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Sunday, September 24, 2006

Friends Don't Let Friends Buy Sub Prime

Have you ever wanted to ask a friend or co-worker, "So... how much did you pay for this baby?"

Of course, it's really none of your business, but inquiring minds want to know.

That's one of the great (or not so great) things about Zillow. You can pry into someone's life and be as rude as you please. After all, it's public information right?

If you wanted to take it one step further, you might already know that you can view the actual deed of purchase online at the King County Recorder's Office at no charge.

It's possible to see what type of loan they have, what interest rate and the actual terms.

Do you know anyone that may have bitten off more than they can chew? Who knows, maybe you'll be able to save them from financial ruin.

Post the story here, sans any personal info of course.

19 comments:

Anonymous said...

Thanks for the information. Through the site I am able to get the excise tax information. I am unable to find the link for loan information. Can you give me more detailed information about how to get it?

Anonymous said...

To find the records...
Click Records Search
Add a Name and look for any or the Warranty Deeds..usually they have a bank name associated. You can look at the ARM Riders to see what kind of Reset they might have

e-sidedave said...

Or get the parcel number from zillow and search using that.

Anonymous said...

Anyone know the address for the county site?

It was www5.kingcty.gov.etcetcetc.

I liked it because you could find things with the address.

Not everyone can access zillow for parcel number. Shocking, I know!

Anonymous said...

It's www5.metrokc.gov/reports

You can find parcel# and previous sales info but darned if I know how to get the mortgage data.

It seems like you've got to fill in an awful lot of blanks besides the parcel #, right Synthetic?

meshugy said...

Ok...here's the deal with 7048 19TH NW

On 11/15/2005 the took out an ARM for $425K

On 03/03/2006 they took out a $200K HELOC.

Then, on 5/31/2006 they took out a $300K HELOC.

I'm not sure if the second HELOC is an extension of the first, or a whole other one all together (s-crow?).

Either way, it appears that they actually spent over $200K on the remodel. With an original purchase price of $400K, $200K+ remodel, and 9 months of carrying costs, you can see why they need to ask $799K.

Eleua said...

'shug,

Is that house occupied, or is it staged?

$800K for 1/8 of an acre?

seattle long term owner said...

sorry just coz they took out a HELOC doesn't mean they used it on the house...

may have paid for a new SUV, new boat, trip to europe or bahamas, you name it...

a HELOC could mean they thought they already made a profit and maybe used less than half on the house itself...

People are amazing on how they can spend money they didn't earn...

Anonymous said...

There's the problem in a nutshell: they need to ask 799K.

Doesn't mean they'll get it.

Could be FB's we're looking at here.

Anyone notice that the Sunday RE supplement had NO "Seattle Still Hot Despite Rest of Nation Going Down Toilet" articles?

that is a FIRST.

Eleua said...
This comment has been removed by a blog administrator.
synthetik said...

Housevalues.com VP possible FB?

Details of one of the VP's of HouseValues'... oh, the irony.

3139 108th Ave SE, Bellevue 98004

Purchased 06/14/04 $ 525,000 using 5 year ARM @ 5.125%, 2% max per year.

Loan Value $ 420,000

and then a REFI 4 months later at 4.5%

why would they do that?

So in October 2009 this sucker is going to reset. They are obviously banking that their home will be worth much more than it was when they bought it (currently zillow says $748K, appreciation has been flat since for last 3 months).

Damn, you'd have thought that in June 04 when they bought they could have gotten a FIXED rate at around 5%.

What were they thinking? RE only goes up right?

synthetik said...

At first glance you might not think that guy is a FB. But what happens to his job when the market tanks here? Housevalues caters to RE brokers. Maybe since he works in the industry he'll be on top of it?

Will he be able to sell his house for >= $550K? when everyone else is trying to sell at the same time?

As far as trying to talk to your neighbors or friends about this, it's pretty much useless from my experience. Like trying to get Barbara Streisand to vote republican.

seattle long term owner said...

there are 2 sides to an ARM refi when it's 5arm or longer...

Some folks plan to move in 5 years or so... more if your in a rapidly changing industry... so an ARM isn't a bad idea... you also get a better rate... so long as it's a long term ARM... but there is a risk there...

ARM's were designed for people who made at least 6figures and know how to use their spending power... unfortunately it has been made accessible to financially irresponsible people which is why the market is crazy...

Honestly, I think the guy will do fine... at worst if he loses his job he can sell the house for 450K and walk away even... plus the refi probably eliminated any PMI or HELOC if there was one... factor in that he actually put money down on the house, then he sounds like he knows what he's doing...

only thing I don't know is if he cashed out equity in the refi... I'd be surprised since that would make no sense... but if he did he's FB, otherwise he sounds like a guy who knows how to use his money...

I too have a 7ARM and it was a conscious decision for a multiple of reasons, including the fact i will be owning my house in about 10 yrs (starting from 0 down) as our house costs twice our Gross Yearly Income thanks to this blog (instead of more)

Eleua said...

Well, here is one.

Cousin and hubby (late 20s) returned from two years overseas, where they saved somewhere in the neighborhood of $30K. While they were out, they rented out their small, but nice house with neg-cash flow (-$200/mo). They say their house appreciated appx $100K to $280K.

Hubby wants to make it big in RE, and live the good life on the Hood Canal, and I can't fault him for that.

One problem: he is in a line of work that pays under $40K, and the industry is in local decline. Cousin is in the same industry, but now stays home with junior.

That's the setup. Here is the plan.

They want to buy a house that lists for $330K, for 1500sf in Bummerton. They want to expand the daylight basement to add another 900sf, however, it requires modification of the foundation (undercut, and underpin). They think they can trick the whole thing out for another $40K.

