From a tipster trying to close on a condo at The Beacon:

[L]ast week we were trying to move on a unit at The Beacon and found out some pretty bad news: Chase, BofA, and Wells won’t fund loans on units at The Beacon due to some lawsuit related notes on the title reports.

I’m not sure if this applies only to some units or to all (since the lawsuits involve the HOA which presumably would mean all units), but we talked directly to someone at Chase and they said they last tried to run a loan on 3/19/09 and weren’t able to do it.

Our first thought: Association Battle Over Unpaid Bills Brewing At The Beacon? Can a plugged-in person with access to said notes possibly shed some light?
Association Battle Over Unpaid Bills Brewing At The Beacon? [SocketSite]

42 thoughts on “Unable To Fund Loan(s) At The Beacon? Hmm…”
  1. I can’t speak to the details of the Beacon, but I can tell you I have yet to find a new bank that will loan on ANY condo development (new or old) that has any type of pending litigation. The last condo sale I had go through had a resolved dispute and it was a frickin nightmare convincing the lenders the dispute was not pending, rather resolved.

  2. Why would anyone choose to buy at The Beacon right now? It generally seems pretty much the poster child for a troubled condo building.

  3. I have closed several transactions recently in projects w/ pending litigation; though not the Beacon.
    You have to go through a direct lender, the buyer must solid and the litigation must be petty such as a trip n fall and not a dispute over toxic soil.

  4. looks like some beacon units are becoming relatively affordable, but the high HOA fees which do not include parking, are keeping me away.

  5. Why would anyone even consider buying a unit at the Beacon??? This place has the look and feel of a high end dormitory. All these units were sold at the height of the bubble from 2005-2007, many with exotic financing. This building has been and will continue to be a hotbed for foreclosures, and many will simply walk away as their properties will be worth half what they paid for them. The building will not be properly maintained as people default/walk away. The Beacon will be a shantytown/wasteland a few years from, it will serve as the psoter child for the SOMA condo bubble, along with the Palms

  6. I agree the Beacon will be a poster child for the condo bubble. Some friends rented there for 6 months last year while they remodeled their place. The place is low-end in the extreme. I really cannot imagine why anyone would actually have bought there, particularly at the prices they paid.
    But I don’t think it will become a shantytown/wasteland. I imagine it will soon devolve into foreclosure chaos, which will take a while to sort out. I’ll bet the total equity lost in that single complex is now approaching $150 million. But it has a convenient location to downtown, and the simple, dorm style will always find young renters. The foreclosure cycle will work its magic and investors (and some occupiers) will buy the REOs. I bet you can buy a 1 BR there for under $250k within 2 years, or rent one for $1500-1800. It will be fine low-end rental stock (with a few extremely bitter early buyers sticking around).
    Original SS tipster — count your blessings for dodging a bullet!

  7. Can someone explain to me why the Beacon homeowner’s monthly dues are so high considering the amount of vast number of units that share the maintenance costs?

  8. Homeowner dues are largely in line with other condos in the surrounding area. Also, we are required by the Commercial Owner’s Association to carry earthquake insurance, which contributes quite heavily to our monthly dues.
    As an aside, the comments about the character of The Beacon on Socketsite never cease to amuse me. I’ve met dozens and dozens of owners and tenants at The Beacon over the years, and the vast majority are quite happy living here (though unhappy about the decline in home values). I’ve had dozens and dozens of guests visit me at The Beacon and every single one of them thinks it’s a great place to live, especially if you’re a young professional.
    But come to Socketsite and apparently I’m living in a future “shantytown/wasteland” and “low-end in the extreme.” Give me a break people. The place isn’t everyone’s cup of tea, and you can certainly argue that it is overpriced, but some of these comments (and foreclosure predictions) are just ridiculous.

  9. I find that hard to believe. Practically, every new development goes through the litigation process against the developer for some kind of defects. I have lived through this in the past in my other properties. While it might take a little investigation by the lender to determine the nature of the lawsuit, ultimately, lenders do make the loan. I think loans are difficult to come by becuase of this economic environment, regardless of whether there is litigation.

