The Shadow Inventory Next Door

Shadow Inventory Next Door

I thought it might be interesting to share the saga of the house literally next door to me.

Before we bought our house we noticed that the home next door had been foreclosed, but the now-former owners were still living there. Just last week they finally moved out. I decided to spend some time digging into the Snohomish County Public Records to get a more complete picture of this home’s story.

Here’s the timeline so far:

  • 2004-10-19: Purchased for $153,745, 100% financed
  • 2005-08-01: Began missing payments
  • 2005-12-09: Notice of Trustee Sale
  • 2006-02-27: Caught up on payments
  • 2007-09-07: Cash-out refinance, new loan $181,000
  • 2010-07-10: Began missing payments again
  • 2010-11-19: Notice of Trustee Sale
  • 2011-04-04: Courthouse Steps foreclosure sale
  • 2011-07-07: Former owners moved out
  • 2011-07-12: Bank begins trash-out of home

Shadow Inventory Next Door: WARNING

The former owners moved out about a week ago. Despite all the gnashing of teeth in the press these days about the foreclosure “crisis” and the terrible impact it’s having on families, the family that used to live in this home are not homeless. In fact, they just moved into a rental about a block away. The kids still walk the neighborhood streets and play in the park, and I can even still hear their little dog yapping in their yard at anything that moves.

Pretty much the day after the former owners finished moving out the usual bank-owned no trespassing signs (pictured above) appeared in all the windows and doors. Yesterday the bank began trashing out the house. It seems that the former owners left a bit of junk behind.

Shadow Inventory Next Door: Trash Out

So far we’re a full year from when the owner stopped making payments. From the looks of things, it will probably be at least a month or two before this home makes it onto the market. I wouldn’t be surprised if it takes even longer.

It’s definitely fascinating to watch this unfold up close and personal. I’ll be sure to post another update when something interesting begins to happen.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

57 comments:

  1. 1

    It will be interesting to follow. I’ve seen some foreclosures hit the market quickly, but that’s where the owners probably left things in very good condition (judging by the fact they left appliance manuals).

    BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.

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  2. 2
    Ken M says:

    There are a lot of house not on the market just sitting there. No incentive for the banks to sell as it will depress the prices farther.

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  3. 3

    RE: Ken M @ 2 – The incentive is to get their money. If they cared about the market they would process short sales better.

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  4. 4
    NewHomeOwnerInFremont says:

    Kary. You are a blog posting machine today.

    Rate this comment: Thumb up 0

  5. 5
    The Tim says:

    By Kary L. Krismer @ 1:

    BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.

    I wouldn’t. I was pointing out, as I have done on these pages a number of times in the past, that the portrayal of foreclosure as being some sort of terrible horrible fate for a family is bogus.

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  6. 6

    By NewHomeOwnerInFremont @ 4:

    Kary. You are a blog posting machine today.

    My procrastination is almost over. I only have one more check to write.

    For me paying bills takes about an hour of my time, but it takes days to complete!

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  7. 7
    Scotsman says:

    RE: Kary L. Krismer @ 1

    “BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.”

    What makes you assume they had income? Are food stamps now accepted for first/last and damage deposits?

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  8. 8
    ChrisM says:

    I was playing around on RedFin a couple of weeks ago, and stumbled onto a way to see when banks had taken the property back but had not yet offered it for sale. In Clark County (WA), there were dozens (hundreds?) of cases where banks have sat on a foreclosed property for more than a year with the house still not put on the market.

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  9. 9
    The Tim says:

    By ChrisM @ 8:

    I was playing around on RedFin a couple of weeks ago, and stumbled onto a way to see when banks had taken the property back but had not yet offered it for sale.

    For everyone else’s benefit, here’s how to use that feature on Redfin: http://blog.redfin.com/blog/2011/02/redfin_now_showing_700_more_foreclosed_homes.html

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  10. 10
    Pegasus says:

    By The Tim @ 5:

    By Kary L. Krismer @ 1:
    BTW, I’m not sure why you would expect someone who has had free rent for a year to become homeless.

