Readers have wondered about the story of the billion-dollar property being bought for $100,000. It was the lender (who was the previous owner) who got the property back, and who is now in position to make a tidy profit on their original $45 million mortgage:
On Tuesday, it sold for a mere $100,000 at a foreclosure auction, a fraction of the $200-million loan outstanding on the property.
A markdown of 99.99%, of course, comes with some fine print. Any other buyer would have been on the hook to repay that loan — and this buyer has to eat that loss.
That’s because the buyer is the estate of late Herbalife founder Mark Hughes, which previously owned the property. The estate set this current saga into motion by selling it to Atlanta investor Chip Dickens in 2004.
Dickens borrowed around $45 million from the Hughes estate to buy the property, and that debt has since ballooned to roughly $200 million with interest and fees. Three years ago, Dickens transferred ownership to a limited liability company controlled by his partner on the project, Victor Franco Noval.
Noval is the son of convicted felon Victorino Noval, who pleaded guilty to mail fraud and tax evasion in 1997 and was sentenced to federal prison in 2003.
Unable to pay the debts, their limited liability company, Secured Capital Partners, tried — and failed — to declare Chapter 11 bankruptcy last month, which led the Hughes estate to force a foreclosure auction to either sell the property in hopes of recouping its losses or buy it back, likely losing the $200 million they were owed in the process.
With less than 24 hours to go in the REO auction, it looks like the seller got a little antsy and decided to push the bidding closer to their $1,499,900 list price. Will there be a flurry of activity right at the finish line? We’ll see!
Wells Fargo foreclosed on this Carmel Valley home in November. It had been listed on the MLS for the previous 12 months, and it looked like the agent had been trying to process a short sale (it was marked ‘contingent’).
She had it listed for $1,500,000.
Her clients paid $1,650,000 in 2007, and financed $1,137,500 with World Savings. Times were tough for many, and these folks got their notice of default filed in August, 2010. It doesn’t look like they made any payments since.
Wells Fargo’s amount at the trustee’s sale was $1,365,016, which is typically the amount owed. So the former owners got a couple of hundred thousand dollars in relief, but waved bye-bye to their down payment of $512,500.
Wells Fargo then listed the house for sale in January for $1,499,000, and has now sent it to an online auction. The bidding started yesterday, and will remain open until Tuesday:
The auction website also notes that it needs to be a cash purchase, though it’s not mentioned in the MLS listing. The buyer has to pay a 5% buyer’s premium on top of the purchase price, and I assume they want you to close escrow with the occupants inside?
What will somebody pay for the home, under those conditions?
The current bid is $1,199,920, though note sure if that is actually a real offer or just the minimum bid.
Neighbors of the late San Diego Padres great Tony Gwynn noticed something strange happening in their upscale Poway neighborhood about two weeks ago.
Last summer, the Gwynn family lost their home to foreclosure and it’s been vacant ever since. But suddenly in late December, neighbors told the Sheriff’s Department that they had noticed people coming and going frequently from the fenced-off multimillion-dollar residence. One neighbor spotted barrels being loaded into the garage, leading to speculation that a methamphetamine lab might be setting up.
Now, officials with the property management firm responsible for the bank-owned property have confirmed that the man living on the property was squatting illegally in the residence and have begun civil eviction proceedings against him.
Valued at about $2.3 million, the house went into foreclosure in June and is now owned by a New York bank and managed by Ocwen Financial Corp. in Florida. Ocwen spokesman John Lovallo confirmed that it has taken action to evict the man.
Our YoY home sales are in decline, and it makes you think, ‘Here we go again”.
We know that sales are the precursor, and historically prices are the last to go. But with so many different variables this time around, could it actually be different this time?
Let’s consider the changes:
During the last two local declines (1992-1996 and 2007-2009), banks were the main culprits. They were visibly foreclosing and dumping homes, which affected the whole marketplace. Regular home sellers were burdened with the lower comps, and had to give them away if they wanted to move.
But now they’ve changed the accounting rules for banks, and they don’t have to dump everything they own. In fact, they can do whatever they want now.
Remember this McMansion in Carlsbad?
BofA first began the foreclosure process in 2011, but didn’t get around to actually foreclosing until July, 2017 – six years later! Then they off-loaded it to an investor in March, without having to put it on the open market. Bernanke told bankers in 2011 not doing anything that would harm the economy, and they took him up on it!
I think it’s safe to say that no matter how bad any future recessions might get, we don’t have to worry about a flood of foreclosures ever again.
Ok, so if the banks don’t/won’t foreclose and dump, then what about the institutional investors? They are smarter and more nimble – certainly they will be selling once they sense the top!
Not so fast – according to the WSJ, investor buying is on the upswing:
Wall Street is betting that more well-off Americans will want to be renters.
Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs.
Their wager: High prices, higher mortgage rates and skimpy inventory are making homeownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.
The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC, a real-estate investment firm that made nearly 5,000 of those purchases.
This year, investors have raised billions of dollars from bond buyers, pension funds and even wealthy Chinese individuals to purchase more homes. They have been particularly aggressive buyers in places like Atlanta, Phoenix, and other metro areas with good schools and faster-growing economies.
