A little while back, I wrote a post following the popularity of Irvine Housing Blog writer Larry Roberts’ coverage of HELOC (home equity line of credit) abuse. One he mentioned was that $9 million short sale in Laguna Beach.
Roberts discovered that readers were interested in learning about other homeowners who might have ‘abused’ their HELOC, so he began gathering information on such cases (which is public record).
The blogger tells the tales of these HELOC cases, and how trends in borrowing can reveal ‘abuse’ - and he doesn’t beat around the bush.
Roberts said in his post that these HELOC abuse cases, where people take loans out on their property until they’re upside down, are running rampant in our SoCo cities.
So we’re going to bring you a couple a week that Roberts classifies as ‘abuse’ from his findings.
Roberts picked one particular case in San Clemente Southwest that he classifies as ‘abuse’ from his research on HELOC. It is now listed at $1,200,000 as a short sale, but there’s quite a tale to that price.
From Roberts’ research on mortgage and HELOC trends, here is how the history of abuse breaks down:
- “The home is bought 4/29/1999 for $295,000 with a $236,000 loan.
- It was either remodeled extensively or torn down, because homeowners took out a $650,000 construction loan 5/08/2001, which they rolled with the first loan.
- Homeowners open a HELOC of $270,000 on 6/17/2003.
- Homeowners take out a $1 million first mortgage, and, get this, in the same day a second mortgage of $500,000 on 5/05/2005. Why? Roberts says they likely took out the second “just to have spending money.”
- Homeowners refinanced on the first mortgage for a $1,759,500 loan on 9/27/2006. Roberts says this wiped out the first and second mortgage.
- To top it all off, the homeowners then took out a second HELOC for $790,500.”
Grand total in damage?
Roberts says: “The total property debt on this one is between $1,759,500 and $2,550,000 depending on how much of the HELOC was spent. With the $1,200,000 asking price, the lender is going to get killed on this one. The borrowers are walking away with at least $1,000,000 in mortgage equity withdrawal. This is a bad one.”
What is the most mind-boggling about this case, Roberts said, is that a lender decided to let these homeowners take a second HELOC for nearly $800,000 after all of their previous HELOC abuse.
Roberts also says that in south county in particular, second mortgages and HELOCs are complete losses, because the first mortgage has to be paid off completely before the other two can be touched. In this case, that first mortgage is $1,759,500.
Stay tuned, we’ll have more of these abuse cases to come, and check out the Irvine Housing Blog this weekend for more on HELOC abuse in San Clemente.
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I want to pound my fists and cry … THIS is why we’re where we are now, isn’t it? Thanks, Kelli, for sharing … and making me fume
stupid stupid stupid. You guys are as wise as a box of cracker jacks. kick rocks kids
I sure am glad my tax dollars are bailing out the banks who lent these idiots the money. And to top it off, these criminals will probably walk away with a substantial sum of money.
This country is broken. Playing by the rules gets you nowhere. Knowing how to game the system is the only way to play.
Bring back debtor’s prison!
I agree, bring back the prison and have them WORK on chain gangs UNTIL they pay back ALL the money they stole.
DISCUSTING
$1M… I figure that’s good for what, about 12 years, based on the cost of housing these deadbeats? good, let ‘em rot!!!!!
and no time off for good behavior, either.
You are wrong. Playing by the rules does not get you nowhere. it gets you a screwing worthy of Marilyn Chambers.
I may be wrong but don’t you have to sign a personal guarantee for a HELOC. I think that you are still personaly responsible for paying off a HELOC regardless of a bank repo based on the first mortgage default.
The banks need to go after these people personaly. I assume they will just file bankruptcy but until they do make life miserable on them.
If you know, can you please clarify if a HELOC has to have a personal guarantee?
Thanks,
I think the report is a good illustration of why we could be in uncharted waters in the southern california real estate market. If this is the tip of the iceberg concerning these types of loans, it could make the return to a stabilized real estate market a very long road to go
The records on this are all over the place! What I found was they took out a loan in 1/06 for 1,250,000, then in 9/06 a 3,000.000 construction loan, then in 8/07 10 million and shortly after 9/07 an additional 1 million (public records).
