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  1. Posted by Trip

    From the link: “At the 665-unit Infinity, developer Tishman Speyer has written 90 contracts in 90 days and is reportedly selling units for $600,000 that were originally priced well above $800,000. A few blocks east at the 114-unit Blu, Lennar and Malcolm Properties went from zero sales to eight units a month since slashing prices in February on two bedrooms from $800,000 to $600,000.”
    So they cut prices 25% and more and saw sales increase. No surprise there. Especially since the price is now within the cheap, easy money FHA/GSE range.
    Early buyers in these complexes have now seen at least 25% of their “equity” disappear thanks to their friendly developer. And when the government price-goosing slows (my bet: first of next year) and that support is diminished at the lower end, recent buyers will also see their bargain prices further fall (hey, they are still falling at this end despite all the priming). It’s great to buy in an artificially primed market until you have to sell in a market that is no longer artificially propped up.
    The developers seem to be playing this pretty well.

  2. Posted by gowiththeflow

    Tough call here. Trip I agree with you the developer has played this well. However I am worried about how many of the first buyers once they see prices drop like this will walk as most put 20-25% down. Contract agreements authorizing sale of units one year out will trigger for many of the first buyers here soon, if they have not yet. I hope this does not happen or the building is in for a world of hurt. I am surprised there are such few resales right now, perhaps the mass of residents are planning on holding long term?

  3. Posted by nickargon

    @Trip – is it actually possible to do FHA at The Infinity or Blu? I thought it wasn’t because of these two spot approval questions:
    6. At least 90 percent of the total units in the project
    have been sold. Verified by _________________________.
    7. At least 51 percent of the total units in the project
    are owner-occupied. Verified by ______________________.

  4. Posted by Rillion

    “Early buyers in these complexes have now seen at least 25% of their ‘equity’ disappear thanks to their friendly developer.”
    Right…
    It is the developer that is responsible for the 25% decline in the value of the early buyers units. If only the developer had not lowered prices their units would still be worth what they paid for them and they could resell them on the market for what they paid. But instead they have to thank the developers for the loss of value because somehow their units are immune from the wider re market and only effected by what the developer does.
    (okay where do I send my $1 internet snark tax?)

  5. Posted by chuckie

    “We wrote 10 contracts last week and will probably do 10 contracts this week,” said Tishman Speyer Managing Director Carl Shannon.
    Is it just me or is it getting hot around here?

  6. Posted by gowiththeflow

    Tried to do an FHA when I bought (not at the beggining so I am in a little better boat with holes than some but not much – always had the plan to hang 10 though so its cool)and was told the building had not been qualified for it, not necessarily due to quota but I was told there is some paperwork process of the banks approving getting it on some FHA list etc. etc. that had not been done.

  7. Posted by Trip

    nickargon, I don’t know if FHA loans are happening at these complexes. It’s a good question. Does “sold” include “contract signed?” If so, Infinity may qualify if you include both towers. I was just making the broader point about govt loans providing lots of support at the sub-700k level right now, so things started to move (apparently) as soon as they got pricing into conforming-loan territory. FHA, with lower down payment reqd, is just the on-steroids version of Fannie and Freddie loans.

  8. Posted by anon

    @ gowiththeflow,
    how’s your refi coming along? can you still find any banks that will refi considering what’s going on in the marketplace? thanks.

  9. Posted by EBGuy

    Is it just me or is it getting hot around here?
    Maybe not hot, but overcrowded on this side of the bay. Evidence of The Shift?
    Berkeley’s Board of Education voted unanimously April 29 to ask the school district to review classroom capacities and attendance zones to address overcrowded elementary schools.

  10. Posted by gowiththeflow

    I finished the refi a few months a go and the appraisal came back exactly what I paid Fall 08; went with the inc conf. Wanted to secure that first. Next step as the building is filling up is to shop for potential future FHA product. Just submitted for prop tax reduction so should find out where we are “today” in the next few weeks.

  11. Posted by gowiththeflow

    Also, bank did not require additional money down (same bank I originally financed with)and I paid cents to make the transaction with a decent rate for the amount.

  12. Posted by steve

    I finished the refi a few months a go and the appraisal came back exactly what I paid Fall 08… Just submitted for prop tax reduction…
    Hmmm. I understand that repealing Prop 13 is impossible, but I wonder how much the bubble would have been reduced if refinancing caused the prop value to be reset. As we’ve learned from the Irvine Housing Blog, each time one of those So Cal gems was refi’d it really was just sold to the bank (and now the taxpayers) at a higher price.

  13. Posted by jon

    Here’s an old penny stock joke.
    Guy spots a stock, buys some at $.01, it goes up and he buys some more at $.05. He keeps buying all the way up to $1.00. At which point he calls his broker and suggests he sell some of the stock. Broker replies,”to whom?”.
    These units aren’t really bought, they are sold.

