January 11, 2011
From 100% Financing To 100% Bank-Owned For 2312 Gough
"Extensively remodeled" and expaned in early 2000, the "sophisticated Victorian three-story home" at 2312 Gough ("conveniently located within just two blocks from Lafayette Park") was listed for $2,580,000 and sold for $3,000,000 that May.
Returned to the market four years later listed for $2,500,000 and likely expecting a similar result, the 3,986 square foot property sold for $2,600,000 with 100 percent financing in July 2004, subsequently refinanced in September 2006 with a $2,630,000 note.
Listed for sale at $2,595,000 this past February but then withdrawn in May, by August the
borrower owner had fallen $76,878 past due and the property returned to the MLS at $2,595,000 in October. In November a notice of trustee sale was filed.
With no open market buyers at its 2004 price nor any bidders at its opening bid of $2,100,000 on the courthouse steps, 2312 Gough was returned to the bank last week.
First Published: January 11, 2011 5:00 PM
Comments from "Plugged In" Readers
"returned to the bank last week"
Lucky timing! Effective January 1, even refis are non-recourse in California. The 2006 "owner" would have been on the hook for the shortfall a week earlier but is now scot-free.
Nice place, it appears. It looks like foreclosures are, indeed, movin' on up.
Posted by: A.T. at January 11, 2011 5:22 PM
This was originally a little house. They lifted it to put the garage in, and enlarged it south (uphill) -- the extension visible on the right. Given its odd position on Gough, next to an interesting house on the corner of Broadway, but below a large apartment on Pacific, its price was always high. In the current market it is not surprising to see it falling. Regardless of the marketing of some "powerful" brokers, it is not "prime Pacific Heights."
Posted by: Conifer at January 11, 2011 5:24 PM
The "Twister" game of trying to explain how a property in prime SF lost a big chunk of value is becoming very mature.
The "not real SF" circle is taken already
The "it has major flaws" circle is also taken, along with "it's an outlier" and "Major flaws today that didn't matter yesterday".
Not many circles left. That's where the game becomes a great entertainment piece.
Posted by: lol at January 11, 2011 5:33 PM
Well, whaddaya know, is this an apple foreclosure? Unless someone has evidence of looting this house, it looks like it's an apple based on the prior SocketSite post.
And if you haven't been reading the other thread about this, my suggestion is that either a) the foreclosure price is the market price so this is apples-to-apples, or b) there is a standard adjustment one can make to convert the foreclosure price to market price (which can be calculated by looking at foreclosed houses in the aggregate), so this can easily be made into apples-to-apples.
Posted by: sfrenegade at January 11, 2011 5:36 PM
So it lost $400K between '00 and '04.
[Editor’s Note: We seem to recall something happening in the equity markets right around that time.]
Posted by: sparky-b at January 11, 2011 5:45 PM
Well, whaddaya know, is this an apple foreclosure?
Not yet as the truly all cash and no contingency market is an entirely different beast (or fruit). And there's really no standard when it comes to opening or winning bids.
That being said, and despite what some would like you to think, once this property returns to the market, and assuming it's marketed openly and competently and hasn't been trashed without being fixed, its next sale price will be apples-to-apples regardless of the fact that it's a bank that's now selling.
Posted by: SocketSite at January 11, 2011 5:56 PM
I agree that there is no standard when it comes to opening bids, but that's actually an argument in my favor.
It's entirely possible the opening bid could be *higher* than market price because the house is worth less than the note. That is probably not true in this case, but it has been true in other cases.
Posted by: sfrenegade at January 11, 2011 6:34 PM
The last thing in the world I'm going to do here is claim that this isn't an apple. But it isn't an apple yet. Do we all at least agree on that? At some point this will find its way into the hands of a new owner and then it will be an apple.
Honestly, this property is very confusing. Here is the history. SS left off the first sale and details that I think are quite interesting.
It sold in June 1999 for $875k after 118 DOM with the following description:
Exquisite Victorian Home With Great Detail Intact. Private Garden, Great Location, Add Your Own Touch No Open Houses
It sold again in May 2000 for $3M after 40 DOM and +16% from asking and listed at 4300 sqft:
Classic Italianate Victorian Has Been Fully Renova For Modern Conveniences And The Spaciousness Of Contermpory Design, 4 /3.5 Quality Construction.
It sells again for $2.6M in July 2004 after 59 DOM (+100k ask) listed at 3986 sq ft:
This sophisticated Victorian three-story home was extensively remodeled in 2000, but retains much of its original charm. Elegant and meticulously reconstructed, the home possesses a luxurious interior. Conveniently located within just two blocks from Lafayette Park. TRULY BEAUTIFUL HOME. SECLUDED. A MUST SEE!
Socketsite does a nice job of breaking down the exploits of the 2004 buyers (probably a better term than owners or borrowers).
So in less than a year between mid 1999 and 2000 the flipper does some serious renovation that includes lifting the house (per conifer). Frankly, it has to be more like 10 months since it was on the market for 40 days and you can't pull a permit for this kind of stuff in less than a month. I've no idea what the market looked like in 2000 or what could have driven this up to $3M. But whoever bought this in 2000 could afford to pay 400k over asking and take a 400k hit on the resale. The buyer is recorded as a "trust".
