Sunday, March 8, 2009

Desperate Times in Denville

When properties fall into foreclosure almost immediately after purchase it is hard to tell if it is scam or something went very wrong for the buyer (job loss, death or medical hardships). Probably a very small percentage of buyers do run into these unfortunate circumstances just after closing. But when a property is purchased at peak, with no money down, and foreclosure happens almost immediately it seems more likely a case of fraud.

The lenders are left to pick up the pieces. Since so many warning signs were ignored during the bubble, and so many different people may be culpable, it is hard to know where the fault lies. Is it a case of a straw buyer? A broker allowing more in payments than could be ever made? No one was watching. Regulators were not regulating. Money was flowing so no one was looking at details that made no logical or business sense.

But the bubble has popped. People are desperate. Lenders are desperate. Unloading properties at bargain prices. Now lenders are trying to sell off properties for half the peak price. Losing hundreds of thousands of dollars - both lenders and buyers - is the new norm. Which brings us to today's featured property. A purchase of questionable terms. A lender desperate to dump a property. Money lost. Credit diminished. Well lets take a look -

Here is the property -

Here is the property info -

  • County: Morris
  • Year Built: 1935
  • 3 total bedroom(s)
  • 1 total bath(s)
  • 1 total full bath(s)
  • 6 total rooms
  • Style: Ranch
  • Basement
  • Heating features: Gas-Natural, Gas-Propane, Oil
  • Forced air heat
  • Exterior construction: Wood,Crawl Space Foundation
  • Roofing: Asphalt Shingle
  • Approximately 0.18 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Public Sewer, Public Water

Here are the financials -

  • The property was purchased for $267,800 in November 2006.
  • The original mortgage at the time of purchase was for $214,240 using an ARM with a balloon payment with WMC Mortgage Corp.
  • A piggyback loan was also taken at the time of purchase for $53,560 again with WMC Mortgage Corp.
  • The foreclosure process started in June 2007 with the filing of a Lis Pendens.
  • The property is currently an REO for sale with a realtor for $145,900.
  • The property taxes for this property in 2008 were $3,546.62.

This property was destined to fail at time of purchase. The ARM with a bubble payment already spells trouble. Add the piggyback loan for 100% financing and things were destined to fail. The buyer had no investment other than their credit score - and that may be the only thing that was hurt.

But since the property fell into foreclosure 8 months after the purchase we wonder what the owners intent was. From the property records the first mortgage payment was not due until January. Since the Lis Pendens are usually filed after 3 months of non-payment, this owner at the most made 3 mortgage payments, at the most.

If the purchase was legitimate than the owner probably ran into trouble - job loss, death, or medical issues. If the purchase was not legitimate, no payments may have been made. The property is now selling for $121,900 less than the 2006 purchase price. This property is now listed at more than 45% of the peak price.

If the property actually sells for full asking price, with the realtor receiving the standard commission, the lender will lose $130,654 for this property. That is almost a 50% loss on the value of the property the lender will be eating.

So what is the cost to own such a property. Assuming a buyer has a 20% down payment (which would be $29,180) and mortgaged the rest with a 30 year fixed rate loan with today's 5.2% BankRate number, it would cost $640.92. Adding in the taxes and the monthly cost would be $936.47 plus property insurance and utilities. About the price to rent a Garden Apartment. If only we could see the inside to know if it was even worth it...

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