) Lot size is less than 1/2 acre Utilities present: Public Sewer,Public Water,Electric Service

Here are the financials -

• The property was purchased in December 2002 for $275,000.
• The original mortgage was for $261,250 in December 2002 with Weichert Financial Services.
  
• A second mortgage was taken in April 2004 for $125,000 with Roberts Home Design.
• The first and second mortgages were closed and combined into a new mortgage for $435,000 in December 2004 with First Interstate Financial.
  
• A HELOC was opened in May 2005 for $75,000 with Sovereign Bank.
  
• Foreclosure started December 2006
• Currently for Sale with Realtor for $392,900 down from $398,900 and originally priced at $404,900.

The homeowners started out in a decent position - they were able to put together a 5% down payment of $13,750. Not bad for a first time buyer. This was also before the peak in the bubble so the price was still pretty reasonable.

Seventeen months after purchasing the property it looks like they decided to add a second floor. It also looks like they received the loan from the contractor - many renovators and contractors offered loans during the Great Housing Bubble. The builder is now out of business and has a bad review at rate your builder - see it here. Bad contractors are one reason many people choose not to use this route for a larger home and instead buy larger.

The owners then combined their mortgages, took back their down payment and took out another $35,000 through a cash-out refinance. This additional cash-out easily could have been for costs overages incurred during the renovations. The homeowners may have wanted some upgrades and the builder probably tacked on some extra charges.

Obviously the cash-out refi was not enough, less than six months later a HELOC was opened. But the costs on the improved home turned out to be too much for the homeowner. Nineteen months after obtaining the HELOC the foreclosure process started.

From the price at the sheriff sale, $477,157.11, it appears that some of the HELOC funds were utilized - however this owner did not drain all the equity the lenders had made available. Guess they never heard of using the HELOC to pay the mortgage?!?

So if the lender receives the current full asking price, the realtors take the standard 6% being $23,574. The difference in the sheriff sale price (usually purchased for the amount owed the lender or note holder) and the sales price is $84,257.11. That means if selling for full price the lender will lose a total of $107,831.11.

While the lender will take a big hit, the homeowner is the one to feel bad for. Spending years putting on an addition - all the headaches involved with that alone are a nightmare for most. Then to lose the house to foreclosure - this former homeowners probably asking themselves everyday what all the work was for. All that effort only to lose everything.