    I wouldn’t. I was pointing out, as I have done on these pages a number of times in the past, that the portrayal of foreclosure as being some sort of terrible horrible fate for a family is bogus.

    That’s a rather snobbish look at foreclosures, Tim. Many foreclosures were brought on by the subprime mortgage scandal and most now are being brought on by a loss of jobs and income that was caused by the banking industry. Not knowing whether the former homeowner is gaming the system makes your statement look rather obtuse. The facts are that being behind on your mortgage and foreclosure are ranked extremely high in the stress tables and by your records they have been struggling for a long time. They might also have had to deal with collections agents, illness, lack of food, loss of job etc. Quit being so cavilier about foreclosures.

    This foreclosure might also be a factor in the bank acting so fast in approving your bid for your home, along with the other known negatives that we have already discussed.

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  11. 11
    ChrisM says:

    Cool pics, BTW. Going for the Dorothea Lange look?

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  12. 12
    ray pepper says:

    RE: The Tim @ 5

    “that the portrayal of foreclosure as being some sort of terrible horrible fate for a family is bogus. ”

    AGREED! I have yet to meet a person/family that has ever told me personally that their Foreclosure was a “terrible horrible fate.” All seemed to find it a liberating experience and most seemed to save up a hefty amount of cash. In addition many families I know got paid 1500-5000 to leave the home in “broom-clean” condition…

    It does seem though they all want to buy again at these new lower levels and NOT rent for awhile. I would say over 1/2 of the people I know who walked away bought again in one way or another.

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  13. 13
    Toad37 says:

    Tim, what do you guestimate this bad boy will go for at auction?

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  14. 14
    The Tim says:

    RE: Toad37 @ 13 – The foreclosure auction already happened:

    • 2011-04-04: Courthouse Steps foreclosure sale

    The “auction price” was $210,093, which is bizarrely high. I don’t see any way this place goes for over about $80k whenever it finally hits the market.

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  15. 15

    RE: The Tim @ 14 – Probably the amount owing. Also, that price will allow them to list it for $165k. :-D

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  16. 17
    kfhoz says:

    RE: Pegasus @ 10

    Most foreclosures are brought on by irresponsible borrowers as well as irresponsible banks. When property prices were going up and these risk takers were “winning” then they kept the profits. When the risk does not pay off the irresponsible borrower gets a year free rent and the bank gets money from government guarantees.

    We all know people who have gone or are going through the foreclosure process. All that I know took on an unreasonable amount of debt, albeit egged on by the banksters. All of the ones that I know live/lived in nicer houses that I do.

    The people I have seen are not victims, just gamblers who win (or at least do not lose much) either way. Tim is in no way being snobbish.

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  17. 18

    By kfhoz @ 17:

    All that I know took on an unreasonable amount of debt, albeit egged on by the banksters.

    Often that other debt has little or nothing to do with the house, other than the fact that a few years ago they may have rolled it into a refinance on the house.

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  18. 19
    cheapseats says:

    RE: The Tim @ 14 – There will likely be a “celebrity next door premium” on this place at next sale.

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  19. 20
    WestSeattleDave says:

    This story is a perfect example of the foolishness of the bubble years. In August ’05 they began missing payments, it went NTS 5 months later, and the delinquency was cured by February ’06. Yet 18 months after that episode, they were able to do a cash out refi. Apparently, they could fog a mirror!

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  20. 21
    Toad37 says:

    RE: The Tim @ 14 – I think that is what the bank marked to market when taking it back. It will likely be sold to the next home-owner for MUCH less.

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  21. 22
    The Tim says:

    RE: Toad37 @ 21 – You asked about what it will “go for at auction,” and I’m trying to explain that the courthouse steps event is the auction. There was a literal, physical auction on the courthouse steps. The bank set the minimum bid at $210,093, nobody bid, so the bank “took it back.” There won’t be another auction. The next sale will most likely be after the home is listed on the MLS by the bank.

