Saturday, September 6, 2008

Grabbing the Equity in Kinnelon

Commonly when we look at owners who refinance and lose their homes it is because they repeat the process over and over again - which we call serial refinancing. However there are those that only refinance once or twice and lose everything. Perhaps there were difficult circumstances that caused the equity withdrawal like health or employment issues. Or the one-time large equity withdrawal was for some type of investment - retirement property, real estate investment or business venture.

During the bubble financing was commonly given on the value of the property not the ability for the owner to repay. Whatever the reason for grabbing their equity today's example was not able to keep up on the payments. Lets take a look -

Here is the property -

Here is the property info -

Property Features

  • Single Family Property
  • Status: Active
  • County: Morris
  • Year Built: 1962
  • 5 total bedroom(s)
  • 3 total bath(s)
  • 3 total full bath(s)
  • 11 total rooms
  • Style: Colonial
  • Living room
  • Kitchen
  • Basement
  • Bedroom(s) on main floor
  • Basement is Finished
  • Parking space(s): 2
  • 2 car garage
  • Attached parking
  • Heating features: Gas-Natural
  • Interior features: Eat-In Kitchen,Ground Level Rooms: 2 Bedrooms, First Level Rooms: 2 Bedrooms, Dining Room, Kitchen, Living Room
  • Exterior construction: Aluminum Siding
  • Roofing: Asphalt Shingle
  • Approximately 0.21 acre(s)
  • Lot size is less than 1/2 acre

Here are the financials -
  • The property was purchased in October 1993 for $164,500.
  • There are no mortgages available on the database until April 2005 for a mortgage for $500,000 with New Century Corp.
  • In January 2006 a new mortgage was taken for $128,000 with WMC Mortgage.
  • Another mortgage was also obtained in January 2006 for $512,000 using an ARM with WMC Mortgage.
  • The foreclosure process started with Lis Pendens filed in April 2007.
  • The property is currently an REO listed through a realtor with a listing price of $485,000.
The Morris County database has information available online from about 2000 to present. This was at the start of the Great Housing Bubble when property was inflating in double digit gains and equity withdrawal was easy. Pre-bubble borrowing was no where close to bubble levels. Most likely other than a lowering the rate refinance or a conservative HELOC money was not withdrawn during the years before the database was online.

Assuming that the 2006 refinance payed off the 2005 refi - the total cash out was $640,000. The lenders stand to lose at least $184,100 if the property sells for the full asking price through a realtor.

The huge equity withdrawal 0f $640,000 with all of the purchase money pulled out plus $475,500. This happened late in the ownership timeline and gave the owner averaged a second income of $42,667 for each of the 15 years of ownership. Nice when the house pays you, especially a second income that is better than most first ones.

Maybe the large withdrawal was for a new place or a nice financial cushion for the owner. Is the trade of a hit to ones credit worth just over half a million dollars? Most of us would think it is. The featured homeowner had great timing at pulling out all the money at the peak of the market.

1 comment:

Anonymous said...

this is a perfect example of the greed corruption and stupidity that ran rampant the last 6-8 years with house prices.

House prices are based on phoney lending standards so that means house prices are phoney and will continue to drop until they are affordable again. And this will be a long drop to get us there.