  10. We used to own a highrise condo in Pacific Heights in the 70s and 80s. Earthquake insurance was the greatest waste of money in hindsight even though at the time, everyone was on board to purchase the coverage. The reason is simple math. A large quake in San Francisco that causes massive loss of properties would be an equivalence of simultaneous failure of multiple large banks. It will simply overwhelm the insurance companies like the bank failures would overwhelm the FDIC. Even with all the co-insurance, a $100 billion loss simply could not be absorbed by the industry. And I don’t believe there will be federal bail outs other than low interest loans. Condo owner will each receive ownership of 5 square feet of liquified land on which the building once stood along with a $20K bill per unit for clearing the debris…

  11. In my experience it is true that litigation is a very common thing. During the 10-year “warranty” period, construction defects are a common subject of litigation. But later it can be over things like who pays what (at the Beacon) to “can I attach a satellite dish to the exterior of my unit?” to “how many and how big a dog can I have?” The bigger the building, the more likely it is there will be a few residents who want to do something the rules don’t allow and are willing to involve the lawyers to do it.
    In regard to earthquake insurance–I still don’t agree with the rest of you. The risk to be insured against is not that your building will be flattened (I deal with that by refinancing and always trying to have the bank own most of my unit) but that it will be moderately damaged–not enough to call it “totalled” but enough for the repair to be very expensive. My building covers maybe 15% of its value/complete rebuilding cost.

  12. @outsider: actually a $100 Billion loss could be handled by the insurance industry quite nicely — you just don’t realize how large that industry is. In any case, that is irrelevant as earthquake insurance is provided almost entirely by a special entity set up by the state of California. I don’t know all the ins and outs but I believe that the state (i.e. taxpayers) are ultimately on the hook.

  13. “The risk to be insured against is not that your building will be flattened (I deal with that by refinancing and always trying to have the bank own most of my unit)”
    If you refinance (to continually shift ownership back to the banks), and the building is flattened during an E.Q., would you still not owe the bank the money you refinanced? as i understand, re-finance loans are not “no recourse”.

  14. Others have touched on this before and I too am still a bit murky re: the nonrecourse deal.
    My understanding (someone please correct me if I am wrong) is that it depends on if you do a cash out/cash back refi or a rate and term refi/refi of the purchase money.
    If it is a refi of the purchase money you are still talking original purchase money and avoid categorization of “no-recourse”.
    Clarification from anyone would be great.

  15. Thanks for the input GWTF. And was it not recently that a poster who bought at Rincon Hill got pissed off at the govt bailouts and took out a cash refi and said it was his way of sticking it to the banks if and when things hit the fan.

  16. Not sure but I hope not. BTW my notes on the subject are just something I recall someone mentioning, not sure if the info is correct and don’t really understand it myself.. I am hoping someone will chime in with the correct info/verify everything.

  17. it was already quite helpful that you pointed out the distinction between the two different types of refi.

  18. Not even sure I used the right terminology – not a realtor, lawyer, or anything related so please do your own research to verify. Full disc.

  19. I believe ALL refi’s are recourse loans because they aren’t “purchase” funds.
    The comment about refi-ing continually so the bank owns more of the house is hilarious! No wonder we’re in such a mess. That kind of tactic is considered smart?! If you’re THAT concerned with losing money, why even buy in the first place?

  20. There are “purchase money loans” and there is everything else. Purchase money loans are no recourse in some states (California is one of them) and that means if you used it to purchase the home, the lender cannot go after your other assets to recover the loan other than to foreclose.
    If you refi, you lose that protection. But realistically, modern buildings like Beacon are built to withstand pretty bad earthquakes. Older wood frame buildings on a concrete foundation aren’t realistically going anywhere in an earthquake if they are bolted to the foundation and there is not much in the way of capability to twist too much on the first floor. That means no big glass windows, no multiple garage doors (especially those added after the building was built) and the walls are finished on both sides, with something more than just wall board.
    The only time you need to worry about earthquakes is if you can see brick. Buildings that have been reinforced with steel beams could be damaged: the beams are there to keep the building from collapsing, but it still could be uninhabitable. Buildings with brick foundations are just dumb.
    Most buildings aren’t going anywhere in an earthquake. However, refinancing to avoid the risk is unlikely to work, unless you are retired and have few other assets for someone to go after.

