Sunday, September 21, 2008

Your New Property in Jefferson

There were two gamblers in today's featured example. Both were actually making the same bet - that housing prices would continue to keep rising at historic levels. The home owner bought the house with 100% financing hoping that the price would go through the roof and within a year there would be equity in the property. The lender basically made the same gamble based on house values only going one way. If property levels continued to increase even a foreclosure would not be a money loser.

Three years after the purchase we are looking at these purchases through a different perspective. This was a bad bet. The home owner lost their home and their credit - but no money down. A week ago the lender would have been out the funds for allowing 100% financing on a property that is now worth significantly less than the 2005 "appraised" value. Now it looks like the public will be a loser taking the burden off the lender. Let's take a look at the house we (hopefully won't) collectively own -

Here is the property -

Here is the property info -

Property Features

  • Single Family Property
  • Status: Active
  • County: Morris
  • Year Built: 1950
  • 4 total bedroom(s)
  • 3 total bath(s)
  • 3 total full bath(s)
  • 9 total rooms
  • Style: Cape Cod
  • Master bedroom
  • Living room
  • Kitchen
  • Basement
  • Laundry room
  • Bathroom(s) on main floor
  • Bedroom(s) on main floor
  • Master bedroom is 16x10
  • Living room is 21x15
  • Dining room is 13x10
  • Kitchen is 10x9
  • Basement is Partially Finished
  • Fireplace(s)
  • Fireplace features: Wood Burning
  • 2 car garage
  • Parking features: Detached Garage
  • Heating features: 1 Unit,Oil
  • Forced air heat
  • Interior features: Ground Level Rooms: 1 Bedroom, Bath(s) Other, Kitchen, Laundry Room, Living Room, Walkout, First Level Rooms: 1 Bedroom, Bath Main, Dining Room, Kitchen, Living Room, Second Level Rooms: 2 Bedrooms, Second Bedroom is: 12x10, Third Bedroom is: 12x9
  • Exterior construction: Vinyl Siding
  • Roofing: Asphalt Shingle
  • Approximate lot is 87x100
  • Approximately 0.2 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Septic,Public Water,Electric Service

Here are the financials -
  • The property was purchased in April 2005 for $319,000.
  • The original mortgage was taken in April 2005 for $255,200 with Weichert Financial Services.
  • A second mortgage was opened the same day in April 2005 for $63,800 with Weichert Financial Services.
  • The property started the foreclosure process with a lis pendens in October 2007.
  • The property is currently an REO for sale with a realtor for $254,000.
The property owner took out a piggy back loan which resulted in no money down No money down on a house - it sounds insane today and as well as prior to the Great Housing Bubble but that's how things were. So no money down to buy a house with financing through an extension of a realtor. That sounds crazy as well - realtors having mortgage brokers in house. But that's the way things were and it seemed normal at the time.

But lets get back to the example - the no money down property was in trouble 2-1/2 years after the purchase. A Lis Pendens was filed last October and the results were foreclosure. The lender will stand to lose at least $80,240 if the property sells for the full asking price and the realtor receives the standard fees.

That would be a big loss for a lender. Are you looking forward to being the potential owner? Didn't think so.

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