We’ve been following the BR/Model Homes Partners debacle for years now.
In 2005, a group of lawyers from Orange County had purchased 11 model homes in Bressi Ranch and leased them back to the builder Lennar, waiting to make the big kill by selling them once the tract sold out.
But the market didn’t cooperate.
The partnership tried to auction them in 2006, but fell flat on their face. Here’s dny’s remarks from Piggington on the event:
I knew the auction was going to be a bust when he OPENED the first house-the biggest I think at 4600 some sqft at $1.5M. This elecited a small chuckle from me and a few others. He backed all the way down to $1M before getting ending up at $1.05M.
Quick Recap of high Bids:
sqft–price
4600–$1.05M
3700–$1.00M Great BY and View
4091–$1.1M Great BY and View
3384–$900k (1 bid)
3094–$700k-$900k “a little shy”–probably 100k or so off
3094–$700k-$825k
2812–$550k-$750k
2666–$750k
2461–$700k
2336–$700k
2506–$775k
2178–$775k
2775–$650kAgain, they did not accept any of the bids, but they did say some were close (maybe $100 or $200k would be my guess as to what close means), and they would negotiate with the high bidder. Some others had nice yards and views too.
Once the auction failed, they leased the houses, content to wait it out.
Flash forward to the end of 2008 – the partnership stops making their mortgage payments, even though they are still collecting rents. Did I mention that this is a group of attorneys?
NODs are issued in February, 2009, adding to the other 20+ foreclosures in the works in BR.
But at the last minute, an investor group bails out the partnership, making a deal with La Jolla Bank to a bulk purchase of the ten homes. It closed on 8/28/09, and the trust deed filed was for $4,600,000, which I’m guessing was the purchase price for the package.
The partnership lost about $2 million in down payments, and La Jolla Bank had $7,500,000+ in mortgages on the properties originally. Just $5 million down the drain.
The guy who called me said he was going to quietly solicit agents around town to bring their buyers, and sell them onesy, twosy.
Two of the houses showed up on the MLS yesterday, and immediately marked pending:
2771 Palmetto
4 br/2.5 ba
2,178sf
SP: $968,500 2/05
LP: $549,000-$599,000 9/09 PEND
2658 Garden House
4 br/3.5 ba
3,092 sf
SP: $1,009,500 2/05
LP: $649,000-$699,000 9/09 PEND
If the new investor can evict the other tenants quick enough, could they make a million?
I wonder if the new “investor Group” contains any of the original “partners”. Wouldn’t put anything past anyone anymore. Why not let the bank repackage it and buy it back yourself as a new Investor group that is a front for the partners. They won’t want to lose all of their 2M down would they? They are lawyers after all?! Kalifornication!
I found a wierd blog post (not much details) about this transaction.
http://californiapocketdeals.com/deals/?p=28
Wait, they got 10 houses for $460k each? That was a good buy.
I’m not keeping up with BR but the house on Garden House seems like a decent deal in today’s market if it is a model. I don’t understand why they don’t put the houses on the market to fetch top dollar. There is not that much for sale. What is up with all the secrecy?
So glad you posted this, Jim. I saw those come on yesterday and was going to post another one of my “how can this not be fraud” posts. 😉
Thanks!
Lawyers bought houses and paid way too much. Bank unloaded to investors who are putting them on the market for a decent price. Where’s the fraud???!!!
Big Fan
“But at the last minute, an investor group bails out the partnership . . .”
“The guy who called me said he was going to quietly solicit agents around town to bring their buyers, and sell them onesy, twosy.”
So you have to know somebody to get a shot at these houses? What is this, some kind of mafioso deal? This thing reeks of fraud/shadiness.
Big fan,
No, based on what JTR posted it looks like the transaction is NOT fraudulent. I saw that the houses were listed and sold at what appeared to be the same time, but if they were on the open market and were not short sales, then fair is fair.
There have been a number of deals lately where a house is put on the market when it’s already listed as contingent — usually a short sale. IMHO, these “pre-sold” short sales are where the potential fraud lies, even though not all of them are fraudulent. I’ve heard of owners short-selling the homes back to themselves via a third party for a price that is much lower than market price. This is what I’m referring to when discussing this sort of fraud.
Jim:
These two homes went pending and active within the same day!! What does it mean?
On the secrecy, not-on-open-market topic.
Sellers have their own fantasy ideas about how they think houses should be sold. When the house sells anyway, they think they are geniuses.
I was at the trustee sale in Virginia when an active model home (currently still selling the development) went to sale. 6BR/5BA/~4200 Sq. Ft. Purchased 12/2005 for 1.05 million – didn’t check how much down. Opening bid: $369,000, sold for $369,001.
Just curious if any thoughts on this, kinda sorta same subject. Had my realtor call the following house/realtor:
http://www.sdlookup.com/MLS-090050641-523_Cornish_Encinitas_CA_92024
Their realtor said ‘only showing to people that make offers first’. Yep, will only show the house if you make an offer – prior to viewing?? Sounds shady.
Their realtor said ‘only showing to people that make offers first’. Yep, will only show the house if you make an offer – prior to viewing?? Sounds shady.
My buddy has done this a couple of times, both times they allowed offers to be rescinded after X days with no penalties. In both cases he was able to do so no problems. The selling agent claimed it was because there were tenants in the condo, and the owner didn’t want them bothered unless you were serious.
Most of these are worth $400k at the most. It would be a fantastic commute for me, I could walk to work, but that is a desolate area. Half of the spaces in their little strip mall are vacant, and for good reason.
They are obviously worth more than 400k each. Good buy!
Don’t believe the Trustee’s sale. I actually bid $4.5mm for the package and was semi-comfortable at that price. LJ bank said their accepted offer was in the high $5mm (later disclosed from another source at $5.8mm).
Loan was $8.2mm. They paid FULL RETAIL VALUE for the homes. will be lucky to break even after costs/fees/renovation/etc. Not to mention dumping 11 homes on the market at once. Don’t believe what is being reported.
Thanks clearfund for the update, it makes sense – one more example of somebody thinking they are stealing from the bank!
Jay:
Then put your money where your mouth is and go buy one. I can recommend a good realtor. Enjoy living in a ghost town.
Genius:
I live in one and bought when the market was coming down. Got a great deal and plan to live here for at least 10 years. Love the fact that we have a Trader Joe’s, Peet’s and Board & Brew in the neighborhood. I’ll let you know what kind of return I make in 10 years while you’re still angry and renting.
Jay