Posted by: 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.

32 responses to “$75K Home Was Mortgaged for Nearly Half a Million in 2007”

  1. Ira Sacharoff

    To be fair, it was “worth” more than 75k at the top of the market. But even we say it was worth 155 at the top of the market( arbitrary, pulled out of my hat number), Lehman Brothers was still lending them three times the value of the property. Who was hoodwinked? Was it Lehman Brothers? Or were they fully aware that the value of the property was only 1/3 of what they were lending, and were hoping to sell the toxic loan quickly?
    And why would someone take out a 466,500 dollar loan on a house like this? Idiot or scammer? It’s an interesting detective story.

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  2. Blurtman

    Winnnnnnning!

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  3. Kary L. Krismer

    By Ira Sacharoff @ 1:

    And why would someone take out a 466,500 dollar loan on a house like this? Idiot or scammer? It’s an interesting detective story.

    That was back in the day when refinance appraisals were based on what the owner wanted to borrow. The way I’ve heard it worked was a lender would call three appraisers to give a ballpark before even seeing the property, then pick the appraiser with the highest number, and then not ever hire them again if they didn’t meet that number on their appraisal.

    Anyway, my guess would be the owner had a lot of other debt they wanted to pay off, the lender added up all that debt and got a loan for that amount.

    Edit: It might also possibly be some sort of senior’s reverse mortgage–looking at the documents they are not your typical loan. If so, it’s possible not all the amount was loaned out.

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  4. softwarengineer

    Stories Like This Make Me Thank God

    I’m not associated with real estate, banking, politics or a delusional [and or crooked] owner conning the system.

    I totally agree with Ira, heads should roll on this one. But I bet the bankers involved all got bonuses for this deal and welfare handouts from the stimulus cash our Dem/Rep politicians gave them.

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  5. Bashir

    So it was actually another case of ‘senior fraud’ from a reverse mortgage company. Why am I not surprised?

    FWIW, a local resident with the same name died in December 2008. Very sad to see predators taking advantage of someone that was almost 70.

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  6. wreckingbull

    By softwarengineer @ 4:

    Stories Like This Make Me Thank God

    I’m not associated with real estate, banking, politics or a delusional [and or crooked] owner conning the system.

    Whether you like it or not, SWE, you are involved. You paid for this fun with your tax dollars and your children’s future. Welcome to The Machine.

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  7. Erik

    Interesting post. Good for them. They got $400,000 for free. That would take many people about 10 years of working to make that much. All these people had to do was sign a document.

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  8. whatsmyname

    It seems crazy that anyone would write a $466,500 note on this property. But, given that it was a reverse mortgage, and given that the bank took it back on the courthouse steps for $165,000, it would appear that $165,000 was likely the full amount advanced. So it turns out to be quite a bit less fun than first supposed.

    Edit: oops, looks like Tim has already pointed that out.

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  9. Erik

    If they had a home equity loan for $210k and then later increased it to $466.5k, doesn’t that mean the loan had exceeded $210k so they had to do it again for $466.5k. To me, this means the loan is atleast $210k.

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  10. whatsmyname

    RE: Erik @ 10
    Possibly, but not necessarily. The old equity loan could also have been a partially funded reverse mortgage. Or it could have been a straight loan that was, say 30% amortized. Or it could have been a partially advanced line. Rates were a lot better in ’07 than in ’02 making it a good time to refi for rate alone.

    It doesn’t always happen, especially in the recent unpleasantness (which would apply to this foreclosure). But banks will often set their auction bid on what’s owed them.

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  11. ARDELL

    Not saying this is the case for this particular house, but often I see massive loans on homes 3 to 4 times the value of the house. It is basically a blanket mortgage that incorporates more than one property owned by the same individual and all of the houses each show the total of the blanket mortgage.

    Let’s say the people owned a few properties and wanted a blanket reverse mortgage to maximize their income. The combo value of the homes could have been $500,000 and the mortgage recorded on each property would be the total amount borrowed.

    You see these on homes sold by builders all the time. House sells for $700,000, mortgage amount on the the house is $11 million dollars. The loan keeps reducing and moving over to the remaining unsold houses until they are all sold.

    Again, not saying that is the case here. But most times when I see a mortgage completely out of whack for that single property, it is a blanket mortgage.

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  12. Kary L. Krismer

    RE: ARDELL @ 12 – In Snohomish County you can look at the deed of trust documents on line to review the legal description. King County won’t let you pull up deeds of trust.

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  13. Erik

    RE: Kary L. Krismer @ 13
    Interesting. How do I look at the deed of trust documents for snohomish county?

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  14. Kary L. Krismer

    RE: Erik @ 14

    This, believe it or not, is their website: http://198.238.192.100/

    Since that is very hard to remember, it’s best to either bookmark it or search Google for “XXX county recorder” or “XXX county auditor.” King and Snohomish are very similar, with King not allowing deeds of trust to be seen because there was a period where social security numbers would be written on deeds of trust. That was years ago, so I’m sure the people of Snohomish County are safe, because undoubtedly they’ve changed their social security number my now. ;-)

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  15. Robin Byers

    I have a better one.”Jack” bought a tiny house in Marysville in 2007 for $7,000. By tiny, I mean on slitls, 3 bedrooms, one bath, pellet stove for heat, no garage. A contractor by trade, he tore out the kitchen and used the cheapest cabinets Ikea sells and put in new tile, then refinanced it with a new value of $100k. He paid off debt, then put in new sheetrock in the living room and downstairs bedroom and new windows in the living room and refinanced it for $200k. He put Pergo flooring and a new pellet stove in and refinaced again, now it was ‘worth’ $300k. He started to put a new porch and front entry on but never finished it. But he did manage to get the same appraiser and mortgage broker to up it to $400k in 2009. By then he couldn’t make the payments and it went into foreclosure in 2010. Same crappy little house, he never finished any of the rooms he started but somehow he ‘made’ almost $400k on it.