    For more details about the various steps in the foreclosure process, hit this post: Reader Question: Buying Foreclosures at Auction?

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  22. 23
    Toad37 says:

    RE: The Tim @ 22 – Understood Tim. I meant to say what do you think your future next door neighbor will pay for it.

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  23. 24
    The Tim says:

    RE: Toad37 @ 23 – Ahh, then I answered that above @ 14: “I don’t see any way this place goes for over about $80k whenever it finally hits the market.”

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  24. 25
    MichaelB says:

    Is this example of shadow inventory common throughout Seattle, or only specific to your neighborhood? Was this a consideration in your decision to buy? Are there other properties like this in your neighborhood?

    If the house is only worth $80,000, assuming the structure is worth $0, what does that say about the value of land in the neighborhood? Possibly an investor would buy this as a low income rental property?

    What do you perceive to be the impact of this shadow inventory on the values of surrounding properties such as your own?

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  25. 26

    RE: The Tim @ 24 – who want’s to be The Tim’s neighbor for $80k??? :)

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  26. 27
    ray pepper says:

    RE: The Tim @ 24

    Tim, if that house goes for 80k right next door it will NOT be positive for you other then getting all that junk cleaned up. I know you are NOT moving anytime soon. I hear that from everyone…But, then something happens and they MUST move…. I’m hoping you have double the sq footage but I have not checked comparisons nor age or lot size dimensions but on a resale flip right next door I don’t see it even pulling in 200k. If it did pull 200k ” TURN-KEY” that would be a HUGE return for the investor.

    With so many people calling us everyday for work 30k goes a VERY LONG WAY in rehabbing a house now. We just did one for 10k because labor is cheap cheap cheap.

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  27. 28
    The Tim says:

    RE: ray pepper @ 27

    My house:
    • 1,620 above ground square feet
    • 1,092 basement square feet (>7 foot height)
    • 6,098 square foot lot

    Next door:
    • 1,092 above ground square feet
    • no basement
    • 1,742 square foot lot (no, not a typo)

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  28. 29
    ray pepper says:

    RE: The Tim @ 28

    WOW!!!!!!!!!!!!!!

    That house IS a real PIECE! Sure its not the unattached garage of your home? Better check title!! Time to look at an aerial!

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  29. 30
    David Losh says:

    RE: The Tim @ 28

    Is that the house to the back of yours?

    Have you considered claiming the property as a part of yours? Is there a claim to be made that it was attached to your property, and some how illegally carved out? Is this your former garage, or carriage house?

    You don’t need to offer to buy it. You can just make inquiries. The bank may take your inquiries for an interest in the property, or may conceed the interest to you as the highest, and best use, or value.

    Maybe, and stranger things have happened, the bank may let you take the property over for some monthly consideration with a cash out, or balloon in 15 years.

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  30. 31
    Pegasus says:

    RE: GreenAcres @ 16 – I agree that failing to pay the mortgage is what caused the foreclosure but the majority of foreclosures now are caused by people losing their job and being unable to find another. Labeling foreclosure hardship as bogus is just nonsense. It is the same as the banks labeling everyone behind on their mortgage as deadbeats when the truth is the banks and mortgage companies are involved in scam after scam and caused the global nightmare. When one is expecting to make a profit from someone else’s hard luck he ought to at least be respectful about it instead of declaring their pain and suffering is bogus. Stats show that strategic defaulters are declining in numbers now and the downtrodden former worker bees are the majority of all foreclosures. Tim isn’t walking in their shoes but he is benefiting from their plight. The house that Tim highlights had a very short time period for being in foreclosure compared to most. I am hoping Tim highlights my responses as he did yours now that I have straightened the facts out for both of you.

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  31. 32
    GreenAcres says:

    Pegasus – the point is no one knows the reason behind this foreclosure or any other. To paint all foreclosed owners as “deadbeats” is as wrong as painting them all as “downtrodden former worker bees”… you just don’t know.

