March 21, 2011
Eight Days To Apply For A $206 Per Square Foot Pacific Heights Condo
It was three weeks ago that we first plugged our readers in to the 1,220 square foot Below Market Rate (BMR) Pacific Heights condo at 2760 Sacramento.
Purchased for $211,500 as a resale restricted unit in 2003, the condo was refinanced with $712,014 in debt over the next five years before being taken back by the bank.
Applications to purchase 2760 Sacramento #6 for $250,765 are due in eight days.
First Published: March 21, 2011 12:45 PM
Comments from "Plugged In" Readers
Sounds like a scam to me. Have the government force a developer to sell you a home at below market value -- then pull out the market value in cash via loans. Amazing -- it kinda sounds illegal, no?
Posted by: MArk at March 21, 2011 1:33 PM
The loans are secured by the home, but the homeowner is also personally liable for them. The only potential illegality I can think of (focusing on the homeowner), is if the homeowner provided a fake deed that didn't show the restrictions or if he or she faked an appraisal.* More likely the bank provided the appraisal. So it is primarily the bank's fault for originating such a crappy loan.
It's hard to believe a bank can be this careless--therefore it is the banks that have a problem with an appearance of illegality (for e.g., if the loans were securitized and sold off to other suckers).
*I'm not aware how appraisals for BMRs work--do they provide the FMV and then note the restrictions or do they account for the restrictions in the appraised price?
Posted by: SFHawkguy at March 21, 2011 2:20 PM
I think it was a scam both by the owner and the bank. Even if it was legal, it was at least unethical for the owner to try and get such a loan, and unethical for the banks to be so lax in its underwriting standards to allow such loans to occur. I think fraud is an appropriate word even if it was done legally.
Posted by: lyqwyd at March 21, 2011 3:32 PM
In the last several years a few BMR houses in Sunnyvale and Cupertino have been refied or additional loans taken out beyond the BMR value without permission (against the written agreement the homeowner signed with the city). Then the loans went into default and the property foreclosed and sold on the couthouse steps to cover the defaulted loan amounts which were still 100s of thousands under market value. The 'buyers' at default sale then flipped the units at market rates and 'made' $300-400 thousand. Obviously the units are no longer in the BMR pool. The cities have tried or have pending legal action against the original BMR buyers.
Posted by: Sorry situation..... at March 21, 2011 10:35 PM
While I'm only dimly familiar with the BMR program I recall reading that BMR buyers were not allowed to do cash out refi's.
A quick search of the MOH site produced the following:
"Can I refinance the first mortgage on my BMR unit?
A BMR owner will only be allowed to refinance in the circumstance that the new loan has better terms.
How do I go about refinancing my BMR unit?
BMR owners will need to obtain MOH approval in order to refinance. MOH will review the refinance rate and terms, and decide if we'll agree to subordinate to the new loan. BMR owners should ask their loan officers contact MOH to discuss the possible refinance at (415) 701-5542.
How will the current value of my unit be determined for the refinancing?
MOH will set the new restricted price of the BMR unit, once a formal request has been made by the owner's loan officer. This new restricted price will be used as the new current value of the unit, not the fair market value of the unit. However, the lender may include the restricted value PLUS the BMR lien when completing the HUD-1 Settlement Statement.
How much can my new loan amount be?
The new loan amount CANNOT exceed the amount of the original mortgage except in special cases.
What percentage of the new restricted value can the new loan be?
The total new loan amount cannot exceed 95% of the current restricted price of the BMR unit as determined by the Mayor's Office of Housing.
What if I have a silent second loan from the City on my BMR unit?
The lender must count the silent second loan from the City when determining the combined loan to value.
Can I use ANY lender to refinance?
NO. BMR owners must work with loan officers that are included on our participating lender list when refinancing their BMR units. Working with a participating lender ensures that the lender is aware of the full restrictions on the unit and expedites the process for the owner.
Where can I read the official subordination policy for MOH units?
The full guidelines below explicitly state in point #3 that there can be no cash out refinances.
Posted by: tc_sf at March 22, 2011 12:17 AM
Good info all around.
Yes, it appears the rules prohibit this, both in San Mateo and San Francisco. Guess there's no enforcement mechanism though, or at least a meager enforcement mechanism, so I don't know if it's "illegal" per se, but it's against the program rules. Even if the same rules where in place and the owner knew he was violating the BMR rules by cash out refinancing, because he was pledging his personal liability, as well as his collateral, it would not necessarily be fraud. Again, it was incumbent on the bank to do due diligence.
Also interesting that San Mateo must not have the restrictions on sale price run with the property as they do in San Francisco, so that a buyer at foreclosure is not subject to the price restrictions and can get a windfall.
I still doubt many BMR owners did this.
Posted by: SFHawkguy at March 22, 2011 9:14 AM
From the info that tc_sf reports it looks like either the MOH was asleep at the wheel when the former owner applied for a refinance or the former owner didn't bother to follow the MOH guidelines.
My guess is the latter meaning that the former owner violated the contract. (did I just use "former" and "latter" in the same sentence to refer to different objects? shame !)
But what I really want to know is whether this unit now up for resale is extra attractive because it is a proven golden goose to anyone considering similar fraud in the future.
Posted by: The Milkshake of Despair at March 22, 2011 12:12 PM