The $43,932.63 OOPs

9232 Lone Wolf is a modest house located in the Villas @ Sky Vista subdivision in Stead.  It was purchased new in July 2004 for $190,947 (median was $304,300 that month).  The first loan was a 30 year fixed for $181,399 through First Horizon.  In February 2005, the home was refinanced for $206,500 on a 125% Option ARM mortgage through World Savings.  A $40,000 HELOC was taken out on February 2006 through Wachovia, the successor to World.  A NOD was filed in November 2009 on a missed April 2009 payment.  The house sold in a Trustee’s Sale to a 3rd party on 16 July 2010 for $43,392.63.

That looked like a deal, even for the deflated Stead market.  On closer review, though, it turns out that the NOD and NOS were on the $40,000 HELOC and not on the 1st mortgage.  There has never been a filing on the 1st, and it might even be current (though I doubt it).  Did our buyer wonder why none of the pros on the courthouse steps were bidding on this "steal"?  Has he figured out what he bought yet, or what that great sucking sound is?  My guess is the house had been vacated, and the new "owner" doesn’t know yet.  The upcoming NOD on the 1st pasted to his door will be his first clue.

We’ve talked about how rare foreclosures on 2nd mortgages are, but they do occasionally sneak into the system.  This one was probably initiated by accident by Wells Fargo who inherited Wachovia who inherited World Savings, and different departments weren’t communicating.   Normally, the bank would have had no bidders at the Trustee’s Sale, and would just take back the second.  No harm, no foul, just a waste of legal and filing expenses.  Not this time.

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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20 Responses to The $43,932.63 OOPs

  1. Avatar smarten says:

    Good blog Mike. This episode emphasizes how it’s easy to get burned purchasing at a trustee’s sale. You’d better know exactly what you’re bidding on or else…

  2. Avatar HighlyTrainedRealEstateAnalyst says:

    Mike,
    I don’t know a whole lot about how real estate transactions work. What do you mean by “giant sucking sound”?

    Is this guy liable for the first now, or does he just have no claim on the house because the primary mortgage holder still “owns” the home?

    Isn’t this the sort of thing you catch when you do a title search?

  3. Avatar Tom says:

    Speaking generally, a party who “buys” a property at a foreclosure sale on a junior security instrument, takes the property subject to all senior security instruments and anything else recorded prior in time in the chain of title. If a senior recorded instrument goes into default and then into foreclosure, the party who bought in at the sale on the second trust deed, risks becoming a “sold-out junior lienor” whose interest is extinguished upon the foreclosure of the first. So he will have to step up and redeem the first, or walk; it is somewhat like having to decide in a poker game to call the new bet, or fold and lose what you have in the pot so far. He doesn’t succeed to the defaulted borrower’s position, i.e., he cannot just start making payments on the first and assume that obligation as if he were the orgiginal borrower; he instead will have to redeem it in full, probably by seeking a new loan and he will be doing so under duress and rush circumstances. Someone who buys in in such circumstances probably knows that a refinance will be necessary, to replace the senior deed of trust and note.

  4. Avatar CommercialLender says:

    My guess is Derrick thought he was going to make a mint renting the new $43K house for $850/mo, a 23% cash yield!!! Wahoo!

  5. Avatar Sleezy says:

    My guess is your an asshole with nothing better to do than make a dig.. Ofcourse, that isn’t much of a guess now is it?

  6. Avatar Sleezy says:

    Feel free to meet me anywhere and talk shit about me to my face commercial lender boy..you little punk bitch

  7. Avatar HighlyTrainedRealEstateAnalyst says:

    Tom,
    Thanks for the info. In short, sounds like what you are saying is that he is in line behind the first and must either pay it off or try to recover what he can – most likely nothing – when the first forecloses. If this is the case doesn’t seem like the new “owner” is holding a very strong hand?

  8. Avatar DownButNotOut says:

    Good one CL. You beat me to it.

  9. Avatar Martin says:

    Well, we all now know for sure that Sleezy is derrick….

    Such a way with words derrick/Sleezy has.

  10. Avatar Martin says:

    A bit off topic, but did you all see the report out today that the number of new houses sold in the entire US over $750K for the months of June and July was ZERO.

    ZERO. For the entire United States. Hard to believe.

    The McMansion has officially died.

  11. Avatar Nick says:

    Ben Bernanke gives another speech tomorrow. He is expected to say that the government is going to nationalize the mortgage market and begin making interest free 30 year loans to anybody who will buy a house. This is the latest step on the part of the Fed to prop up the sinking housing market in America.