Cash to acquire and renovate homes has become so abundant lately that some rental investors can’t spend it fast enough. Without enough homes to buy, some investors are now building their own in popular residential markets like Miami and Nashville, Tenn.—upending a traditional pattern of Americans buying starter homes and moving up.
“The American dream no longer includes homeownership,” said Jordan Kavana, chief executive of Transcendent Investment Management LLC, a south Florida firm that has been a big acquirer of rental homes. “You will earn your equity in other ways, not your home.”
The big-time Wall Street investors are betting on the affluent taking over the real estate market, and turning the country into a renter’s society. It may only affect 10% to 20% of the market for now, but that might be enough to keep it all propped up.
Local flippers and ibuyers are providing another floor. Any homeowner that will sell for 10% under value today will have a host of choices to pick from. If you play it right, and have a great realtor help you, it could turn it into a retail sale quite easily!
The biggest threat? While there are still people underwater, today’s market has to be the most equity-rich in history. If sellers had to dump in order to sell, they could – and still make a profit.
But for there to be an extended trend of declining prices, there would need to be a series of sellers in the same neighborhood that were all in the same boat. For now, we only see an occasional dump, and it doesn’t need to be more than 10% off to attract a crowd.
With the vast majority of recent buyers having to qualify for their mortgage, and use a regular down payment in order to buy their house, you have to like the prospects of them fighting to hold on to it, no matter what. Back in the last bust, too many people got in with little or no down payment, and got stuck with exotic financing that exploded on them. Those days are gone.
We’re most likely going to live in Stagnant City, with fewer sales in most areas. But it’s not the end of the world.
Now that the big investors have virtually stopped buying homes, a legislator wants to find a way to regulate them.
Typically the term “institutional investor” refers to private investment firms that buy dozens of residential properties with the explicit aim of generating a steady income stream through rentals. Often they invest the money of wealthy individuals and public pension funds, like those established for California state workers and teachers.
The best example is Blackstone, a publicly traded Wall Street firm that barrelled into the country’s single-family home market in the depths of the Great Recession in the late 2000s. Through its residential investment-focused subsidiary, Invitation Homes, Blackstone is now the largest owner of single-family homes nationwide. In California, they own about 13,000 homes.
But firms such as Blackstone have stopped buying wide swaths of California homes. According to the real estate data firm ATTOM Data Solutions, which defines institutional investors as entities that buy 10 or more homes in a given year, institutional investors accounted for less than 2 percent of the state’s single-family home and condo sales in 2017.
That’s a pretty steep drop from as recently as 2012, when institutional investors accounted for about 7 percent of sales.
Why the decline? California no longer has a glut of cheap houses that can be easily gobbled up in foreclosure auctions. A sustained economic recovery and a lack of construction of new housing has sent housing prices skyrocketing. It’s now too expensive for institutional investors to buy lots of California homes. Blackstone’s Invitation Homes bought only 82 California houses last year.
Our local home prices have risen so quickly that it feels like we’re in ‘bubble’ conditions again – could the bubble burst this time?
The last two times the real estate bubble has popped, it was due to banks having to offload their foreclosed properties for whatever the market will bear. They flooded the market, and buyers – and prices – backed off.
But that has all changed now.
Look at the new devices being used to avoid a flood of desperate selling:
New accounting rules.
California Homeowners Bill of Rights
The accounting rules were altered so banks could hold their REO properties longer, and the California Homeowners Bill of Rights has, in effect, stopped foreclosing. Lenders are now required to offer a loan modification to anyone in default, and only if the homeowner can’t or won’t qualify are they at risk of being foreclosed. With today’s higher rents, there isn’t much relief for those in default to give back their house and go lease one nearby. Besides, with our higher home values today, they can always sell before getting foreclosed.
Homeowners who need money can get a reverse mortgage too, as long as they haven’t been tapping into their equity already.
We end up with virtually no desperate sellers who need to dump on price. Someone who wants to cash out quickly can price their home at last year’s comps and look like a deal!
The game is rigged – the Banking Cartel won’t let the bubble pop again!
For the bubble to pop, we would need a dramatic shift in the supply and demand – either a flood of homes hit the market, and/or we run out of buyers.
I thought we’d be seeing more baby boomers unloading their homes due to downsizing or sickness, and while the market consists mainly of those listings, there aren’t enough of them to call it a flood – at least not yet. Because they are in quality locations, more kids are probably trying to buy out their siblings and take over their parents’ house, rather than sell it. They could be moving in with the folks too, rather than sending them to assisted living.
Could we run out of buyers? You would think there would be a price point where buyers can’t or won’t go any higher, but there seems to be a steady flow of people with more horsepower. We saw two weeks ago the prediction that the population of San Diego County is expected to grow by 700,000 people by 2050, which is over 21,000 per year – where are they going to live? Will they be rich? They will need to be!
There hasn’t been enough (has there been any?) sellers so desperate that they had to dump on price – instead, they just keep waiting. We would need more than a few price-dumpers to start a panic, which could cause the market to flood with supply and burst the bubble.
Some air might escape occasionally, but it is doubtful that a market change could occur without the government finding a way to save the bankers.
People like this guy think the conditions are ripe for a downturn. But if prices started falling, sellers are more likely to wait, than dump, which would cause our market to stagnate, rather than crash.
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