    Face it – you have no idea whether the people in the house next door to Tim were foreclosed on because they had a financial disaster, smoked away their savings, or simply thought it would be better for them to rent than to hang onto a home that was depreciating more quickly than they could ever pay off.

    I won’t cry for them any more than I’ll judge them because I don’t know their situation or their reasoning. The “poor foreclosed homeowner” may, in fact, be in a better financial position and happier now that they are out from under their mortgage.

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  32. 33
    David S says:

    Who here’s planning to bid against The Tim at the action?

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  33. 34
    Jonness says:

    By Scotsman @ 7:

    RE: Kary L. Krismer @ 1

    “BTW, Iâ��m not sure why you would expect someone who has had free rent for a year to become homeless.”

    What makes you assume they had income? Are food stamps now accepted for first/last and damage deposits?

    When the Federal Unemployment extensions expire we’ll have plenty more homes to choose from. The name of the game these days is beat down the sellers, be it banks or privates. If you must part with your money early in this housing downturn, then nail the deluded sellers to the cross. If they aren’t bleeding by the time you move into the house, then you failed to play the game properly.

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  34. 35
    Jonness says:

    By David S @ 33:

    Who here’s planning to bid against The Tim at the action?

    $25K cash seems about right. :)

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  35. 36
    Pegasus says:

    By Jonness @ 35:

    By David S @ 33:
    Who here’s planning to bid against The Tim at the action?

    $25K cash seems about right. :)

    Let’s wait and see if it becomes a crack house or a meth lab first. You might be a bit high if that happens. A tear down and disposal of contaminated property might be too costly at any price. Can you get a permit to build a new structure on a 1700 sq ft lot these days without a whole lot of hoops to jump through? I think it is too small to house those seven repeat offenders that live a block or two away.

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  36. 37
    Pegasus says:

    RE: GreenAcres @ 32 – My point was not to label their hardship with the term “bogus” which you appeared to be defending in a round about way. Are you? Looks like my comments are now being moderated without any links. So much for getting opinions from consumers.

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  37. 38
    The Tim says:

    By Jonness @ 35:

    By David S @ 33:
    Who here’s planning to bid against The Tim at the action?

    $25K cash seems about right. :)

    Like I already said above, the auction already happened three months ago. The bank is trashing out the house. It is well beyond the auction and is on the inevitable path to MLS-listing.

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  38. 39
    David Losh says:

    RE: The Tim @ 38

    I don’t think so. Is that the house behind you, on that strip of dirt, in your back yard?

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  39. 40
    The Tim says:

    RE: David Losh @ 39 – Yes, that’s the one. And you don’t think what?

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  40. 41
    Hugh Dominic says:

    Question: what bank gave them $180k after they had just missed payments on their previous loan? Never mind. The bank probably had a government guarantee on that loan and didn’t care.

    And Tim: these guys are right. You have more to gain from controlling that property than anyone else. A junk house next door to mine sold for like $140k. I rue the day I let that one slip by. Do you know what kind of neighbors you get in Seattle for $140k? I hope you do not have to find out.

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  41. 42
    Jonness says:

    By The Tim @ 38

    Tim: You should consider lowballing the bank on this house so you can control its destiny. If you do, it’s best to have the attitude you don’t care if you get it or not. Go for blood and aim at maximum positive cash flow.

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  42. 43
    Real World Express says:

    If you really wanted to carry this blog to its ultimate conclusion, you might stop paying your own mortgage (since, you estimate that the average price was just re-established at $80,000 or less) & you might also try to buy your neighbor’s property at cutthroat pricing, raze the trashed up house and double your lot.

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  43. 44
    MichaelB says:

    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful. I’ll say one thing for that house – it has provided plenty of excellent blog material!

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  44. 45
    Cheap South says:

    RE: The Tim @ 5

    …and I know people with cancer that have not died. It does not mean they are happy and enjoying life.

