Saturday, March 14, 2009

Winning and Losing In Long Valley

We often think of losing money with the real estate crisis. We see some losers - people who put money down on their property, their property price subsequently bottomed out and they lost or must sell the property for a loss. Most often, even though the lenders are vilified here and other places, they take the brunt of the loss.

Then we do see winners. The Homer type that spends the money and sticks the house with the bill. Rarely do we see big winners - people who may have taken more than a half a million from their property. People who bought at the peak and still extracted every possible penny from the property that they could. Do you think over $500,000 is worth a hit to your credit score? Probably.

In today's featured example we see a big winner - the former homeowner. And we see some big losers - the lenders who inadvertently gave the homeowner more than $500,000. And all this happened in Long Valley during the bubble. Lets take a look -

Here is the property -
Here is the property info -

  • Single Family Property

  • Status: Active
  • County: Morris
  • Year Built: 1965
  • 3 total bedroom(s)
  • 2 total bath(s)
  • 2 total full bath(s)
  • 6 total rooms
  • Style: Ranch
  • Master bedroom
  • Living room
  • Kitchen
  • Basement
  • Bathroom(s) on main floor
  • Bedroom(s) on main floor
  • Master bedroom is 16x11
  • Living room is 23x15
  • Dining room is 15x11
  • Kitchen is 20x11
  • Basement is Partially Finished
  • 2 car garage
  • Attached parking
  • Heating features: 1 Unit, Baseboard - Hotwater,Oil
  • Exterior construction: Stone, Wood
  • Roofing: Asphalt Shingle
  • Approximately 2.46 acre(s)
  • Lot size is between 2 and 5 acres
  • Utilities present: Septic, Well Water, Electric Service

Here are the financials -

  • The property was purchased in March 2005 for $410,000.
  • The original mortgage at time of purchase was with an ARM for $369,000 with Long Beach Mortgage.
  • In November 2005 the property was (re?)financed with cash-out for $499,500 using an ARM with Countrywide Mortgage.
  • The foreclosure process started when a Lis Pendens was filed against the Long Beach Mortgage in August 2007.
  • Meanwhile in December 2007 Countrywide Mortgage filed a Lis Pendens for a delinquency on their mortgage.
  • The property, currently an REO is listed with a realtor for $299,900.
  • The 2008 property taxes were $7712.54.

When the property was purchased a 10% down payment was made on the property. That was $41,000 which is a significant down payment even after the bubble. An ARM was taken but this was still at the time where those who took ARMS were viewed as fiscally prudent since the monthly payments were significantly lower than a fixed 30 year. Besides, at this point in time one could always refinance.

The following November, a mere 8 months later the property was mortgaged again. This time for an additional $89,500 on top of the purchase price. While it looks like the mortgage should have been a ReFi cash-out, the first mortgage was not paid off or closed down. So this new mortgage turned into a second mortgage.

At that point the house that was purchased for $410,000 the outstanding mortgages for the property amounted to $868,500. In the 8 months of home ownership the property had generated $458,500 for the owner. For the entire ownership period, the property generated approximately $183,400 per year for each year. That is an excellent second income, let alone first income! And remember this is a just a modest property in Long Valley.

Just 21 months after the second mortgage was opened the foreclosure process started for the first mortgage. So most likely 18 months after extracting that $458,500 the mortgage payments stopped. Then just 4 months later the second mortgage started foreclosure on the property as well.

Now the property is for sale with a realtor. If the property sells for full asking price, with the realtor receiving the standard commission, the lenders will lose about $586,594 on this property. Losing almost twice as much as the current sales price. Wow that is a huge loss for any lender to take.

Lets take a look at the monthly carrying costs for those looking to purchase this property. If the future owner buys the property for full asking price with 20% down payment $59,980, with today's 5.12% BankRate for a fixed 30 year mortgage the monthly payments would be $1305.60. Add in the real estate taxes and the monthly payment increases to $1948.31 plus insurance and utilities. Well, at least you are living on the lake.

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