The Log Cabin on Erminia has generated a lot of reader interest, so I’ll try to tell you what I know about the house and it’s history.  The story has elements of an owner making life choices after building a dream home, a bank unwilling to negotiate, a peek inside the Realtor world, the mysteries of the courthouse steps, and a look at the dangers of buying an REO.  I don’t mean this post to be in any way judgmental of the former owner, who was a friend and neighbor of mine.  But I know a lot more about this house than most I profile, and thought it might generate an interesting dialog.

Why a log cabin in the high desert?  I guess you could argue why French Provençal mansions and Italian villas here, too.  It was the owner’s dream, so he built it.  The lot was purchased for $265,000 in November 2003 with $80,000 down.  First Independent Bank issued a construction deed of trust in November 2004 for $880,000, and work immediately started on the foundation work.  Remember the Winter of 2005?  Two 3 foot snow dumps in a week effectively stopped construction for the winter, and FIB increased the construction loan to $935,000 to cover the costs of the delay.

When Spring finally arrived, so did truckloads of logs from Idaho.  It was fascinating to watch a real log cabin going up, and to see the amount of steel it took.  And it was SLOW going.  Logs are an inflexible building material, and any changes (even moving an outlet) are incredibly difficult and expensive to achieve.  By the end of 2005, the builder was filing lien notices (as a construction loan, it was the bank who was actually withholding construction draws, not the owner).  Finally, the Notice of Completion was filed in July 2006, and permanent financing of a $700,000 first and a $250,000 HELOC was put in place.  They look like they ended up staying pretty close to their construction budget.

It was a happy house – 2 kids, 3 golden retrievers, lots of toys.  Some landscape work started happening.  We talked real estate whenever we met on dog walks, and by the Spring of 2008, the tone had changed.  It wasn’t so much that the mortgage was bleeding them dry, but it was destroying their lifestyle.  No more flying off to Aspen for a weekend if their was a good dump, no contributions to the kids’ college funds.  I don’t think the concept of being under water had entered their minds yet.  There really aren’t that many heavy hitter Realtors in this market if you cut to the chase, and the owner brought in one of the elite, Dave Hughes at Dickson.  I don’t know who came up with the initial listing price, but the home hit the market at $1,450,000.

Back in the Diane days, we used to have lots of discussions on new business models for the industry, “gift listings”, why Realtors take certain listings.  I think in this case, the owner and agent were probably pretty far apart on where to list the house.  But it is a unique house, and if you don’t ask high it won’t sell high.  I haven’t seen the actual listing agreement, but I was told that it included a clause that the listing price would be lowered $100,000 every month or two.  This would give the agent the confidence to invest marketing time and money, and the owner the sense that he was getting the best price.  And that’s the way it played out until the listing was withdrawn at $1,100,000.  With commissions, concessions and taxes, this would be the break even price.

When the realities of the market sunk in, the owner approached JP Morgan Chase about a short sale and were summarily rebuffed.  Chase wouldn’t consider reducing a cent of the 2 loans totaling $950,000 (remember this when we get to the current asking price).  A NOD was filed in January 2009 on a missed September 2008 payment, and the Trustee’s Sale was set for 23 April 2009.  The owner even went to the sale to get a sense of closure, but the sale was postponed and the house went into the shadows.  Finally, a new NOS was recorded in December 2009, and the house went back to the bank at a Trustee’s Sale on 19 January 2010 for $505,641.

Anticipating the April 2009 Trustee’s Sale, the owner and family leased a house in the same school district and moved out in March 2009.  I’ve often wondered how parents explain losing their homes to their children, and I have a lot of respect for how these owners handled it.   “We screwed up.”  It was an unfortunate but important lesson in economics for the kids, and the situation was never hidden or sugar coated.

The owner had every intention of leaving the home in tip-top condition – they had a lot of pride invested.  Sure, there were a couple of custom light fixtures they wanted to take with them.  And then the kitchen appliances would be a nice upgrade to the rental.  And then why not swap out the upgraded toilets and sinks.  Don’t get me wrong, the house wasn’t trashed.  But the motivation to reinstall everything diminished as the frustration with the bank and the situation increased.  In the end and including deferred maintenance, it will probably take about $50,000 in work to get the house back into the condition it  was in when the bank denied the short sale.

Ferrari Lund listed the house for $633K immediately after the Trustee’s sale (using the old MLS pictures).  Then mysteriously, their sign was gone after a month and Greenstreet took over.  The price was later reduced to $588K or so, and is currently listed for $558,100.

One reader let me know that this listing was bouncing all over the MLS and showing up in weird locations.  This may be a partial explanation:  Belli Ranch exists in a bit of purgatory.  Agents list us it various districts, including Verdi, West Southwest, and occasionally West Suburban or even Northwest Foothills.   Many assume that it is Verdi 89439 (it was at one time) when in fact it is Reno 89523, though it is in unincorporated Washoe County.  So depending on how accurately the agent entered listing information, what your search criteria is, and even what real estate feed you are searching on, properties on the Ranch can drift around the MLS.

A few more things I can tell you about the house:

–  Being Washoe and not Reno, properties taxes are about 15% lower.  Erminia is a class 1 school bus route, so the roads are alway the first to be plowed.  Fire protection is provided by the Sierra Fire Protection district, and a 100% fully staffed station is less than a mile away.

–  New meaning to the term “open house”, Erminia was unlocked from July until the bank took over.  Even now, the agents haven’t figured out how to work the flush bolts on the double doors.

–  The house was never professionally winterized until January, though the bank had a maintenance service engaged since July.  I know for a fact that water lines ruptured over the winter (I was there when the bank’s handyman discovered it) but this won’t show up on any disclosure or REO addendum.

–  Log homes do strange things.  The chinking between logs needs to be maintained, which hasn’t been the case here.  And the logs also split horizontally, creating air gaps.  Erminia needed to patched with foaming insulation on the interior constantly to keep out drafts – you can see it in all the corners of the house.  If you are interested in the house, make sure you have it thermal imaged to understand what you are facing.

–  Sprinkler and irrigation systems are virtually impossible to economically repair if they have had freeze damage.  You can probably write off all the landscape and sprinkler systems.

There have been a surprising number of showings of the house.  Knowing what I know about the house and the area, I think it will have to sell for $400-425,000 to make any sense financially.  Then plan on at least $150,000 in repairs and landscape, more if you feel the need to remodel to meet your needs.  We will see how close I get.

So that’s what I know about Erminia.