And the lucky lender who is going to take it in the shorts for that 10 million dollar loan?…………………drum roll please!………………..
Wamu which is now Chase
Is San Clemente Southwest a Master Planned Community?
No it’s a ’section’ of San Clemente, actually probably the most desired to take residence. It’s on the ocean side, just south of Central San Clemente, which is where the pier is.
This is so typical of this county and many others where people feel the need to try and impress. We are shallow as Rat Sh-t and it is disgusting. I’m sure these people were your typical Range Rover piloting, Bentley types with empty lives. Sad, sad, sad!!
The sick part is the fact that we are not as near the “so called bottom” as some professionals will attest. We will see nearly 1 TRILLION dollars in exotic Commercial and Residential loans adjust in the next year or so. This will further devistate an already wilted market. Hold on to your caps people..
Bilderbergers and Trilateral idiots will run us right into the soil..Actually, it’s already happened. China is no longer interested in the AMERICAN DOLLAR!!!!
Does that scare anyone?
At any rate. Keep up the Orange County frontin and hopefully you will gain the acceptance that you seek and value so much….
WOW
I think you should clarify who you are talking about. The majority of people in OC have NOT gotten themselves into this type of situation. The majority of us are hardworking average Joe’s and we have a big lump in gut wondering if we are going to make it through this with the clothes on our backs.
I take offense to your tone about how “typical this county is” believe it or not, there are many people who can afford Range Rovers and Bentleys. I will agree with you that there have been many people in this county who have jumped on the HELOC bandwagon. But please don’t lump the majority of us who have manged to just quietly live our lives without disrupting the economy in with the Range Rover Bentley types.
Dear OCReader,
Obviously if this hasty generalization does not apply then move on with your seasoned life. If my tone has you at the point where you feel the need to reply to my consensus then you most likely are that “typical overindulgent Orange Countian”……
Thanks for the feedback… Regards
Correction….there are many people who can lease a Range or a Bentley….that does not mean they can “AFFORD” it. Buying cars, other homes, whatever, with borrowed money does not mean you can AFFORD it. It means you have good enough credit to finance it. Let’s get real.
Stroodles, you are completely correct. I have never seen a more indulgent bunch than those here in OC….with their completely backwards logic of what they can “afford”.
It’s simple economics, people! If someone else carries a lien on something, it’s not yours…until you pay it off.
whe will these people be prosecuted?
who would do such a thing as lend money to people who already didnt have any.. Hell l had money at it took 6 months to get 400k loan…
+1 on that note
CALAMITY!
This is just one example of the housing/mortgage business gone wrong. Yes there are the whiny greedy “gen-x-er” range rover, keeping up with the neighbors, but lets not forget that our county and country is filled with people who bought homes that they could afford and have also lost their and possibly even all incomes in the house. There is no “relief” for these “average joes” either. Perhaps the lynch mob mentality should look at these everyday people who really are in a bad way instead of sensationalizing a few luxury listings to sell some papers.
nEW WORLD ORDER
question is, is anyone writing to Mr. Obama about cases like this? Then tell him this is why we do NOT need a bailout!!
Also, excellent job Kelli, for reporting this!!!
If you could please post a new case of this every week, hopefully more people can read about it. Thank you.
Ditch-Diggers… the infrastructure of most California cities need a major over haul on their streets, sewer systems, water supply lines, etc.
That is where all of the criminals that caused this economic pandemic should be used for: Hard Labor.
The ‘Socialization’ of the losses brought about by the Banking Industry / Lenders / and the various Wall St. “collateralized debt” Bond makers and the Rating companies that supported those debt bonds, should not be supported by enslaving the taxpayers of the United States via bail-outs.
This govt. is seizing public funds, for private sector bail-outs and I do not endorse this course of action, I condem it.
It is not my fault, nor is it my responsilbility, to pay for the mistakes of others.