August 27, 2008

Surviving The Bad (And Other Peoples’ Foreclosures) In San Francisco

First and foremost, the proper perspective from a plugged-in reader in San Francisco:

Life is about enjoying the good, but it’s also about surviving the bad. I'm sure there will be things I don’t want to hear, but my skin is pretty thick and gotten thicker going through all of this.

And now for the background and request:

I am an avid reader/watcher of the site and it has certainly become something that gives me a bit of a pulse on what’s going on in the City and not just real estate values. In any case I built my home in the Bayview in 2005, completed in 2006 at which time and upon completion I received an appraisal of $810,000 (via the bank).
In January 2008, facing a divorce the house was again re-appraised at $860,000. Despite some additional work done on the house I too was shocked to see a higher appraised value as I expected lower and really knew it to be lower based on market conditions but was still happy to see that higher number and one that clearly gave me the equity to refinance. Well now truly facing the realities of divorce and trying to re-finance as part of adjusting to one income I recently had another appraisal (bank appointed) and it came back to say that the appraised value was $600,000...
$600,000 for a 2,800 sq ft. 3br/2.5ba!! 1.5 yrs old, quality finishes, etc etc. This appraisal has completely thrown me into a tailspin as it jeopardizes my ability to even re-finance, and in looking at the report every property used as a comp was a either a foreclosure or a bank owned property sale and all of which bear no real comparable quality to my home, yet this is what I am up against.
I know that townhomes have been up for sale over at Candlestick Cove and in having wandered around to take a look I know that they are truly the closest "real" comparable to my home with regard to finish even though my home on average has 700-800 more sq. ft. The problem I am discovering in trying to dispute the appraisal is that because sales of the Candlestick Cove townhomes are not being listed on MLS and being sold through the developer that there seems to be no easily attainable record of the units sold or of the final prices of those units. Can you please tell me if there is a way I can find out what units have sold for? Sites like Zillow, Property Shark and Trulia have not been helpful in the least and utterly useless (especially considering 1.5 years after completion my property still doesn’t even appear on Zillow). I have spoken to the Candlestick Cove office on the phone and been told that they will not hand out that information, even though I am not looking for owners names, and simply seek just property sizes and final sale prices.
I don’t want to lose my house, one I spent time designing, seeing through the horrible permit process and 10 months of construction and one I expect to be in for quite a while, but given this horrible appraisal it may be all I can do but to sell it and eat my losses, while handing over a steal to the next owner. Thank you very much for any help or guidance you might be able to give.

Let’s hear it. And as always, add value or go home.

First Published: August 27, 2008 8:40 AM

Comments from "Plugged In" Readers

So, find another appraiser.

You should be up to $900K by the end of the day.

Posted by: tipster at August 27, 2008 9:09 AM

This wasn't totally clear from your post but ... why are you refinancing? (I know you're getting divorced but do you HAVE to refinance under those circumstances?)

If you can make the payments on the loans ... then possibly you can work something out with your ex (or his/her lawyer). There are dozens of ways to "buy" a property, for example, as a "lease-option" or whatever without refinancing the underlying mortgage.

Plus if you things really get bad with your ex (or the housing market) you can always default and take their credit down with you. Its a nice piece of leverage you can exercise against your opponent.

Posted by: Jimmy (Bitter Renter) at August 27, 2008 9:21 AM

This is a huge place. If you are only one, can you rent out part of it?

Posted by: kel at August 27, 2008 9:28 AM

You mention that you think the comps are not "real" comps either because the finishes of the houses are not comparable to yours or because they're foreclosures. However, remember the real estate mantra is "location, location, location" not "finishes, finishes, finishes." Perhaps you're witnessing what happens to value when you're the nicest house in the neighborhood. Also remember that just because a sale is by a bank and due to foreclosure, it is still very much a "real" comp. If that's the only way these people could sell their properties, then that's what they're worth.

If you do ever manage to get the sale prices for the townhouses at Candlestick Cove, I think you might find that the reason they've been tight fisted with the information is that the sales prices have been considerably lower than the advertised asking price.

Posted by: nivek at August 27, 2008 9:30 AM

Can't really blame the bank's appraiser (and since he was retained by the bank you can't just hire your own). A Bayview home appraised at $810,000 in 2006 would generally be reasonably valued at well below the $600,000 appraisal you just received. Banks have been burned bad, and prices are still plummeting in SF, so they are justifiably conservative.