    The fact that the kids still play in the neighborhood is not proof that they are living the dream. They lost their home, period. They HAD to move. Do you think that’s something easy to explain to kids?

    Friends of ours got an offer yesterday on their short sale house. They are losing $100K. The father had to move out of state for income. They are not homeless; but the family is broken and they are all devastated. Two teen kids; the dad is so ashamed; that’s all he can take about. How he could not give his kids the childhood he had.

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  45. 46
    Pegasus says:

    By MichaelB @ 44:

    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful. I’ll say one thing for that house – it has provided plenty of excellent blog material!

    How is living under the Fremont bridge working out for you? Catch any goats? Ah yes, the house that keeps on giving. I am beginning to wonder if Tim bought that house just for blog stories that will create traffic? If so it appears to be working.

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  46. 47
    The Tim says:

    By Real World Express @ 43:

    …you might also try to buy your neighbor’s property at cutthroat pricing, raze the trashed up house and double your lot.

    See above. Buying this place would not come anywhere near to doubling my lot. It would only result in a 28% increase in my lot size. Still an idea worth considering (especially at “cutthroat pricing”) but not necessarily a slam dunk.

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  47. 48
    David Losh says:

    RE: The Tim @ 40

    I don’t think it’s on it’s way to an MLS listing. That is the oddest lot lay out I have ever seen. The buyer pool for that house would only be to an investor who would rent it out.

    I see the house has deferred maintenance, it’s in an urban setting, so the bank has to secure the property, but it may never make it to the open market.

    It would be worth at least doing a title search and asking if that is a legal lot. I’m just saying that you may, you may, be able to muddy the waters on that title.

    The house has a value to you, but to some one else?

    So was that plan all along? Because I think it’s a good idea.

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  48. 49

    RE: The Tim @ 47 – I suspect it’s too late for that, and also wouldn’t impact your value anywhere near the cost. It would only be something you would do if you want to become a landlord. If it’s Fannie you can buy for 10% down! ;-)

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  49. 50

    By Pegasus @ 46:

    By MichaelB @ 44:
    RE: Pegasus @ 36

    I have to admire Tim for his courage in openly reporting so many negative aspects of his home purchase including poor schools, high crime, kitten kickers, and now the news that he has a 1,092 shack on a 1,742 square foot lot next door. Beautiful.

    How is living under the Fremont bridge working out for you? Catch any goats? .

    MichaelB, finding ways to get Pegasus and me to agree on at least one thing.

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  50. 51
    Dirty_Renter says:

    RE: ChrisM @ 11
    I was thinking the same thing. I thought they looked like depression-era black & whites, very cool. Makes me want to break out in a Woody Guthrie song.

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  51. 52
    The Tim says:

    RE: ChrisM @ 11 & Dirty_Renter @ 51 – Thanks!

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  52. 53

    RE: Dirty_Renter @ 51 – Maybe Tim can become the photographer of choice for REO agents. ;-)

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  53. 54

    […] Bubble marks that trend with a post titled “The Shadow Inventory Next Door,” while over at Redfin, Glenn Kelman explains why firesale foreclosures are more likely to be […]

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  54. 55
    Dave Francis says:

    I read this article three times, and let my gut do the work. Each time I read it, I became more sick to my stomach. We were lucky enough to not work with a lot of subprime lenders during the 04 boom, and consequently, kept busy with refi after refi from responsible homeowners. But Tim has reawakened the anger I felt when my neighbor did the same thing, and laughed about it while she used mortgage dollars to get a boob job. I almost never wanted to see another boob in my life. I see by statistics this is the trend, and I am getting sick of paying for it as well. Keep selling!

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  55. 56
    MichaelB says:

    Kary and Tim’s house – the gifts that just keep on giving…

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  56. 57

    By MichaelB @ 56:

    Kary and Tim’s house – the gifts that just keep on giving…

    Spoken like a true troll.

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