2012 was a flashback to 2005 real estate.? Bidding wars, flippers, and hungry investors all diving into the market with many purchasing homes without fully analyzing the numbers.? There is a very clear trend in the current housing market and how banks are processing foreclosures.? It is a parallel to what Mr. Getty once said about large loans owed to banks; the bigger your mortgage, the more likely it is that the bank will not foreclose on you in a timely fashion.? I usually browse Beverly Hills real estate as a source of a prime Los Angeles market and also, because many people can understand that this is a selective area.? Today I was looking at my data feed and found it amusing the mix of foreclosures and MLS listed properties.
90210 Analysis
I ran a quick search and pulled up 160 properties for the 90210 zip code that are currently for sale:
Total data: ????160 homes for sale (zero REOs)
This looks like one of healthiest markets around the country.? What I found interesting however is when we dig into the distressed pipeline data.? I went ahead and pulled the current distressed inventory for Beverly Hills and found the following:
64 homes have received a notice of default, are scheduled for auction, or are bank owned.? This is a significant amount of distressed properties.? Last month 24 homes sold in the 90210 zip code with a median price of $3.4 million (up 52 percent from the previous year).? So I wanted to take a look at some of the REOs in the distressed pipeline for Beverly Hills.
This home is not listed on the market for sale even though it is currently bank owned.? But it might help to follow the history on this place and see how motivated banks are to act on these kinds of properties:
October 1992:??????????????????? $155,000
November 1999:????????????? $860,000 (sale price)
July 2004:???????????????????????????? $500,000 (WaMu Loan)
Aug 2005:??????????????????????????? $750,000 (WaMu Loan)
Aug 2006:??????????????????????????? $250,000 (WaMu Loan)
Aug 2007:??????????????????????????? $1,292,000 (WaMu Loan)
From looking at the history, it looks like the home was bought in 1999 for $860,000 and was then used as a home equity withdrawal machine. By August of 2007 WaMu had made loans on the property up to $1,292,000.? Hard to say how much down was put on the initial purchase but by the end, it really did not matter since nearly $1.3 million was owed.
At a certain point this became too high of a cost.? So let us look at how quickly banks will move on high priced Beverly Hills homes:
Notice of default (June 2011):??????????????????? $65,237
So by the first notice of default, the owners were already in arrears by $65,237 which is already higher than the median annual income of California families.? An auction was then scheduled on September of 2011.? By this point, the balance was $1,411,201.? Still nothing.? Then another auction was scheduled for April of 2012 and at this point, $1,474,396 was owed.? Keep in mind the last refinance put the place at $1,292,000.
So run the numbers:
Last refinance 2007:??????? ??????????????? $1,292,000
Last auction filing 2012:? ? ????????????? $1,474,396
In other words, the bank allowed the loan balance to balloon by $182,396 with missed payments and fees for more than 1.5 years.? Finally in November of 2012 JP Morgan that took over WaMu ended up taking the house as an REO.? This is probably the unsettling truth for many when they examine these numbers.? As it turns out, the bigger your mortgage and the wealthier the neighborhood, the more likely it is that banks are not going to foreclose on you quickly.? Keep in mind that these families also have more disposable income and also know the loops of the game.? For example stalling tactics or legal filings that reset the entire foreclosure process.? In the end, this family likely stayed in a million dollar home without paying a dime for over 1.5 years.
This is merely one example of the 64 properties in distress.? Banks now realize that prices are going up so why rush to sell?? This home is not listed for sale but the market has been hot in 2012.? Better to constrain inventory and inflate prices since the entire accounting system is frozen in place to allow for easy disposal at high prices of this distressed inventory.
Don?t you just love California?? Even when you go broke in a wealthy neighborhood you still get the privileges that are not available to most Americans.? Compare this to Arizona, Nevada, or even the Inland Empire where banks are yanking homes quickly to unload to hungry investors and flippers.
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