Every once in a while, I am at a loss for words. I cannot come up with any reasonable explanation as to why something occurred. This is one of those times.
The above house is located in Pasadena, zip code 91107. It could be the "poster" house for what went wrong with real estate and how sub-prime lending (or the lack thereof) is affecting everyone across the board, from an aspiring home buyer to major banks and financial institutions.
A little history about the pictured house. A very ordinary 3 bed / 2 bath, with 1550 square feet on a lot size of 6700 sq ft., built in 1927. This is where ordinary ends.
This house was sold in June 2006 for a sales price of $549,000, fairly typical given the location and the condition. The buyer took out two loans, the first was $439,200 and the second was for $109,800 using 100% financing. In June ‘06 this financing was very common. Many home buyers chose an 80/20 loan, to avoid paying Private Mortgage Insurance.
Fast forward 3 months to September ‘06. The house is sold again. Many people bought and sold (flipped) to take advantage of a rising appreciation. However this house was sold for an astronomical profit. Care to guess, Buehler, anyone? The house sold for $850,000 an easy $300,000 profit or $100,000/month.
Again the house sold with 100% financing including a $680,000 first mortgage along with a $170,000 second. The mortgage company was identified as WMC Mortgage.
To make matters even more unexplainable, this house never appeared "For Sale". There wasn't a "For Sale" sign and there wasn't any evidence that it ever appeared in the local MLS. I want to talk to that agent who sold this house. They should be selling their secret on late night infomercials. There is millions to be made just by sharing the formula for success. This gives new meaning to the "Art of the Deal", no offense to The Donald.
I can tell you without any hesitation or batting an eye, there was not a $300,000 improvement made to this house. Things like this are not supposed to happen. The system has built in checks and balances, much like our Federal Government (okay bad example) that are supposed to question these types of transactions. What happened to the appraisal, where was the underwriting department, was everyone out to lunch?
Well, all good stories have a proper ending. This house has been vacant now for about two months and the Notice of Default was filed on July 5, 2007. If only someone would have thought to ask, "How does this happen"?
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