As we first reported three months ago with respect to 196 Avila:
With three circa 2007 loans totaling $2,281,000 in debt, this past May the “magnificent Mediterranean home…located on one of the most sought after blocks in San Francisco” was foreclosed upon with a winning bid of $183,203 on the courthouse steps.
Keep in mind, however, that it was the third mortgage that was foreclosing and first (which was in default with $1,823,927 due) and second ($350,000) mortgages still exist.
Listed for $2,595,000 in August and then reduced to $2,395,000 in September, yesterday the asking price for 196 Avila was reduced to $2,095,000, roughly $80,422 less than the balance of the remaining first and second mortgages combined.
∙ Foreclosed Upon For The First Time In Almost Thirty Years [SocketSite]
∙ Failing Grades In Auction Buying 101 (And Commenting) [SocketSite]
I do not understand the business model of the buyer here.
Is it possible that the “winner” didn’t realize that property still had a nearly $2.2M mortgage obligation? I’ve never seen an auction on the steps, is this sort of information emphasized before the bidding begins?
A third mortgage! You can see the complete and utter falsity of our economy here. Someone just kept taking out more and more mortgages just to pay the mortgage.
BTW, this type of behavior has not stopped, it has just shifted. To cars.
I have a number of friends and relatives who are suddenly in trouble after a shock two or three years ago seemed to do nothing to their finances.
A job loss of one person of the couple a few years ago was simply papered over using cars. In a couple of cases, friends who normally saved up money for their cars took that money when one lost their job and financed the next car cycle instead of paying the cash they had saved up. Well, those car payments boost your living expenses, the car savings funds are now gone, the jobs aren’t there and they are in trouble because they increased their living expenses by a lot.
In other cases, friends have simply held onto their cars much longer than before. However, they were unprepared (and unbudgeted) for large repair bills that much older cars have, and now they have no money for repairs or a new car.
In all of these cases, the car funds were sacrificed to maintain their standards of living – primarily to remain in houses they really couldn’t afford. But I think their living standards will fall. I suspect the former owner of this place is not living in something quite so grand because he ran out of tricks to pay for it. I’m seeing that more and more. My friends are all going to have to move into less grand places, something they have resisted for years. There is simply no way out of this for them.
A third mortgage! How do you sustain an economy like that? And the problems are just now showing up.
There are lots of fun ways this kind of thing can get played out.
If all mortgages are all held by different entities, the ‘owner’ of the property can stop paying the 1st mortgage, and keep paying the others (usually smaller loans). The only one in a position to forclose is the guy with the 1st, but the property value might be enough over the amount of his mortgage that he takes his time, letting the accrued interest pile up. Holders of the 2nd, etc… mortgages, who are being payed, are blissfully unaware of the time bomb about to go off.
So then 1st eventually gets his act together and forecloses. Not only does he get paid off first, all his accrued interest gets paid off first, too (plus court costs). Only if there is anything left do 2nd, 3d, etc… get their principal back. If 1st waits long enough, there will be only enough to pay his stuff out, and 2nd, 3d, etc… get bobkes.
I’ve seen this actually happen. It was hilarious.
“I’ve seen this actually happen. It was hilarious.” This is fun? Doesn’t sound like much fun to me for the people who end up cleaning up the s@@t.
I am sure what you say is true. People do all sorts of things. That said it makes absolutely no sense. When an NOD is filed everyone who has an interest in the property is notified. The second lien can then start making the payments on the first (to protect his interest) and foreclose subject to the senior lien.
I cannot see how it benefits the property owner to pay the second and not the first. The reverse could be true (ie pay the first and stop paying the second) especially if there is little or no equity beyond the first lien.
Even if the only motivation was to “screw the jr lien holders” one would just stop paying all the loans and file lawsuits and get automatic stays the day before it hits the steps for as long as possible. But the scenario you describe makes no sense to me.
The first mortgage payments are usually larger by a substantial amount, and if you’re going to take a credit report/FICO hit because you’ve stopped making payments on time, it makes sense to at least some people to minimize the damage to your credit score by keeping current on the remaining mortgage payments. Also, if you’re delinquent on the first, at least you’re not generating late fees, misc charges and collection costs on the second mortgage by keeping current on it. Those fees and charges can skyrocket pretty quickly.
In an age of universal default, we can argue about if doing this really does one any good.
In the situation I described, the NOD wasn’t filed for a very long time. The 1st just let the property owner get further and further behind and didn’t tell anybody. There was no strategy — it was just negligence.
The property owner benefited because they got to keep living there w/o paying the 1st mortgage.
There was originally enough equity to cover the 1st mortgage, plus extra covering most of the 2nd, but that extra equity covering the 2nd got eaten up by the interest piling up on the unpaid 1st, and the 2nd never knew this was happening. It all came to light at the end.
Like jimmythekid, I thought it made no sense either until I saw how the chips landed. The 1st holder their money. The property owner got to live there peacefully at a discount. The second holder was completely screwed even though property prices were flat, since their equity was eaten by the unpaid interest on the 1st. The outfit holding the 1st was run more-or-less by Mr. Magoo, while the outfit with the 2nd was smart but kind of sharky. I got a good laugh because the sharky folks got the short end for once.
Deeds of trust aside, this seems to be getting more interesting price-wise. These Avila corner houses have some scale, they sure beat the revamped mini cottages on the rest of the street.
Must be a ton of deferred maintenance or something.
this house is a dump. the pictures are few and far in btwn because of that. it needs a total remodel and then it might be worth this price.
it is also now a short sale… this brilliant “investor” now needs the first to agree to take a loss in order to sell…. and since presumably there is a 2nd loan he needs their agreement too. good luck with that.
@hangemhi
The place is as much of a dump as you are an astute and objective observer of real estate. Update of kitchen and bathrooms required? Yes. Dump? Not by a long shot
We moved in to this house (renting) a couple weeks ago and have a one year lease. This is presumably so the landlord (I believe owner of the second and third) can hopefully work things out with the first before selling in a year. The house is by no means perfect but it is still pretty darn nice and has a ton of light from being on the corner.
It would appear as though Craig’s landlord has had some luck as the listing for 196 Avila was officially withdrawn from the MLS today.