Your story is a bit internally inconsistent. It sounds like you can no longer afford the payments after the divorce and that is why you need to refinance? If that is not the case, then who cares what the appraiser says. If that is the case, then it sounds like you either need to refinance or sell. On the one hand you think the appraised value is far too low, but on the other you say that if you have to sell you will "eat your losses." But if you are right, and it is worth far more than the appraiser says, you should come out fine with your expected high sale price.

How about this: go ahead and list it for sale and when, as you appear to expect, high bids come in, just reject them and take those offers to the bank to show them the real value of your home. If those high bids never materialize, then you'll have to accept that the appraiser was right and your home has dropped in value, and assess your options. Either find a way to make the payments, try to find someone who will refinance regardless which is unlikely, sell at a loss, or walk away and hand the keys to the current lender.

Posted by: anon at August 27, 2008 9:30 AM

Stuck in Bayview,

If you've been reading this site for a while, you know that my view is that your house is going to go down further - MUCH further. So, I won't torture you with my reasoning any further.

There are a few lawyers on this site, and I hope they can chime in with some additional information here, or correct anything that doesn't seem right. Putting aside the appraisal issue, I would ask you to consider carefully the implications of your divorce on your future finances as regards the house. It sounds like you have not filed a final divorce agreement and/or final resolution has not been worked out yet. So, I hope this is helpful and gives you something to explore with your attorney.

Typically married couples borrow jointly. I assume that was the case here. As regards the lender, EACH is liable for the entire debt. Divorce does not change this fact, as the lender is not a party to the divorce proceedings (I do not think that California has a statute that allows judges to order a shifting of the liability of the parties vis a vis the third party lender).

It sounds like you are going to stay in the house and your spouse is leaving/has left. The cleanest resolution here - and the one that most lawyers and knowledgeable financial people should recommend - is to sell the house and settle up between the spouses, so that the notes are extinguished.

However, to the extent that you really wish to stay, you need to pay careful attention to the divorce agreement wording. Typically, these agreements will contain "indemnification" language running from each spouse to the other.

This indemnification can cause all sorts of problems later, to the extent that you find that you no longer want the house (this could occur either because the value has dropped so much that it is a hopeless situation OR you simply cannot afford it on one income any more). Simply put, if you stop paying on the mortgage, and/or foreclosure proceedings begin, your spouse may have a claim against you on a number of counts, possibly including fraud, destruction of credit rating, "slander", etc. because what YOU do with the mortgage impacts the SPOUSE who nevertheless remains liable on the note. In certain cases, you could be brought before a judge and be ORDERED to continue paying the mortgage or face contempt charges, which would necessitate a personal bankruptcy. I HAVE PERSONALLY SEEN JUST THIS SEQUENCE OF EVENTS HAPPEN IN CALIFORNIA VERY RECENTLY.

I do not have any specific advice of course (not knowing your specific situation), but to the extent that you wish to remain in the house I would urge you to explore this issue with your attorney.

Nothing I've written here should be construed as legal advice, and as always one should consult with a licensed attorney who is familiar with all the specific facts and issues before embarking on any course of action.

I hope these thoughts are helpful, and best of luck.

Posted by: Satchel at August 27, 2008 9:31 AM

Don't know if you saw this in CNN Money today. Something to consider if things get terrible:

Posted by: marketwatcher at August 27, 2008 9:33 AM

My ruthless and hard-eyed advice.

Forget about the appraisal. It's a red herring.

The reality of what's going on is that the banks just don't want to lend in a section of the city that's seeing real price declines. The appraisal is not the reason they don't want to refi you, it's the excuse. So trying to generate an appraisal to convince them that the house is really worth what's currently owed against it is a waste of time.

Accept that a refi that will cover the current loan amount is not an option and look at your other options. On no account choose any option that requires you to pony up any of your own hard earned money. At worst, walk away and stick the bank with the loss.

Posted by: diemos at August 27, 2008 9:37 AM

Get another appraisal, or ask what you think the house is valued at. The challenging part is that it's in Bayview - and Candlestick Cove homes are not incredibly desirable. I hope this works out for the best.

Posted by: bernielomax at August 27, 2008 9:38 AM

I too recently had a really low appraisal as part of a bank refinance process - and this is in Russian Hill. I walked away from the deal and went with a local mortgage broker and the appraisal was 40k over what the bank appraised.
I would shop around - and go local. The appraiser from the bank wasnt even from the bay area.

Posted by: Joe at August 27, 2008 9:39 AM

Jimmy has a good idea with working out financing with the ex. The lower appraisal can actually work in your favor here in the sense that there is less equity to finance assuming that the division of assets is based on this latest and lowest appraisal. It would be a pain if our writer here was on the line for 1/2 of $860K but only really had $600K of collateral to work with.