  12. Avatar Norton says:

    Mr. Bernanke and the Fed are out of bullets. They have shot their wad. How do you bring interest rates down to below zero?

  13. Avatar Perry says:

    182 W MARCHMONT LN 7/30/2010 774,000
    1695 GREEN ASH RD 7/30/2010 755,000
    501 LAKESHORE BLVD 7/30/2010 879,000
    3438 NAMBE DR 7/30/2010 775,903
    225 SOUTHRIDGE DR 7/29/2010 850,000
    455 LAKESHORE BLVD 7/29/2010 2,400,000
    5845 STRASBOURG CT 7/29/2010 875,000
    6672 MASTERS DR 7/28/2010 1,600,000
    425 JUNIPER HILL RD 7/23/2010 2,825,000

    Some folks still have money. I stopped at the 23rd.

  14. Avatar MikeZ says:

    Martin the number of new houses sold in the entire US over $750K for the months of June and July was ZERO. For the entire United States. Hard to believe.

    It’s hard to believe because it’s not true.

  15. Avatar smarten says:

    Tom, just to correct you [no disrespect intended].

    Someone who purchases at a junior lienholder’s trustee’s sale and is then wiped out by a senior lienholder’s subsequent trustee’s sale is not called a “sold out junior.”

    A “sold out junior” is the holder of a junior mortgage against a property who is wiped out by a senior mortgagee’s trustee’s sale. He/she then becomes an unsecured creditor [because his/her note remains independent of its security] who is excused from foreclosing against his/her former security, because it no longer exists.

    In the example given by Mike, the purchaser at a junior mortgagee’s trustee’s sale has no remedy against anyone [unless it’s the good people at foreclosure.com (or whomever) who suggested he/she should become a purchaser] if he/she gets wiped out by a senior mortgagee’s trustee’s sale.

    I think the rest of your comments were accurate. Thanks.

  16. Avatar smarten says:

    Perry observed that some people have money.

    Let me give two examples in Incline Village.

    Larry Ellison [CEO of Oracle] has been constructing the largest home [40K square feet] in Incline Village over the last several months. Had a chance to see the construction from the Lake the other day, and it’s MASSIVE!

    Then learned that the former CEO of PeopleSoft [which was taken over by Oracle (sorry can’t remember his name)], has begun construction of his 56K square foot home just down the street from Larry’s.

    Don’t know the construction costs for either project, but I know they’re A LOT!

  17. Avatar Geesh says:

    One of the Russian billionaires has paid in excess of $300 million for a yacht. What more proof can there be that there are people with money and that the economy is just fine? Surely, there can be no greater proof that the Reno housing market is on the rebound.
    Buy now before you get priced out forever.

  18. Avatar John Newell says:

    Re: New home sales above $750k in June and July, 2010.

    Martin,
    I believe this is the report you are citing:

    http://www.census.gov/const/newressales.pdf

    Specifically, Table 2 provides sales price data for new homes. For June and July of 2010, the number of new homes sold for $750k and over is listed as (Z). However, the legend for the table clearly indicates that (Z) = less than 500 units, not zero. Furthermore, if you look at the $750k and over segment as a percentage of overall new home sales in June and July of 2010 (look to the lower half of Table 2), you will see that new home sales of $750k and over account for 1% of new home sales in both months. So while new home sales in the $750 and over range are anemic for June and July, they are not nonexistent.

  19. Avatar Norton says:

    Geesh,

    Andrey Melnichenko has recently paid more than $300 million for a yacht.
    However, Roman Abramovich has a yacht under construction that will be almost 200 feet longer than Melnichenko’s and is believed to be in the price range of almost $500 million. These guys make Larry Ellison look a piker.

    But your point is well taken. Since these two Russians can pay hundreds of millions of dollars for a boat, perhaps even one half of a billion dollars, then obviously the housing downturn in Reno is over, and everybody better go out and buy a house today before they are priced out of the market for the rest of their lives.

  20. Avatar Paula says:

    Thanks to Geesh and Norton for making me feel better. Yes, now that I know that Mr. Abramovich is paying a half a billion dollars for a boat, I understand that the Reno housing market must be on the upswing. The connection is obvious, just like the connection between Mr. Ellison’s actions and the Reno house market. This proof is irrefutable. I will sleep well tonight and tomorrow I will call a realtor.

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