  14. Posted by Blu Owner

    “is it actually possible to do FHA at The Infinity or Blu? I thought it wasn’t because of these two spot approval questions:
    6. At least 90 percent of the total units in the project
    have been sold. Verified by _________________________.
    7. At least 51 percent of the total units in the project
    are owner-occupied. Verified by ______________________.”
    It is not possible to do FHA at Blu. Practically all buyers at Blu are securing loans through WJB, and are only qualifying under strict lending guidelines (at least 20% down, very high credit scores, debt to income ratio high 30’s or less).

  15. Posted by Paul Hwang

    Make a new thread then! 20 reservations in a week?!?!? PENTHOUSE IN CONTRACT!!!!! ETC. This is news!!!!!!!!!!!!!!!!! Grow a pair and make a new thread.
    [Editor's Note: This one works just fine (although Carl's quote seems to contradict your 20 contracts in a week).]

  16. Posted by tipster

    Paul, maybe you can put your “news” on your fascinating twitter blog.
    Then do a feature on how all of your clients who bought at the Infinity last year lost 25% of the value of their condos, which in most cases puts them underwater even at 20% down, a loss of hundreds of thousands of dollars. That’s probably exciting news!
    Then, I’m thinking a story containing an analysis of what happens to HOA fee collections when half the development is underwater.
    Then perhaps a tribute to the people who went into contract (as opposed to a “reservation”) at Infinity I two years ago when they were writing 20 contracts a week and who are now underwater to the tune of hundreds of thousands of dollars because they “ran with the herd”, and how smart of an idea that really was.
    C’mon Paul, this is BREAKING NEWS! I’d go for it!

  17. Posted by mrbogue

    tipster… LOLG (laughing out loud gagging)

  18. Posted by Fishtarian

    20 reservations in a week? Just like those two magical $7000 rentals at ORH? They pay $1m, and can’t rent it out for $4000… Yet they keep coming, according to Paul.
    This one’s been on the market for about 6 mo:
    http://sfbay.craigslist.org/sfc/apa/1173182181.html
    Or, this one for $1.1m renting out for $4000, no taker yet:
    http://sfbay.craigslist.org/sfc/apa/1170386207.html

  19. Posted by Jimmy (No Longer Bitter)

    Clearly those two CL apartment-renting investor dopes should hire Paul Hwang and raise their asking rents to $7k and “get with the program.”
    Maybe I’ll email them this thread to help them out a bit.

  20. Posted by anonn

    LOL @ Tipster visitng Paul’s Twitter blog.

  21. Posted by tipster

    Boy, that first one looks an awful lot like an ad that the infinity developer is running himself. At 3750 for a two bedroom in a new development, that should have been rented a long time ago.
    The fact that they don’t specify which floor, and that its been running that long tells me the developer is buying units from himself and renting them out.
    It could be something else, but that has all the hallmarks of an ad for multiple units.

  22. Posted by Fishtarian

    “The fact that they don’t specify which floor, and that its been running that long tells me the developer is buying units from himself and renting them out.”
    No it’s not. It’s around 18th floor and looking at the cross section of the Bay Bridge. The owner paid $800k for it. I wouldn’t pay more than $3200, just for the location and newness.
    I’m signing for 750 sf on 32nd floor of Paramount with truly spectacular and unobstructed view of City/Bay for $2100 instead. Unlike owners who overpaid, these professional rental buildings are incredibly aggressive and super motivated in this market. Who can blame them, the price is down almost 10% since Jan, according to sfrentstat.

  23. Posted by gowiththeflow

    “each time one of those So Cal gems was refi’d it really was just sold to the bank (and now the taxpayers) at a higher price.”
    No not exactly, only for those that do a cash out refi than walk or use the funny money for other things; not the case for those of us that could not or did not pull money out. Your analysis is biased.

  24. Posted by diemos

    “Your analysis is biased.”
    No. Whenever you take out a mortgage you are selling your house to the bank with an option to buy it back. If you don’t (or can’t) exercise that option the bank takes the house it owns and sells it to someone else (foreclosure).
    Only people who have title to a property without a mortgage are actual “homeowners”. The others are just homedebtors.

  25. Posted by gowiththeflow

    Diemos that I agree with. What I don’t agree with is Steve noting that just because a person does a refi or makes a purchase that it was sold to the bank and specifically the tax payers at a higher price. This would only happen if a person walks and or pulled money during the refi. Just because a person does a refi does not = they walk and or pull money therefore it does not hurt the tax payer.