  21. I noticed a few negative comments about this particular condo from some of the posters. Do you have any suggestions for a place for a young professional if this particular condo is so bad? Are condo foreclosures a good option right now?

  22. Looks like people are all over the map on the refinance and recourse vs. non recourse question.
    I’ve researched it a bit and it appears to me to be as follows:
    1st Mortgage (non-recourse if used to buy the property, if refinanced almost always non-recourse due to the one-action rule)
    2nd Mortgage/HELOC (non-recourse if used to buy the property, if refinanced it could be recourse)
    Refinancing the 1st and 2nd/HELOC into a combined new 1st mortgage (most likely non-recourse due to the one-action rule)
    Just my layman’s understand of all that I have read on the subject.

  23. Condoseeker,
    People are generally negative on this site, for whatever reason. Let me offer you my perspective.
    Don’t forget the golden rule in buying real estate: location, location and location. Location is one thing you cannot change about a piece of property.
    The Beacon was built as a condo building but was intended to be leased out. The market in 2005 was sizzling, so they decided to sell the units instead. It is true that the appliances and some finishes at the Beacon are not high end, but all these can be changed.
    This property has been undergoing a major interior renovation. If you have seen it in the past, you should go pay it another visit. As to the current dispute with the commercial association, this situation can arise in any building with commerciat owners. The CC&Rs in this type of developments are always drafted in favor of the commercial associations so the developer can secure financing through their ownership early on. These disputes can arise and will be resolved relatively quickly as both sides have the incentives to do so.
    As to the constuction defect litigation, it is very common in new developments, just about every project goes through this phase.
    If you are into city living, there is no denying that The Beacon’s location is strategically located. It can be conveniently accessed by cars, trains and many different buses. It is within walking distance to downtown and at the same time, close to the bay. It is above Safeway and within a 10 min walk to Wholefoods.
    The golden rule of buying real estate has been held true since the dawn of time. You can draw your own conclusion.
    If you are into nice finishes and appliances but do not mind the location, you can consider Soma Grand, The Metropolitan, One Rincon. Soma Grand’s surrounding areas have a lot of “issues”. Metropolitan has difficult access during rush hours. One Rincon has nice views, but not much of a neighborhood and difficult access during rush hours.
    You might also want to consider Infinity. It is at a desirable location but not as convenient, and is way overpriced if you want a view.
    Good luck hunting.

  24. Lenders may not seek a deficiency judgment after a non-judicial foreclosure sale and the borrower has no rights of redemption.
    Can anyone bring up one example (this really shouldn’t be too hard) from the Loma Prieta or Northridge quakes where the lender went the judicial foreclosure route? I believe it was FAB who said he’s never seen a judicial foreclosure in all his time in the business…

  25. So if the bank does not go the judicial forclosure route they can’t come after the $ in CA due to the one action rule right? They either forclose and leave it at that or try to tackle all issues at once in judicial proceedings correct?
    After having lived in both Mission bay and Infinity/locale location wise I would much rather be living by the Infinity and better yet in it. I remember the last time I was in mission bay at district I met someone who lived at the Beacon and they themselves described it as a “30 something dorm” and they thought that was cool which is great for them (to each is his or her own) but just not for me.

  26. GWTF –
    Take a read of this article regarding CA foreclosure law. I can’t vouch for how thorough and accurate the treatment is, but it seems like a good treatment of the subject.
    Whenever I think about these questions, I assume that for all practical purposes – especially in light of what the USG is doing with respect to bailouts, sanctioning fraud, etc. – all mortgage or HELOC debt is going to be nonrecourse, at least de facto. I bet that the disctinction between “purchase money” loans and others is going to be a distinction without any practical difference. I just don’t see these banks coming after anyone, even if they could figure out who has assets and who doesn’t.