To be fair both numbers (value of house at time of divorce settlement and value of house at time of refinance) should be identical.

Posted by: The Milkshake of Despair at August 27, 2008 9:44 AM

Yeah, forget about the appraisal.

The only number matters is what you and your ex think it is worth.

I assume the reason that you want the appraisal is to decide on how to split the house. One way to solve this problem.

Party 1 gives his/her best judgement and give a number how much the house is worth.
Party 2 decides whether to buy or sell his portion to #1, based on the value given by #1.

Posted by: John at August 27, 2008 10:05 AM

Appraisals are very very messed up right now. I think that the bank will give you the number they need to cover their own ass. We've had 4 different appraisals in the past three months - and they have come in anywhere from $750,000 to $950,000. A $200,000 spread - or the difference of 2 homes in Ohio. They can't all be right (I figured that we should treat it like Olympic scoring - toss out the high and the low).

Posted by: nowonderitcostssomuchhhere at August 27, 2008 10:12 AM

To address the question about values of cove homes:

Records should be available from the assessor's office, no? I'm not sure who has access to what, but they are called 'public' records, so I assume for a price you can request them.

Posted by: rr at August 27, 2008 10:18 AM

I agree with diemos. I think this bank doesn't want to lend on your home.

try other banks/credit unions. especially ones with whom you have a working relationship.

appraisals are in general not very accurate. thus, you may find high variability between appraisors, and one may appraise more in your favor.

I guess you could put your house on the market and see what offers you get. This is of course tricky... not sure what the ramifications are of putting your home on the market when you have no intention of selling.

the builders are never going to tell you what their homes are selling for. that's the LAST thing they want to do. They need to show an air of selling out for high prices. even if you do get the sales list you still wouldn't know the truue sales price as you don't know what incentives were given (free HOA dues, free upgrades, etc)

if the refinance is to get your spouse's name off the documents, then I think it makes sense. On the other hand, I'd be careful if this is to try to stretch into a home or something.

Posted by: ex SF-er at August 27, 2008 10:22 AM

I would also post this question on the "" website in which you will find a handful of people who (claim to) routinely buy properties by unconventional means. They could probably advise you on what might work in your situation.

Posted by: Jimmy (Bitter Renter) at August 27, 2008 10:25 AM

"They can't all be right (I figured that we should treat it like Olympic scoring - toss out the high and the low)."

Might also help if you claim to be Chinese as well then ;-)

Posted by: REpornaddict at August 27, 2008 10:32 AM

I am having trouble thinking of a situation where a refinance would be in this person's best interests. Perhaps an explanation of the rationale behind the refinance would help clarify the issue.

If the goal is to keep the house as the sole owner you will have to negotiate that with the other party in the divorce. Also, Satchel is correct that there is a community credit presumption for all property acquired during the marriage. That means you will be jointly and severally liable for the loan. There is some fine print with regard to this presumption so you will have to talk to a family lawyer. What this means is that you will likely have to ask the lender to alter the loan. There has been some discussion on this board regarding loan modification, perhaps someone who knows more about that issue can give advice.

I doubt, however, that any lender is going to agree to simply remove the other party from the loan in this market (especially if the other party has good credit and/or significant separate property).

If the refinance is due to a reset in interest rates, perhaps you can work out some sort of modification with the lender.

If the goal of the refinance is to cash out a little bit of perceived equity then you should be very careful. You may lose your antideficiency protection if you refinance for more than the purchase amount. If you refinance for an amount equal to or less then the refinance amount you probably retain your antideficiency protection. If any of the loans on the property are construction loans that will also affect whether or not you have antideficiency protection.

As always, nothing I say here should be construed as legal advice. Depending on your specific situation there are many factors to consider. The best advice I can give is to find someone with the knowledge to address all of the issues involved in your particular situation.

Posted by: Publius at August 27, 2008 11:03 AM

I am the owner in question so i figured that i would try to clarify some of the questions at hand, and i do appreciate everyones input:

I as a sole unmarried man owned the vacant property. - 2004 appraisal of lot = $185,000

During the course of having the house designed and built i got engaged and married.

Completed and moved-in in 2006 taking out a loan of $600,000 (Wife and I on title) ~ $3905/mo 30yr P/I ~ Bank appraisal $810,000

2008 Facing divorce ~ Jan 2008 appraisal ~ $860,000 (individual appraisal to establish spousal payout, with me keeping property)

2008 (August) ~ Attempting Re-Fi to release my wife off title and off interest/claim to property, & establish a lower monthly @ $3,170 (so that i wouldnt have to rely on a renter, or possibly be negative should i not have one) ~ (Bank Appraisal at $600,000 based upon foreclosure and short sale comps).

