Leventina was purchased in April 2006 for $610,000. It had been on the market for a long time at $680,000, so it looked like a good deal. 80% first loan at 7.25% interest only, and a 20% second. In January 2007, our friends at BNC Mortgage did a refi for $710,000 at 9.025%, 50 year term 2/48, LIBOR +4.95%. Bad move.
With the new loan in place and the cash out financing, it was time for Extreme Makeover, Belli Ranch Edition. Somehow, this plywood siding clad house grew a French Provincial cottage interior with antique brick walls peeking out of the faux plaster walls, "chefs kitchen perfect for entertaining", "designer paint", the whole works. Except that the cash out didn’t cover the remodel costs, and the owners went to a hard money lender for an additional $49,999 loan (smarten, any idea why this wasn’t just 50K?). The July 2007 payment on the first loan was missed, and a NOD was filed in October 2007. About this time, the house hit the MLS at $895,000.
I toured it and chatted up the listing agent a bit. The house was still a work in progress, with much of the remodel incomplete. Do you get the warm fuzzies when you tour an "upscale" home and there are Post-Its all over with "This Will Be….". I asked the agent if he had set the asking price, or if he had input from the owners, and he chuckled. I told him my prediction of $650,000 Short, and he nodded at me.
Then nothing happened for 8 months. It looked like some work might be going on to complete the interiors, but the house didn’t move to NOS status. I think the bank realised that they didn’t want a half finished house on their books, and cut the owners some slack to get the work finished up and then try to sell it (no permit record, BTW) . Winds then blew a large portion of the roofing off, just to make things worse.
In June 2008, another NOD was filed and it looked like the bank was going to get serious, and they filed a NOS in October. The estimated amount due at sale was $804,502, still based on that July 2007 missed payment – they have been living mortgage free for over a year and a half. The owners 95% completed moving out by Christmas.
The owners have pretty clearly stated that they don’t want the house. The bank is saying that they don’t want it either, and won’t complete the foreclosure process. Why not? To complete the TD will cost them $10,000 or so – legal fees, HOA liens, and transfer taxes – on top of the legal expenses they have already incurred. And what would be their reward taking Leventina back onto their books?
I’m not ragging on the owner for their exuberance and subsequent failure. There are a lot of things that went bad for them at once (some of their own making – they sold their old home as a Contract of Sale, and the other party defaulted). My interest is in how the bank is handling this property and I suspect 100’s like it. I think there are a lot of these orphan properties out there.