  27. Excellent article about the foreclosure process and deficiency judgments. Worth the read for anyone who finds himself in a difficult situation with a property from being underwater, need to sell in a divorce, etc. This guy, Markham, is a very good writer (and from that I suspect he is also an excellent lawyer).

  28. I agree with Steve. I defy you to find any large condo complex on this site for which the majority of comments are positive. People here are overwhelmingly negative! I recently visited a friend at the Beacon and his place is great. It was so easy to get to, everything has been remodelled and he had a great view of the city skyline!

  29. Thanks Steve and minicomp for clearing that up. I’ll definitely keep that in mind when reading through other posts.
    I actually just recently found this site as i’ve been looking for my first purchase for my move to SF. I was not sure if the comments were specific to the Beacon or if most comments are generally negative. In either case I don’t mind, i’m inexperienced with the SF living situation and can greatly use any information (both positive and negative).
    I actually have not been to the Beacon yet, but i’ll stop by to check it out on my next trip up to the Bay Area. I missed the Blu last time I was in town, but I thought it looked nice from the outside so I intend to stop by there as well.

  30. condoseeker,
    blu is also a very nice building, but its location and views cannot match the beacon. it just depends on what is more important to you.

  31. i think it’s a disservice to say that location of Blu cannot match that of Beacon. Unless one has to take Caltrain every day, I’d choose Blu location easily.

  32. There is not much of a neighborhood around The Blu. If you take public transportation, only the no.12 bus drops you off in front of the building, whereas to access The Beacon, bus nos. 10, 30, 45, 47 and the T and N muni lines will take you right there. And to access The Blu by car during rush hours, you can be stuck on Folsom Street for a very long time when everyone is trying to get on the Bay Bridge.
    When you come out to visit, condoseeker, you can draw your own conclusion.

  33. For mine Blu is a way better location than Beacon but that is all a matter of personal preference. The real problem with Beacon (and Palms) is the perception that the building is poor quality and filled with “foreclosure in waiting” residents. This is probably not a true characterization but nonetheless exists. Besides Blu has that new car smell which is very appealing.
    One last point…I’d want to live near a Safeway not have one in my building. Big difference!

  34. What does “foreclosure in waiting” have to do with location?? When one says “location, location, location” in real estate, one is talking solely about the physical location. I can see possibly debating which location is better, though to me 4th and King is better than Second and Folsom.

  35. I checked out The Beacon when they started selling them and again more recently. It’s still a terrible building. Looks nice on the outside, nice location — but it’s downhill from there. Feels like a dorm, pool in the middle where everyone watches you, some units are the size of closets, and HOA is high and will continue to go up. Let’s
    just see how many units that were bought at the top foreclose and don’t pay their HOA, leading to higher HOA for everyone else.
    There’s a reason why lenders like BofA & Wells Fargo willn’t lend on this building — they know dead money when they see it.

  36. I agree the Beacon will be a poster child for the condo bubble.
    But wouldn’t that require speculators from out of the area coming in and bidding up prices? Like, say, super agent Annette Vella-Melendez from Napa (I guess they don’t have many condo projects up there). Her 1 bedroom unit (250 King #810) hits the auction block on Sept. 24 for $571131 (bought for $675,000 in March 2006, thanks WaMu). Maybe her boyfriend can give her some advice:
    Real estate agent Annette Vella-Melendez and her investor boyfriend, Abdul Karimian, were planning to watch, not bid. “We’ve been told that you can get really caught up in the moment,” she said. “You have to really do your research, or you could wind up paying over market value.”

  37. Has anyone heard anything about the litigation at the Beacon? Are lenders still hesitant to lend on this property?

  38. This thread has been really insightful! I’m currently in the process of trying to buy a unit at the Beacon, but am running into the now classic problem of getting a lender to offer financing for the Beacon because of “pending litigation”. Does anyone know if the current litigation is related to this COA vs ROA conflict? Or is this something else? And any idea if its nearly some kind of resolution? Thanks!

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