  26. Posted by steve

    gowiththeflow, you are correct. I should ammend my proposal to be each time a refi occurs that results in new debt > original purchase debt, it should be treated as a tax event.
    btw, are you presenting your bank appraisal to the assessor’s office as part of your tax reduction application?

  27. Posted by gowiththeflow

    Steve not sure I follow. In a refi as with mine it is possible to pay cost of the refi out of pocket and refi exactly the same amount as the original mortgage; how is that more? If your saying a person that pulls money, becomes a liability could maybe agree and would obviously agree if the person walked and could maybe entertain the cash being pulled needing to be taxed.
    I am not presenting my appraisal as it is old, and clearly based on what was supposed to be an honest appraisers valuation of the prop vs. the honest appraiser looking at comps next to me – discovered on my part after the fact unfortunately.
    I am presenting my reduction application based on the many hours of research I spent recently at the assessors office finding out who paid what in comp to my unit.

  28. Posted by gowiththeflow

    This actually brings up a good point we never all settled on (from what I recall). If a person does a refi and it is not a cash out refi but a refi of the purchase money is is recourse or non recourse?

  29. Posted by gowiththeflow

    Steve just re-read your comment I mis-read it, yes I think I could agree with you. Could be interesting.

  30. Posted by LMRiM

    GWTF – I haven’t looked at your question of non-cash out refis of existing purchase money loans lately, but the last time I looked I think there had not been any cases directly on point. The consensus of practitioners had been that to the extent that a purchase money loan was being refinanced (with no cash out) then a court would look at that second loan as also being a purchase money loan entitled to the same nonrecourse protections as the original loan. So, simply refinancing a purchase money loan (and not changing principal balance) would not transform the debt into recourse debt. Perhaps there is someone out there currently involved in these issues who could chime in.
    It might suprise people that there isn’t too much explicit case law on these questions, but it shouldn’t. Case law is only made when cases are brought in court (duh…), which requires that secured lenders pursue judicial foreclosure as opposed to the standard trustee sales (“private sales”). A judicial foreclosure is akin to a trial with all the expense and delay associated with such a process. Additionally, judicial foreclosure also confers a right of redemption upon the buyer who loses the property, meaning that title will be clouded for up to a year following the foreclosure ordered by the court.
    Because secured lenders must pursue either private sale or judicial foreclosure, the lender as a practical matter always chooses the private sale option and therefore case law doesn’t get made. Perhaps in the aftermath of this fiasco (an order of magnitude larger than anything ever faced in the home mortgage market in the past), there will be a lot more learning and clarity on these questions.
    I’ve posted this link before, but in case you missed it, it seems a reasonable discussion of California foreclosure law and suitable for nonlawyers (and even Trip has granted his seal of approval):
    http://www.maldonadomarkham.com/california-foreclosure-law.htm

  31. Posted by Trip

    The link LMRiM posts is a good one. I think it’s right that there is no reported case expressly deciding the question of whether a refi gets you outside the anti-deficiency statute (i.e. they can come after personal assets). From the plain wording of the statute (only applies to a “purchase money mortgage”) I think its pretty clear that a refi is outside it.
    Now that we’re moving into the next phase of the foreclosure mess, where much higher priced properties are going to fall, and some of those “owners” will have real assets to target, we might see some law develop on this.

  32. Posted by RE noob

    Hey LMRiM or Trip,
    Can you give me a quick synopsis about the foreclosure situation. You seem to indicate that there will be an increase in foreclosures in the future. What $ range will these foreclosures be in and how soon?
    I’m considering purchasing a new unit, but I feel I might wait out for some foreclosed units. Do you think any of the new big developments (i.e. Infinity, ORH) will have REOs or short sales anytime soon?
    Thanks in advance for your help.

  33. Posted by LMRiM

    Trip’s comment caused me to do something that I usually am loathe to do before bloviating – actually read the statute in question.
    After reading it, I am surprised that there was so much controversy over whether a refi of a purchase money mortgage would qualify as nonrecourse under the statute, even notwithstanding that there is no case directly on point. I agree with Trip – the statute is pretty clear that a refi would not be sheltered:
    “580b. No deficiency judgment … under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the
    purchaser.” (CA Code of Civil Procedure, emphasis added.)
    Even $800/hr lawyers like Trip would have a hard time arguing against that language due the clarity of that “in fact” language. (Had the statute simply said “purchase money mortgage” it would have been much easier to look to legislative intent, etc. and argue the goal was to shelter funds that had been used to finance personal residences, and to deny refis of that would burden purchasers and not further the aims of the statute, etc., blah, blah, blah….)
    Still, GWTF, I would not be overly worried about a refinance of your primary loan (or loans) if you are not cashing out, so long as you are refinancing into a single loan. The reason is the “one action rule” in California, in which a lender must elect one way to recover: sue on the terms of the debt OR foreclose. If the lender elects foreclosure, the suit against you personally is barred. Because the debt is secured, lenders are going to elect foreclosure, which in this scenario presents another choice: trustee sale or judicial foreclosure. The trustee sale route would likewise prevent the lender coming after you for any deficiency, and is in practice hugely preferred to the judicial foreclosure route for all the reasons listed in that link I posted.
    The tricky situation is refinances of 2nd (or 3rd, 4th, etc) mortgages that were part of the financing that was used to purchase a property. Originally, they were nonrecourse due to their being “purchase money mortgages”, but a refi would remove that protection. However, a junior creditor could be wiped out by foreclosure by the senior lender. Thus, the junior lender would not have to make a decision regarding the one action rule options presented – that lender never had his “one action” before being wiped out, so could in theory bring a subsequent claim against the debtor as its one action even after foreclosure by the senior lender. It should be interesting to see whether these claims are hoovered up by vultures and whether there is any post facto legislation in response if the claims gain traction.
    None of the foregoing should be construed as legal advice, always consult an attorney or other adviser before engaging in a specific course of action, etc.