Clearly in 2004 the buyer felt they were getting a great deal at -400k from the last buyer even though they had to pay over asking. What a deal! But therein lies the trouble in using last sale price as an indicator of value. Again, I've no idea what drove this place to over asking in 2004 but it must have been crazy.
The question for me on this place is where would it have traded in 06/07/08/09. Obviously it is hard to know exactly but at no point do I think that this home could have obtained $2.6M in any of those years. Maybe early 2008 this could have fetched 2.4 given the available liquidity and some of the craziness going on at the time.
My comment from the earlier thread on 2/14:
This place I suspect will not sell but I'd guess the market price is around $2.1-$2.2.
So I was correct that this wouldn't sell. And no buyers emerged with an all cash / no inspection courthouse steps at $2.1. Personally, I'm still a LOT concerned with the 10 month renovation in 1999/2000. I didn't have this info back when I made that prediction so that is a big variable.
I've said my peace on this place and will check back in when it finds its way into the hands of a new owner so everyone can say how far down the market is on this comp. But I can assure you that no one here will say we're back to 2000 pricing on this one! :-)
Posted by: eddy at January 11, 2011 6:44 PM
paperwork and bulls aside, 100% financing = 100% bank owned
Posted by: tjg at January 11, 2011 7:47 PM
this property highlights some of the problem with evaluating RE in SF.
Despite many people's claims, in the end SF is a boom/bust type of city... at least it has been for the last 25 years.
The 2000 sale was at the tail end of the dot com bubble.
the 2004 sale was either at the tail end of the RE slowdown (not bust), or the early part of the runup, depending on how you look at things.
and obviously now we are in midst or tail end of RE bust or perhaps the leading edge of RE recovery, again depending on how you look at things.
Posted by: ex SF-er at January 12, 2011 7:34 AM
Yes, everyone knows that as soon as you drive a house off the lot in drops in value by 20% ;)
On ex SF-er's point, this is the double-bubble SF issue that many have noted. Unlike most of the country, which saw a single RE bubble starting around 2002 (just a smaller bump in the late -90s), SF saw two bubbles. They were both bubbles but based on different fundamentals. The first and bigger bubble, from about 1996 to early 2001 (prices about doubled), was built on funny money dot-com riches, but it was real cash in the hands of the buyers. The second bubble from 2003 to about fall 2007 (up about 50%) was built on no-down bank dollars lent to anyone with a pulse. There was a real dip (~10%) in between. This house illustrates all that well.
We're pretty close to done deflating the second bubble in SF - not quite. There is room for debate over whether and how much deflating of the first bubble there will be. Current buyers simply do not have the dot-com cash that first bubble-era buyers had, so the lack of demand will lower prices. But there was real wealth created in SF during the dot-com years, which is why I (unlike tipster) do not think we will completely deflate that first bubble.
CPI is up about 28% from 2000, so I think most of the first bubble deflating will be through inflation, with a little more due to lack of demand and ample supply. This is why I've been predicting a return to about 1999 prices in nominal terms. Worse than that in real dollars.
Posted by: A.T. at January 12, 2011 9:09 AM
a couple of comments here:
@A.T. you're spreading over simplified and incorrect info with your opener to this thread - why not take 5 seconds and do a quick google search on the topic to educate yourself a bit - I did after I read your post and discovered this:
@A.T. contrary to your first post, I think your post regarding the bubbles and bubble bursts since 96 is spot on.
"Not many circles left. That's where the game becomes a great entertainment piece."
But lol you have a lot of company here on this site - real estate here in SF during the bubbles since 96 has brought some serious, serious wealth to many, and that wealth is the result of luck in some cases and the result of shrewd business decisions in the case of others - but those success stories are rarely highlighted because you and others are so busy grave dancing - this celebration of others misfortune will put you in a grave of your own soon if it hasn't done so already.
Posted by: bubblesurfer at January 12, 2011 11:12 AM
bubblesurfer, your link talks about the old California non-recourse law. This was changed as of 1/1/11. I don't practice law but I do have a law degree and can read a statute. Need to be careful about legal research via google! The new language in the statute is:
"For purposes of this section, a loan used to pay all or part of the purchase price of real property or an estate for years shall include subsequent loans, mortgages, or deeds of trust that refinance or modify the original loan, but only to the extent that the subsequent loan was used to pay debt incurred to purchase the real property."
Big change. I guess you are right that the $30,000 cash-out from the refi would still be recourse even under the new law. Under the old law, the entire $1,630,000 would have been.
Posted by: A.T. at January 12, 2011 11:25 AM
@bubblesurfer -- I assume A.T. was refering to SB931
LEGISLATIVE COUNSEL'S DIGEST
SB 931, Ducheny. Mortgages: deficiency judgments.
Existing law authorizes an action for a deficiency judgment for
the balance due upon an obligation for the payment of which a deed of
trust or mortgage with power of sale upon real property or any
interest therein was given as security, as specified. Existing law
prohibits a deficiency judgment in any case in which the real
property or an estate for years therein has been sold by the
mortgagee or trustee under power of sale contained in the mortgage or
deed of trust.
