Monday, May 18, 2009

Excellent Conditions

Address: 2036 3rd. St #7, 90814
Asking Price: $150,000
Year Built: 1960
Size: 1 beds, 1 baths, 707 sq. ft.
$/Sq. Ft.: $212
HOA Fee: $104
Purchase price: $278,000
Purchase date: 4/2007
MLS#: Y901921
On Redfin: 30 days
Down Payment: $30,000
Monthly Payment: $900
Income Requirement: $43,000
Description: Cute condominium, excellent conditions, second floor. Nice living room with balcony. Short Sale.

"Excellent conditions"? You mean, like, for sailing?

Calling this a short sale is being generous. Assuming the bank approves this price (won’t happen), it will be "short" $128,000, less whatever meager down payment the renter coughed up (sorry, but we have to stop calling people who made interest-only payments to live in houses for a year or two “owners.” They rented money from banks and will walk with no equity, therefore they are renters). A one hundred and twenty eight thousand dollar loss on a 700-square-foot apartment? Cripes!

I don't know what this lady was thinking, but in April 2007, she convinced herself that a one-bedroom, one-bath condo in this neighborhood was worth $278,000. WTF were you thinking?

And before someone points to the baby stuff and chastises me for "attacking someone who was just trying to do what's best for her family"--wait, actually, go ahead and chastise me for that. Because that would be the dumbest thing ever written on the Internet--and that's saying a lot. "Doing what's best for her family" would be renting an affordable apartment and putting the $700 monthly savings into a college fund.

Shoehorning your way into a mortgage you can't possibly afford is the height of irresponsibility.

And speaking of that, to realistically afford this place, she would have had to pull in $79,428 per year.

Here’s a shocker: She didn’t.

The median household income in this zip is $54,170. But that’s household income, usually meaning two workers' combined incomes. A 700 square foot apartment can feasibly only house one adult, meaning she, by herself, needed to make $25,000 more than the average family to stay above water.

Worse yet, she needed to make 25k more than the median income to afford what is quite obviously an old, run down, sub-median property.

Predictably, the $1,700 monthly payment for what basically amounts to a boarding room quickly became unsustainable and now the property is on it's slow march back to the bank (paying $1,700 a month for this dilapidated hovel is like cashing in a $200 Mastro's gift certificate to eat dishwater soup out of a rusty tuna can).

The good news is, now she can do what she should have been doing all along which is rent a nice, affordable apartment in a decent neighborhood and save a healthy chunk of money each and every month.

Maybe she'll stop making payments and will be able to live rent-free for a while to save up even more for her and her family. Banks are so overwhelmed that I'd say she's got at least nine months of deadbeat living to look forward to.

But she needs to realize that short selling is a complete waste of time. It's not as if she'll get a smiley face on her credit score for short selling instead of foreclosing. Her credit will be ruined regardless and her down payment (if there was one) will vanish, and the $42,000 she spent in monthly payments (offset by minimal tax write-offs) is gone too. Those are just the facts and the sooner she accepts them, the better off she'll be.

Because even if the bank approved this short sale price of $150,000 (impossible) this incredibly unattractive property still has further to fall and smart buyers know it.

Remember this nearby seller? He’s also asking $150,000 in a short sale, but he’s been rotting on the MLS vine since September of 2007! That doesn’t bode well for our renter.

Further complicating this apartment's chances of finding a buyer is that it sort of resembles a Tijuana brothel:

And we haven’t even seen the bathroom yet! Don’t kid yourself; excluding bathroom photos is 100% intentional. I unconditionally guarantee it's a disaster.

Any buyer would have to be prepared to undertake a complete overhaul of this outdated mess. I mean, take a gander at the kitchen:

Wait, what the hell?

Um, lady, those don't look like salt shakers.


  1. It's so funny you picked this one out to blog on because when I first saw this listing last week, I thought about how much material there was here.... I didn't catch the um "salt shakers"? but I did catch the rest of the decorating, and instead of TJ brothel (how do you know what they look like??? ;-> ) I'd say it's a fortune teller's setup.

    And who would want to live in a place, where potentially spirits of dead people and demons, might be popping up?

    But on the business side, I have a beginner question -

    Why would the bank not approve the short sale?

    I mean, if the bank doesn't approve sales like these, then what is really going on?

    And how are buyers like myself, going to wait for prices to fall, if banks aren't going to approve the prices???


  2. Mike,

    HA! From WHAT I'VE HEARD about Tijuana brothels!

    Banks aren't going to approve the prices because they don't have to. Nobody is forcing them to mark-to-market (mark the homes on their books at what they're REALLY worth.

    If banks approve a short sale, then they have to book a loss. In this case the bank would eat $100,000 immediately because the loan was probably for $250,000. So instead it lists properties as short sales but rejects every offer (unless one is way higher than its internal valuation and would save them the hassle of a foreclosure) while it pretends to sell it in earnest. As long as it's still "for sale," the home is still considered an "asset" on their books for the full amount of the loan. No loss realized if it never sells for a loss.

    When the owner eventually walks, banks can also drag out the foreclosure process for almost a full year before they have to actually take it back. Some communities are threatening banks with criminal charges for allowing bank-owned foreclosures to fall into disrepair (green pools, squatters, vandals, etc), but again, largely nobody is forcing them to do anything. And since they are in no hurry to take these incredible losses onto their books, they drag out the entire process as long as they can with no repercussions.

    Add to that how overwhelmed the banks are trying to keep up with the growing number of Notices of Default, Notices of Trustee Sale, and actual foreclosures (to the point that it takes banks months to counter-offer), and you see why many consider short sales to be "fake" sales and refuse to consider them as comps.

    The answer to your last question is: You and I are going to have to wait even longer for the pig to pass through the python. The gov and the banks don't realize that the quickest way for housing values to regain their upward trajectory is to let this bubble fully deflate—and quickly as possible. Once housing is affordable to average working Americans, demand will skyrocket. However, as long as there is a widespread perception that prices still have further down to go, and banks are out there playing games to gloss over the truth, sideline sitters will be forced to continue waiting it out—or buy and lose value while the bubble slowly, and artificially, deflates.

  3. El Bee, thanks so much for explaining that.

    That helps a ton!

    Also, a lot of the things you say confirmed my hunches, in regards to places that just don't seem like much of a deal, yet being dressed up as "an incredible deal".

    Again, luckily for me I have "an incredible deal" with my rental, so I don't have to be anxious at all...

    I'm seeing people jump on a few sales thinking that they are great deals, but when I look around at all of the layoffs, government bankruptcy, unemployment rates, etc, etc.... I just don't see why some people are so over-anxious to spend their money.

    Anyways, thanks again!