  34. Posted by Trip

    Guess you dusted off your bar card, LMRiM. Nice analysis! You think $800/hr lawyers actually read the statutes? ;)
    RE noob, I think an awful lot of people in SF and the Bay Area generally got in way over their heads with $1M-plus purchases. The problem now is that the pool of willing and able buyers has dramatically shriveled with the return of real down payment and income requirements, and there is not — and will not be — any bailout in this price range. It would never sell in DC. Notice that Infinity units started to sell once they lowered the price to the conforming loan range.
    Here are a couple of decent sources that spell it out well:
    http://www.calculatedriskblog.com/2009/05/house-price-puzzle-mid-to-high-end.html
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/17/MNKV17K2OV.DTL
    I think we will see a wave of foreclosures at the higher end with I/O recasts and an inability to refi out of the unaffordability problem — the latter is independent of recasts. You can’t refi when you’re underwater and can’t bring the 20+ percent down to the table. But even if that never comes to pass, steep price declines are baked in based on the rising inventory levels and incredible declines in sales volume at the higher price ranges. The higher you go, the bigger the decline. Somebody aptly called this the “compression” of the high end. I could not hazard a guess on the specific developments you mention, but I suspect there are a lot of ticking time bombs for units bought before mid-2008 when no/low-down jumbo loans finally disappeared.
    You can rent nice places in these developments and avoid the very significant risks a buyer would face.

  35. Posted by gowiththeflow

    *nickargon re: FHA approval questions.
    gwtf: Do you know if these quals are per project or per phase?
    *Trip re: Does “sold” include “contract signed?”.
    gwtf: Relative to FHA interesting. Also interesting in relation to appraisals. I have seen appraisers use #’s prov by sales centers for comps using sales/in contract prices vs. sold prices, does not seem right to me?
    *LMRiM re: All.
    gwtf: thanks for the feedback, yes understand your info not to be legal advice etc.
    *LMRiM re: Maldoadomarkham.
    gwtf: read it, last time you posted it, good info; thanks for providing it.
    *LMRiM re: specifically: right of redemption:
    gwtf: right of redemption 1 yr (now I understand how all those people are living free for a year when you mention it). right of redemption is 1 year unless the bank makes a full price bid than your down to 3 months .. Anyone know if “full bid” = the loan amount or the original purchase price?
    *LMRiM re: recourse vs. non recourse.
    gwtf: so you 2 are agreeing that a refi is not sheltered; ok. You bring up the one action rule (of which I was planning to bring up but you beat me to the weekend blogfest). Not sure I agree with your analysis in full – there are a few other scenarios that I think could jam up the lender from reclaiming all recovery. Subordination. I am curious where subordination falls in the scheme of things.. refi to a standard (no cash out) larger amount single 1st of which subordinates the same original purchase money second to a smaller balance loan all with the same bank – new account number and loan docs for the 1st but not the 2nd. Regardless of ending up with a refi in the exact same $ amount or not, would the 2nd still not qualify as a purchase money loan? Another regardless, if both loans are with the same bank would the CA one action rule not put a stop on going after the 2nd if the bank went after the 1st? Unfortunate but I agree with you both, we will see more on this in the next few years.. LMRiM you talked about dusting off that law hat of yours.. this may be your calling. We are going to need some serious help in CA I think.
    *Trip re: no bail out help for $1m plus mortgages.
    gwtf: Not sure I agree. Bailout is up to $729k est. and some of those purchasing around the $1m mark put enough down placing them in that group. In particular if one had the increased fannie/freddie backed conforming, they may qual?
    None of the foregoing should be construed as legal advice, always consult an attorney or other adviser before engaging in a specific course of action, etc.

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