Essentially at this point, per this latest appraisal i am actually negative in my mortgage so refinancing is convoluted, as there is no perceived equity. So i had sought to contest the appraisal to some degree to show that there truly is some equity in the home. I have no doubt that i could sell it for much higher than $600,000, likely not rapidly but in this current market if i dont have to sell that would be the ideal scenario, and regardless of any dissenting opinions I'd like to at least see what the Bayview redevelopment brings to the area, market, etc.

Again i appreciate everyone's input, and suggestions. I simply am a homeowner, who put everything into this and doesnt want to let go, and seemingly until this appraisal came in i was only a signature away. The Bank has had no qualms about doing the re-fi and it does not seem to be much concerned about doing so in the area as the given loan amount is not exorbitant and I think they are quite sure in believing they could recover the amount (in worst case scenario).

I simply have been saddled with an appraisal, that on paper shows them to be at a significant risk, in a volatile market, and in a gentrifying area. Unfortunately i'm in the position of trying to argue that the comps via the appraisal are not true "comps" but then again i guess that just may be my personal argument, one i may very likely lose. Thanks again everyone.

Posted by: Rob at August 27, 2008 11:54 AM

To OP's original question re: comps in Candlestick Point, you can usually obtain sale prices from public records (the parties can make this private if they chose to do so, but most residential transactions don't take advantage of this and you can pretty much tell what they paid if it was recent by the assessed value [which is also public] anyway). Your appraiser should have access to this information.

I looked at a few quick samples from 301 Crescent Ct. (not sure if there are any other addresses). All the sales were relatively old (most around 1/07). The ~800 sq. ft. 1/1s were going for 399-440k (with a couple [BMR?] outliers at ~$320k), 2/2s with ~1,150 sq ft at ~$600k (with outliers at ~$370k) and 3/2s with ~1,400 sq ft at $750-800k.

Posted by: scott at August 27, 2008 12:02 PM


I think you could structure a purchase "subject-to" the existing financing (there's many variants of this that I don't understand in enough detail to be useful). Those agreements can be structured to be pretty iron-clad thereby protecting your (presumed) equity in the property that will accumulate as you service the mortgage alone. You can use the $600k appraisal to re-negotiate your wife's share of the property down ... to zero. (Since there is now no equity -- seems like you're underwater now so she should pay you about $92.5k for your trouble! (($785k - $600k) / 2).

On the other hand, consider that you're paying somewhere north of $5k/mo to live in the Bayview.

Posted by: Jimmy (Bitter Renter) at August 27, 2008 12:13 PM

Maybe the appraiser is off base, but maybe not. Perhaps the earlier appraisal was wrong. As a check of reasonableness, get a CMA from a couple of reputable real estate agents. If the higher value still seems reasonableness, then lobby for a different appraiser.

It's possible that you and your ex have agreed to a price that would not be achievable in the current market. In that case, you might be taking-on recourse financing to pay-off her share of non-existent appreciation.

Posted by: SausalitoRes at August 27, 2008 12:15 PM

So the vacant lot was separate property and the structure was community property (unless you used your own separate funds to build the house). The spousal payout should have included a deduction for the current value (or at least value at the time of the marriage) of the lot from the overall appraisal value for a determination of the split of community property. If the divorce is not final, make sure you talk to an attorney familiar with these issues.

I assume you are trying to refinance without taking out any equity. In that case you will need an appraisal at about $750K if the bank will give you an 80% loan. This represents a 7-8% loss in value for 2006 ($810K to $750K). I'm not sure how this compares to the area, but it seems pretty reasonable. A 25% loss in value on the house since 2006 seems a little high ($810K to $600K). Anyone care to confirm?

Good luck.

Posted by: Publius at August 27, 2008 12:26 PM

Regardless of what your own personal appraisal of the property is, each bank will hire their own appraisor.

the goal for the bank is to limit losses. Banks are not fond of RE right now. But some are less fond than others.

I'm guessing that the bank you chose is trying to limit its risk to the SF RE market, so they chose an appraisor that was conservative in their estimate. remember, the appraisal is to protect the lender, not the buyer/borrower.

i'd guess that if you choose another bank then their appraisal may come in differently. never hurts to apply to other banks. And choosing SF specific banks may not be a bad idea.

good luck.

Posted by: ex SF-er at August 27, 2008 1:11 PM

I remember hearing about some proposed legislation a while back that requires lenders use independant appraisers. Does anyone know where this stands?