The big carrot in this is the neighbor's house apparently appraised for $450K, for 2500sf.

He says it is "good construction." The house is a '97 build. However, his idea of home improvement expertise is pressure washing the fence. Not that I fault him - everyone can't be an expert in everything. I'm not up to speed on web design, gay porn, or dendrology.

Those are the facts. Here are my assumptions:

I assume they think they can drop $350K on the house ($310 purchase, $40K improvement), and it will be worth $450K + 10% X 2 yrs ($550K).

I assume they believe RE is risk-free, based upon their age and experience. If you are a late 20something, and you have no curiosity about finance and the history of economics, why would you assume any different?

I assume they will sell their starter home (at least I HOPE they will). If not, add another -$200 or so to the monthly budget.

So, where is this going?

My guess is the improvements will run in the $75-$100K range. Foundation work on existing construction ain't cheap. If ANYTHING goes FUBAR with the foundation, all that "good construction" will be long gone. Doors will stick, windows won't open, roof will leak, floors will squeak, walls crack, etc.

He sees the home that he wants has been on the market for 6 months, yet the value will hold? He will low-ball, but only take top dollar in 2 years' time?

How do you make ends meet with the amount of home in the 10X income range? Assume they sell their first home for $280K (wishful thinking, I know...), they pay off their note and carry about $90K + $30K in savings, and buy down the new house to $230K, which still leaves them with appx $1800/mo for PITI+HOA (AND NO SAVINGS RESERVE).

$40K - $1800*12 = $1533/mo for EVERYTHING other than housing.

NFW!

They will HAVE to go subprime from one of the mortgage vampires. I shudder to think they will go with the $99/mo NEG-AM at 7.8% scam, and hope they win in 2 years when the house will be $550K.

My guess is this kind of property will be worth about 1/3 LESS in 2 years' time. If I am right, they are looking down the gun at:

Financial:
$40K cost overrun
$120K reduction in property value, provided foundation work goes flawlessly. Foundation FUBAR? Subtract another $80K.
Primary note increases $35K
If their note adjusts at the 2 year mark, they will see another $1900 added to their monthly payment, provided interest rates stay at 8%. If rates go to 10%, tack on another $400/mo. That's assuming they could make ends meet on the humble salary, and didn't dip into their home "equity."

Tally the damage:
Savings +30
Equity +90
Improvement -40
Overrun -35
Depreciation (all is well) -120
FUBAR foundation depreciation -80
Neg-am -35

That's anywhere from -$230K to -$310K, and a total savings wipeout.

Add on an additional $2k/mo in mortgage expenses (in addition to what they are already paying), on a $3333/mo salary, and it is lights-out.

I don't think spending 60% of your income, and all of your savings (3 years' gross income) to go 1/4 million in the hole is prudent financial headwork.

For it to work, the foundation mod must go flawlessly, and the house needs to sell for $420K - MINIMUM, which is appx 12X median income for Bummerton. That's a tall order. Even if it does work at $420K, there isn't much return for the amount of risk you are taking.

I remember when I thought Coronado, CA was nuts at 10X!!!!

Coronado at 10X, or Bremerton at 12X...Hmmm, let's think about that.

I know the book answer on this one: STFU! Let them skin their knees and learn for themselves. It's difficult seeing those you love get hurt, and especially painful when you see it coming and they don't.

BTW, they think I'm nuts, with this whole housing melt-down theory. They asked me if I would buy my new place, and I said it would have to get cut by 2/3 before I would run the numbers. They got glaze-over, rolled their eyes, and nodded.

If you don't know what moves your investment in either direction, you have no business in that investment. You need to know what would move your investment up (more X-Cals wanting to move to BREMERTON, crashing interest rates, more zany loan products, The DOD relocating the PENTAGON to Kitsap County), as well as what moves it down (bad foundation job, bad intel on the local comps, X-Cals moving to Kitsap - but not the worst city in the county, X-Cals not moving here at all, base closure, Norm's Dick stepping in front of a bus, rising rates, ARMs adjusting, sane lending standards, layoffs, more housing inventory, more new(er) construction, stock market jitters, dollar crashing, etc.)

I'm going to dummy-up to them, but all of you can tell me what you think.

Eleua - bleeding heart extraordinaire

synthetik said...

>otherwise he sounds like a guy who knows how to use his money...

I agree that he may be OK, and I understand why people get an ARM.

I purchased a condo in 2001 using a 5 year arm. I knew for a fact that we would be selling in 2003 and moving to California.

That bet paid off for me, but this is a different market. What if values tanked in 2003? I'd have been stuck.

His risk lies in his job sector and his ability to sell when he needs to. Where will rates be in 2009? How much will his house be worth in 2009?

NotMyRealName said...

KUOW's "Weekday" show will be disucssing the turning real estate market today at 9AM. A podcast will be available later today.

meshugy said...

Is that house occupied, or is it staged?

It is elaborately staged....must cost hundreds a month.

Eleua said...

It is elaborately staged....must cost hundreds a month.

Yeah, I thought so. The "baby" room was a dead giveaway. People in Seattle don't have kids.

easthawaii said...

Meshugy's house also has a cottage with full kitchen, bath, w/d = a rental. To me, there is some value in a detached second house on the property.

Eleua, your writing about cousin's situation made me laugh. Good luck to them, they may need it.

I found the Seattle multi-family market to be insane during my stay last June. I'm in Houston now, and it is even worse here, and no local blog. At lease once a day, someone tells me Houston is different, or that it already had its slowdown in 2003.

Thanks to all for keeping me informed on Seattle.