Sunday, June 15, 2008

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.


Tom said...

Seems like the homeowner got carried away with improvements that they couldn't afford.

The fraud allegations in regards with the builder seem to be related to high interest rates and giving the homeowners loans which they couldn't pay back.

Countrywide was doing something similar at the time. They had home equity loan plans available that were based solely on the equity in the home and required no income verification. If you took one out to finance an income producing activity, such as converting a single family home to a multi family home, you would probably be ok as long as you kept costs inline with what you could make compared to what your monthly payment would be.

With a lot of borrowers not able to afford the builders payments the builder might have gotten bit hard. I can't seem to find news stories on him. I may be wrong but I wonder if this wouldn't have happened if he didn't lend money for renovations.

The homeowners probably got excited by all the equity they now had in their home and decided to expand without checking to see if they could really afford it. Looks like that happened to a lot of people in Bergen County as well.

During the renovation I wonder if the homeowner also had rental expenses that might have tipped the balance. There are a couple of modular home builders in the area that can do modular additions, including 2 story conversions. They build the addition in their factory and bring it on a truck and set it in place. I saw a neat video on YouTube of them tearing down the roof and setting the new addition all in one day. Pretty neat.

I don't know the exact address but I wonder if the homeowners went overboard. Sometimes homeowners fail to consider if their renovations are in keeping with the neighborhood. A $600k house will be hard to sell in a $300k neighborhood.

If you don't mind me asking, are you in the loan business? Or is there a public

Tom said...

Looks like the BC Clerk's Office is just slow on getting online like the other County Clerks.

Though if you know an online place that provides this info for BC please let me know.

NJHH said...

Hi Tom,

Not in the loan business - these records are publicly available on line through the Morris County clerk's office.

Stories like these are why I started the blog - I was posting them on other sites and decided to dedicate a space for them myself. I post them every Sunday - since I only use public info they can sometimes be very difficult to find. Unfortunately I run into alot of dead ends using public info as well.

Several other websites people post info that is only available to inside access. Once in a while I think about joining one of the web services to get additional info - but I figure I will work up to that.

My story is the bubble bursting got me motivated - looking at what happened on a local level. Grim story is a lot more interesting - the bubble upset him so much he became a realtor in order to expose the problems. He changed the name of his blog to get more mainstream exposure - it has worked great. He has been featured in the Record and some other papers.

Tom said...

Hopefully the BC Clerk gets more info online soon. It could help fill in some of the blanks.

I didn't know the story about grim. Is he actually selling real estate or did he just become an agent to get access to MLS? Is there a posting on his blog that gives more details? I'd be interested in reading it.

NJHH said...

I hope Bergen also gets a better database. Morris seems to be the only decent one.

As for Grim, he has said in the past that he has clients - but I am not sure what else he does. I have not been to one of the GTG yet. Maybe next time.

Anonymous said...

Calculated Risk has an analysis BK Judge Rules Stated Income HELOC Loans Dischargable. The post illustrates how loans that said they were stated income were really considered "asset based" loans given on the value of the asset not if the owner had the means to pay back the loan.