Posted by: Publius at August 27, 2008 1:24 PM

Please do not start filing a slew of mortgage apps with different banks with the hope of lucking out with a higher appraisal. Even assuming that you find a lender or mortgage broker with a "no fee" deal, each time they run your SS# you will get a credit inquiry which (1) may affect your FICO score, and (2) may cause your credit card issuers to feel "insecure." Be very careful about having multiple open mortgage apps.

Posted by: Animo at August 27, 2008 3:46 PM

I recently got my duplex appraised to qualify for a HELOC. I don't really have any need for it, but was just getting it ready to have access to capital in case I wanted it and my lender offered to do it for free.

The appraisal came in at $985,000 and they used as comps a couple of falling apart duplexes in The Mission and Bernal. The appraiser was from Concord and didn't seem to know much about San Francisco or SF real estate.

This place is very close to my place and is a pretty good comp and just went into contract:,-N225392,-N,-A,-N14997355

So I think their appraisal is off by quite a bit, probably 25% or more. But then again, I could just be wildly off in my estimate of market value as well, I am not a licensed appraiser.

My personal feeling is that Citibank just doesn't really want to lend that much money on real estate right now. I did not contest the appraisal because it still gives me enough equity for what I wanted, but it might not just be Bayview that they are using very conservative appraisals with.

Posted by: NoeValleyJim at August 27, 2008 3:59 PM

but it might not just be Bayview that they are using very conservative appraisals with

I agree. they're tight almost everywhere.

assuming that you find a lender or mortgage broker with a "no fee" deal, each time they run your SS# you will get a credit inquiry which (1) may affect your FICO score, and (2) may cause your credit card issuers to feel "insecure."

Amino: what else can they do? They can't use the $600k appraisal so they need another appraisal. even if the poster pay for their own appraisal it is unlikely that the lender would go along with that appraisal. the appraisal protects the lender, not the borrower.

Posted by: ex SF-er at August 27, 2008 4:17 PM

"The appraiser was from Concord and didn't seem to know much about San Francisco or SF real estate."

Great guns ! As if there are no appraisers available who are knowledgeable about the neighborhood ? What a waste of time and money.

It seems more often that appraisals are used not so much to determine a property's value but rather to bolster a lender/homeowner/developer's strategy.

Regarding 305-305A 30th St that NoeValleyJim references as a comp : check out the hasty sod-job on the 5th photo. That sod was laid within a couple of weeks of the photo shoot, maybe even that morning. I see this all the time and would not trust that the job was done with any intent of that sod surviving at all. The sod was probably just laid so that the house shows well for the next few weeks as it looks better than the bare packed soil that was probably its prior state. There's a significant difference in cost between laying sod correctly versus superficially. Caveat emptor.

Posted by: The Milkshake of Despair at August 27, 2008 4:32 PM

It is perfectly legal for you to help the appraiser. I just spent 30 seconds on zillow and found four houses in Bayview that have sold for north of $700k in the last three months. Expand your search to include comparable neighborhoods (Visitacion, etc.)

The challenge, obviously, is that you may in fact own the most expensive place in the neighborhood (not the best idea, but I'm sure you know this now).

If your lender won't budge, get another appraisal. Try a mortgage broker if you don't want to open up a bunch of different applications with multiple banks. Present your research on comps at the time of the appraisal and make a case for your justification (i.e. new construction, higher-end finishes, views, etc.)

Before you go down this path, I hope you've also done the math to ensure that you'll qualify on a single income. Assuming you had dual income prior to divorce, will the bank lend you the money based on just your income?

My back-envelope math says that you got a ~6.8% 30-year fixed (assuming two incomes) and you now want a $3,100 mortgage? Um, you realize that a 30YFRM would require either a ~4.8% interest rate or major paydown in principal to make that happen, right? You won't hit that payment without an option-ARM...

Posted by: "Dave" at August 27, 2008 4:51 PM

In 2005 it was possible to find an accomodating lender (Countrywide) that would approve anything. Obviously, those days are gone. One way to proceed without submitting a full mortgage app is to find a mortgage broker with a pet appraiser who will provide a comp check -- a verbal opinion as to value. Two problems -- the practice is borderline illegal and mtge brokers sometimes use the "yeh my guy tells me it will appraise out" line to hook you.

One advantage of a good mortgage broker(if there is such an animal left) is that he or she can present your case to an underwriter far better than you can. All of this is moot unless a competent appraiser can find the value. Otherwise, it becomes a matter for the lawyers.

Posted by: Animo at August 27, 2008 5:22 PM

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