    I don’t wonder how we got into the mortgage crisis we got into in this country – I know how we did.

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  16. ARDELL

    Just thought of three other cases where I have seen the mortgage lien on the house be excessive relative to the value of the house. Two were business related. The owner of the house started a small business and received $500,000 and used the house as part of the collateral for the business venture. The full $500,000 borrowed ends up as a lien against both the house and the business. They don’t split it proportionally. Then if the business fails, they lose the house, even if they have never missed a payment on the house. Had two clients over the years in that scenario.

    Most recently I saw it where a small time builder was putting up four houses and they wouldn’t give him the last installment to complete them unless he put his personal residence into the collateral for the loan mix. Thus his personal home ended up with a monster lien that had nothing at all to do with his personal residence.

    People can lose their homes without missing a payment on their home, and have a mortgage showing that is well in excess of the home’s value, if they “use their home as a portion of the collateral” on a completely different business venture.

    Another that was REALLY common during the bubble, when people were buying a new home before selling their current home. It’s called “a cross-collateralization” loan where they put the total of both mortgages on both properties instead of pulling the money forward for the new home down payment via a home equity loan only on the current residence to buy the new one. This was commonly used instead of “a bridge loan” and was a form of bridge loan that lumped all debts together and placed huge liens on both properties well in excess of the value of either as a single entity.

    Many reasons why a mortgage can be much larger than the value of the property where you see that lien.

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  17. Erik

    RE: Kary L. Krismer @ 15
    Thank you.

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  18. David

    RE: Kary L. Krismer @ 15

    Kary — FYI, that IP address you posted resolves to websrv02.co.snohomish.wa.us:

    http://websrv02.co.snohomish.wa.us

    Still a lousy URL, but better than a raw IP address.

    Hope this helps.

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  19. Kary L. Krismer

    By ARDELL @ 17:

    Just thought of three other cases where I have seen the mortgage lien on the house be excessive relative to the value of the house. Two were business related. The owner of the house started a small business and received $500,000 and used the house as part of the collateral for the business venture. The full $500,000 borrowed ends up as a lien against both the house and the business. They don’t split it proportionally. Then if the business fails, they lose the house, even if they have never missed a payment on the house. Had two clients over the years in that scenario.

    . . .

    Another that was REALLY common during the bubble, when people were buying a new home before selling their current home. It’s called “a cross-collateralization” loan where they put the total of both mortgages on both properties instead of pulling the money forward for the new home down payment via a home equity loan only on the current residence to buy the new one. This was commonly used instead of “a bridge loan” and was a form of bridge loan that lumped all debts together and placed huge liens on both properties well in excess of the value of either as a single entity.

    .

    The first example is very common. One of the proposed pieces of legislation this last year that dealt with the issue of the bank’s rights to pursue a deficiency after a short sale would have locked such owners into their houses, because the bank would not have been able to agree to the sale without waiving the deficiency! That was an unintended consequence because they weren’t thinking of that type of situation. Fortunately that did not pass.

    As to the second one I quoted (your last one) I believe Washington Federal still offers that type of loan.

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  20. Kary L. Krismer

    By David @ 19:

    RE: Kary L. Krismer @ 15

    Kary — FYI, that IP address you posted resolves to websrv02.co.snohomish.wa.us:

    http://websrv02.co.snohomish.wa.us

    Still a lousy URL, but better than a raw IP address.

    Hope this helps.

    I must have it saved that way as a favorite. It might be an imported copy of a favorite I created 20 years ago when I still was using AOL. ;-)

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  21. Erik

    RE: Robin Byers @ 16
    If only I had the foresight that Jack had. Do you think he planned it like that? Did he save any of that money or did he get to work less?

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  22. Chris hauser

    Only one or two intelligent comments, guess which ones?

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  23. Erik

    RE: Chris hauser @ 23
    Comment 8 and comment 22 look pretty good to me.

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  24. Lo Ball Jones

    An equally vexxing question…who would pay $1,100 a month to rent a house worth $75,000?

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  25. ARDELL

    RE: Lo Ball Jones @ 25 – ‘

    Rent goes by price per sf vs value of property. I have seen two million and three million dollar properties in L.A. rent for 1,700…value in the land type properties with tear downs on them.

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  26. Todd Miller

    We have the same thing in Las Vegas. Homes that were mortgaged for $300k sold for as low as $60k last year.

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  27. Erik

    RE: Todd Miller @ 27
    When you were discussing low inventory on the west coast, you forgot to include Washington. We are at record low inventory and you left us out just cause there isn’t a bunch of sunshine here.

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  28. ChrisM

    RE: Lo Ball Jones @ 25 – “who would pay $1,100 a month to rent a house worth $75,000?”

    One who values mobility?

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  29. Todd

    RE: Erik @ 28

    Sorry. I’ll toss a shout out for WA in the next update.

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  30. Young Gun

    I was reading the article about Financial Freedom and realized that I bought a home on short sale from them about 2 years ago. Same type of situation. The folks had a deed of trust that read 360,000 and I paid 142k. I never got the amount that was actually owed but from my experience with annuitys and contracts that mimic them like a reverse mortgage. It is very difficult for the lending company to lose. I would think they would be based actuarially instead of by pure emotion.

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  31. Erik

    RE: Todd @ 30
    Thank you sir.

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