This bill would prohibit a deficiency judgment under a note
secured by a first deed of trust or first mortgage for a dwelling of
not more than 4 units in any case in which the trustor or mortgagor
sells the dwelling for less than the remaining amount of the
indebtedness due at the time of sale with the written consent of the
holder of the first deed of trust or first mortgage. The bill would
provide that written consent of the holder of the first deed of trust
or first mortgage to that sale shall obligate that holder to accept
the sale proceeds as full payment and to fully discharge the
remaining amount of the indebtedness on the first deed of trust or
first mortgage. The bill would specify that those provisions would
not limit the ability of the holder of the first deed of trust or
first mortgage to seek damages and use existing rights and remedies
against the trustor or mortgagor or any 3rd party for fraud or waste
if the trustor or mortgagor commits either fraud with respect to the
sale of, or waste with respect to, the real property that secures
that deed of trust or mortgage. The bill would make these provisions
inapplicable if the trustor or mortgagor is a corporation or
political subdivision of the state.
My read on this is that if a bank agrees's to a short sale for a 1st mortgage, original or refi, then the bank is prohibited from going for a deficiency judgement. I don't think this affects 2nd or subsequent notes.
Note though that this still allows the bank to pursue claims of fraud. I would consider it very likely that you could find material misrepresentations in a majority of stated income/asset or no-doc loans.
Posted by: tc_sf at January 12, 2011 11:47 AM
bubblesurfer, if you're going to cite a blog and tell people to educate themselves, you either need to keep up with said blog or at least know how to google the current information from it. The link you provided was from July of 2009.
Here's an up-to-date article from the same web site you linked to that discusses what A.T.'s talking about:
California sellers who are granted a short sale by a lender holding a first mortgage will now be exempt from a deficiency judgment, even if that first mortgage was a hard money loan…I can't count the number of Bank of America short sales I have negotiated and closed…in which sellers had refinanced into one loan at some point. Bank of America has been unrelenting in its short sale approval letter verbiage on refinances, saying it would follow state laws to pursue a deficiency judgment. Some California lawyers argue that even if the loan was purchase money and exempt from a deficiency, such language allowed the bank to pursue sellers after closing a short sale because the approval letter changed the status of the loan.
And again, from the same blog that bubblesurfer cited, reporting that the law was signed by the Gov. on Sep. 30th:
The provisions of SB 931, which is now added as Section 580e to California Civil Code, prohibits a first lender from pursuing a seller after a short sale…It applies only to short sales that close on or after January 1, 2011. This could possibly mean that many sellers with only one loan may elect to postpone closing their short sale until January.
The link to the actual legislative language can be found here:SB 931. Hope this helps.
Posted by: Brahma (incensed renter) at January 12, 2011 11:52 AM
Hmm, perhaps A.T. was referring to some other statute.
By my reading SB931 doesn't technically make loans non-recourse if they weren't before. It just makes 1st mortgage short sales "single action". i.e. If you agree to the short sale, you can't also go for the money.
I don't see anything in SB931 that changes recourse status for foreclosures.
Posted by: tc_sf at January 12, 2011 11:55 AM
“at no point do I think that this home could have obtained $2.6M in any of those years. Maybe early 2008 this could have fetched 2.4 given the available liquidity and some of the craziness going on at the time.”
Who knows for sure? But I bet it would have gone higher. For instance, look at the sales history for 2416 Gough, 3500 square feet, just one block away – you probably couldn’t find a closer comp for a hypothetical “peak” sale for 2312:
It sold for $3m and change in 2008, even with the converted attic space counted as square footage and a bedroom. I hope the 2416 buyers were smart enough to do a no money down deal like the 2312 buyers. Because it looks like even a 20% downpayment would already be in money heaven, and I’d guess they’d have to smoke another $200k at least before they get it offloaded. They're probably going to be looking at a loss of more than $900k over 2 years, more if you factor in carrying costs. Time for a tribute to tipster: "I hope they enjoyed it" :)
[Editor's Note: With respect to 2416 Gough: Apples To Apples On A Pacific Heights Tree Lined Street.]
Posted by: El Bombero at January 12, 2011 11:55 AM
Hmm, perhaps A.T. was referring to some other statute.
Yes, A.T. was quoting from SB 1178 which was VETOED
Posted by: EBGuy at January 12, 2011 12:19 PM
EBGuy, see why I don't practice law!
Posted by: A.T. at January 12, 2011 12:23 PM
Good point / comp ElBom. I suspect  got its price largely due to views. Both these properties are going to end up in a REO / Foreclosure sale and I'd guess that when the dust settles  will fetch more. 2312 is a stick and I've no idea where they are hiding 3800+ sqft on that place.
Posted by: eddy at January 12, 2011 1:46 PM
I take my lumps for a hasty google search - but I'm so glad it prompted a good exchange about the facts around this topic - thank you!
Posted by: bubblesurfer at January 12, 2011 9:05 PM