26th and Wilshire: $0 Down + Subprime = Foreclosure

Address: 1143 26th, Unit #C - 90403
Description: 2/1 Condo - 896 Square Feet

Purchase Price: $681,000
Purchase Date: 6/1/06

This condo is located on the east side of 26th, just across the alley from the 76 gas station. It is a 90403 zip code and is north of Wilshire. However, it is on a busy street (26th) and is close to a major intersection.

Purchased with $0 down via an 80/20 combo from Ownit.

Lender forecloses within 12 months, property does not sell at auction, and the 1st mortgage holder "buys" it back for $549,000 on 5/11/07...

Lender then puts the property on the market for $600,000 shortly thereafter. Then it sells about 2 months later for less.

Purchase Price: $560,000
Purchase Date: 8/2/07

This is a case where someone paid too much near the top of the market. From the original purchase, this property (or should I say lender?) lost $121,000 or 18%. Further, add in another 6% to sell and some additional holding costs and the loss could be over 25%.

Ownit Mortgage was the 17th largest subprime lender as of Q2 2006 according to the implode-o-meter. This is a perfect example of why they went bust. Doing 100% financing and then having to foreclose in less than 12 months means that the bondholders likely could have made Ownit repurchase these crummy loans and take the losses.

Bottom Line: Subprime lending happened in Santa Monica. $0 down, 100% financing happened in Santa Monica. Now, foreclosures are happening in Santa Monica, and as we have seen, they are dragging property values down...IN SANTA MONICA.

Stay tuned, next week we will visit 90402 and look at condos, $4+ million spec homes, and a single family home that is in pre-foreclosure...Yes, we will be going big game hunting north of Montana.

Franklin Street Update #1

1315 Franklin...Thank you for helping this blog get started with a classic example of why foreclosures cause so much trouble.

In our first post, we saw that Unit C was being offered for sale as a foreclosure for $52o,000. The lack of a kitchen, no laundry in unit and necessary large down payment all make it so that this unit should genuinely be selling at a discount. We also saw how some other folks in identical units (and one studio unit) had bought recently for significantly more than $520,000.

Don alerted us to the fact that Unit B was not only a good example of how a foreclosure will kill the comps, but also that the unit WAS CURRENTLY FOR SALE AS WELL!!! I did not see this when I first did the post. Ok, so if the foreclosure is asking $520,000 and has numerous flaws, maybe a good unit (albeit same square footage and beds/baths) should be offered somewhere in the high $500's right? Well, guess again.

1315 Franklin St. Unit B
Asking price: $669,000
DOM: 42 (but could be longer due to re-listing strategy...not sure here)

Same 2/1 (bed/bath), 854 square foot condo set up as unit C except kitchen included and laundry as well. Now ask yourself if you would pay $150,000 more for this one than Unit C.

Sale History
5/22/07: $630,000
8/22/06: $575,000

Since the foreclosure is showing that it has only been on market for 16 days, we can see that this unit was put up for sale BEFORE the foreclosure and also before the recent mortgage turmoil. Maybe that is why they thought they could price it $40,000 higher than they bought it despite the fact that they only held it for 2 months...

So is Unit B a flip attempt? Maybe, maybe not. It could also be a situation where someone bought, then found out about the foreclosure and is now trying to bail with a selling price that will just barely cover transaction costs (almost to the penny if you assume 6% commission). I could come up with many other possibilities here but for now, it looks like there is no way that this unit comes out unscathed. The point is that there is going to be a huge loss here. Add up holding costs, transaction costs, likely reductions in asking price, taxes, etc and I think this could possibly be a 6 figure loss. I'm not going to speculate too much, but you can run the numbers and see for yourself.

Lastly, lets take a look at another competitor that is on the market (and the same street).
1328 Franklin Street, Unit #3
2/2 condo...1,152 square feet. Remember, the units at 1315 Franklin were only 854 and only 1 bathroom.

Asking price:$575,000
Then after about a month on the market (unit is empty)
Price Reduced: 08/08/07 -- $575,000 to $555,000

Ok so you get 300 square feet more and an extra bathroom AND it is $115,000 cheaper than unit B at 1315? Gosh, this makes the foreclosed unit asking $520,000 look possibly overvalued...and by default, unit B looks like it is due for some large price cuts. This seller looks to have bought a long time ago (1997) and is clearly being smart about pricing and not fooling around. The unit is empty and the asking price cut after just 1 month...maybe we will get another reduction soon if they really want to force the issue. Will aggressive pricing get the job done considering the market conditions we are in? Stay tuned.

Bottom line: This is a textbook example of why you don't want to sell soon after you buy...especially if you have to compete with foreclosures and other sellers on your block.

$100K Comp Killer

1315 FRANKLIN ST #C
SANTA MONICA, CA 90404

2/1 Condo

Listed for sale at: $520,000
Previous sale (foreclosure): 08/02/2007 $528,548
Current owner listed as: Us Bank Series 2006-Bc3

The description from Redfin is very odd:

"Bank Owned, Foreclosure agents Please see private Remarks prudent info on showing instructions ETC. . it is all there for you . it May not be possible to get financing on this unit must be all Cash or Huge Down payment check with your lender because the Kitchen was taken out by the previous owner and was not replaced. There is NO KITCHEN in this unit it will cost Approx $15K to put it back . All the rest looks terrific no laundry in unit. All offer must be presented with proof of funds."

First of all, WTF are "prudent info on showing instructions"? This appears to be listed with RE/Max so the "prudent" isn't short for Prudential...its more like "this place is so screwed up that we need to coach you through a sales technique since most buyers won't want to deal with this mess".

So was the previous owner pissed about being foreclosed on and ripped out the kitchen to sell for a bit of extra money? Better make sure all the copper wiring is still in the walls while your at it!

And the "it may not be possible to get financing" part is great...as if the freeze in the credit markets, tighter underwriting standards, higher rates on jumbos, etc isn't enough...

Here is the sale history:

Sales History

08/02/2007 $528,548
10/20/2005 $400,000
08/17/2005 $250,000

The bank has it listed at $520K. That means since they "won" the auction and paid $528K less than a month ago, they have already seen the light and are willing to take a loss right away here. In the past, I have always seen banks price ABOVE the auction price so that they have some cushion. This means the banks know how dire the market is becoming.

Now lets see what this does to the comps.

Unit B (same specs)
Sold 05/22/2007: $630,000

Unit D (same specs)
Sold 11/28/2006: $630,000

Unit F (0 bedroom...just a studio)
Sold 04/30/2007: $585,000

So since the description for the unit for sale says it will cost $15K to replace the kitchen, that means that we can say it is really listed for about $535K. That means the person who bought the studio got absolutely ripped off and is underwater by $50K plus 1 bathroom and a bunch of square footage. It also means the two people who bought identical units in late 2006 and mid 2007 just lost about $100K in equity (assuming they had that much of a downpayment...otherwise they are just "underwater")

I am following the low end of the market in SM and am seeing weakness start to show up. This listing is especially telling of how important patience is going to become. Make a move 3 months too early before the banks start selling and you are down almost 20%. Imagine what things will be like in a year when multiple bank properties are competing...