….A Drama In 3 Acts.

Moving In

Our case study purchased their first home in the River Oaks subdivision in May 2001. This subdivision had stalled out for a couple of years, but the owners purchased a brand new home once construction got going again for $157,448 with a $149,500, loan. 30 year fixed.

–  11/2001 – 2nd for $13,000.

–  11/2002 – Refi for $148,000 at 5.875 5/25, and an $18,000 HELOC.

–  12/2003 – Refi for $180,000 t 5.625 5/25, and an $18,000 HELOC.

–  6/2004 – Refi for $180,000 for $202,200 with a 115% Option ARM, and a $35,000 HELOC.

They sold the house for $310,000 in 12/2004.  They made out nicely, and given the times, hadn’t over leveraged by pulling out too much equity.

Moving Up

Their next buy was a strange one – 2.5 acres with a 70’s house overlooking I-80.  I was pretty happy though, as the $540,000 purchase price upped the comps for the neighborhood.  $432,000 first loan at 5.25% 3/27, and a$54,000 HELOC.  They went through the process to obtain a Preliminary Parcel Map to slit the lot, market to new lot at $249,000, didn’t get any action, and eventually withdrew the listing.  The parcel split was never completed – in Washoe (as opposed to Reno), water rights would have needed to be dedicated and the driveway approach would have need to be constructed, probably a $50,000 outlay.

–  5/2005 – Refi $568,000 at 5.875% 2/25.

–  12/2005 – HELOC $72,000

–  7/2007 – Refi $615,200 115% Option ARM, and a $76,900 2nd loan.

–  6/2009 – NOD filed for missed 3/2009 payment.  NOD cancelled 9/2009.

–  5/2010 – Sold 6 acre feet of irrigation water rights to a neighbor for $30,000.   The chance of ever getting these rights rededicated to the property is close to nil.  Folks out here take their water VERY seriously.

–  6/2010 – Purchased in Granite Ridge for $462,500.

–  7/2010 – NOD recorded based on missed 4/2010 payment.

Moving Out

The Granite Ridge house was originally purchased in 5/2003 for $413,372.  It was resold in 1/2006 for $715,000 (nice!), and then was sold in 4/2010 for $380,000 in what appears to be a short sale.  The new owners (who seem to have bought 9420 Robb Court for $480,000 in 4/2007) took out a $285,000 loan 15 year fixed, then “sold” the house to our owners for $462,500 2 months later, carrying a note for $362,500 “subject to” the underlying 1st note.  This would theoretically require the lender’s prior approval (right, like that really happened!).

Moving On

These owners were pretty responsible on their first house, and reaped a pretty good reward.  That allowed a move up to house 2, which probably seemed like a good idea at the time.  We all like projects, and the lot split must have seemed like easy money.  My sense is that the money pulled out by the refinancing was used to pay the mortgage, not to buy toys or improve the property.  Selling of the irrigation water rights out here is a war crime, but the needed to raise the down payment on house 3.  with a default in their past and probably not the required income to show, there was no other way to move out.  The old owner of house 3 is certainly taking a risk self financing to a buyer going into foreclosure, but got a 20% premium doing so.  They are doing a “double down” and averaging their basises and saving their other Robb property (for now – it is tough being your own comp).  And I get another foreclosed house in the neighborhood.

No morals or judgements here, just a story.

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