ReFi Fun in Wharton

Week after week in our profiled examples we see people who have lost or will lose their property. There is one common reason - the debt is too high. These examples usually either come from people who bought at peak prices at prices that they can not now afford or though bought an affordable property and took all the equity out therefor turning the investment into something they can no longer afford.

In the latter case, we often see this happen to people who continuously refinance and take all the equity out, over and over again. This group is called serial refinancers. Many times once they enjoy the lucrative lifestyle their property is giving them they keep going back for more. It is almost like trying to live two conflicting American dreams - the owner and the patriotic consumer who keeps up with the Joneses.

In today's example we are not sure where the equity withdrawal went - but we know it was utilized. So extraction helped to destroy both sets of the American Dream - no more home and no more funds to shop with. So lets take a look at the refi fun that was taking place in Wharton during the Great Housing Bubble.

Here is the property -


Here is the property info -

THIS HOUSE MUST BE SOLD ASAP!!!

LEGAL 2-Family in excellent neighborhood! The least expensive multi-family in Wharton. Buyer just pulled out of the contract. This will go quick!!!

Unit 1 : 10 rooms, including living room, eat-in kitchen, dining room, 5 bedrooms, 2 extra rooms, 3 bathrooms!!!

Unit 2 is actually in the basement. It is basically a studio efficiency apartment, with eat-in kitchen and bathroom included. This needs some updating.

2-car detached garage. Parking for about 2-3 cars in driveway. Gazebo in back yard. Close to churches, businesses, hospital, Routes 46 & 80.

This house is excellent for a "mother-daughter" combo.

All the systems work in the house. Connected utilities.

Lot Size: 50x117. Taxes: $7059.

I can show the house anytime. It is vacant.

Here are the financials -

• Purchased in January 2002 for $247,000.

• The original mortgage in January 2002 was for $234,000 with First National Bank of Arizona.

• In March 2003 the property was refinanced with cash out for $252,000 with Delta Funding Corp.

• The property was refinanced with cash out again in April 2005 for $350,000 using an ARM with Ameriquest Mortgage.

• The property was refinanced for $348,000 using an ARM with Greenpoint Mortgage.

• A HELOC was opened on the same day of June 2006 for $36,000 with Greenpoint Mortgage.

• The foreclosure process started with a Les Pendens filed in May 2007.

• The property is currently for sale with a realtor for $250,000.

First thing to note is that the property is basically at its 2002 price. Wonder how far back we will go. Now back to our feature property - at the time of purchase the owner put $13,000 down - just over 5% down - which was a very respectable investment during the bubble.

Just over a year in and the owner pulled out the $13,000 plus another $5,000 on top. The small cash out must have felt good, since at the height of the bubble another $98,000 was pulled out of the property. That money went fast, since just over a year later the mortgages out on the property totaled $384,000 was taken out. A total $137,000 of equity, not counting the original down payment of $13,000, was extracted from the property. That averages to a second income of $22,8333 per year over the six years of ownership that the property provided the former owners.

Now that the property is an REO and the lender is selling it for basically the original purchase price, the hit to the property is significant. When the realtor fees are factored in the property will cost the lend a total of $149,000 - and that is if the property sells for full asking price! This is definitely a property to revisit after sale and see how big the loss will end up to be.