May 6, 2011

Well, It Really Wasn’t The Seller Who Came Up Short On 12 Auburn...

As we wrote in January:

So there's no deeded parking and Nob Hill, but it is a rather cute little two-bedroom at 12 Auburn that’s just returned to the market after a one-month hiatus, only it's now listed as a short sale for "$699,000" having been purchased for $700,000 in May 2005.
The property had been listed for as much as $898,000 just four months ago prior to three prices reductions and then being withdrawn from the MLS at the end of December.

The sale of 12 Auburn closed escrow today with a reported contract price of $678,400, three percent ($21,600) under its 2005 price. Don’t feel too sorry for the seller, however, as the property was refinanced in 2007 with a first mortgage for $712,500 and a second for $142,000, a total of $854,500 in debt for which the property would have had to appraise.

And yes, the short-seller, who was also the agent, was in default with JPMorgan Chase at the time of the sale.

12 Auburn Comes Up Short On Nob Hill [SocketSite]

First Published: May 6, 2011 2:45 PM

Comments from "Plugged In" Readers

The system works!

Posted by: diemos at May 6, 2011 4:23 PM

This seller sounds just like the real estate agent whom I bought my loft from in SOMA. Total tool who had not paid his mortgage OR his HOA dues in spite of having a tenant in the unit. He kept on repeating how this loft was the only mistake he made in real estate. Somehow, I doubt that.

While I recognize that everybody encounters difficulties, and anybody could find themselves in a situation where money is an issue, but when it happens to a real estate agent, I just find it kind of sketchy.

Posted by: Austin at May 6, 2011 4:49 PM

I toured this property when it first came on the market... well designed for a teeny tiny space.

Posted by: Mimi at May 6, 2011 5:13 PM

Austin wrote:

This seller sounds just like the real estate agent whom I bought my loft from in SOMA. Total tool who had not paid his mortgage OR his HOA dues in spite of having a tenant in the unit.

I'm hearing about this from friends and associates more and more; that real estate professionals are more likely to strategically default, and more likely to keep collecting rent from "income property" after they've defaulted on the mortgage.

From The Weekend Chronicle (reprinted from Bloomberg News), 'Squatter's rent' gives homeowners cash for debts:

Van Perrault, a home appraiser who defaulted on his Saint Mary's, Md., investment property in 2007…used the extra money to take care of late payments on his delinquent credit-card debt.
The additional $1,500 a month "made a difference in my life," said Perrault, 60, adding that paying down his card balances helped him and his wife limit the damage to their credit scores.

So much for real estate professionals being financially savvy. Looks like he was carrying multiple credit card balances and had an inadequate cash cushion for the "income property."

As far as the "seller" of 12 Auburn, as the editor say, he came out of this sitting pretty. He didn't have to bring a check for the deficiency amount, no 1099 issued to him for the forgiven amount of debt, and he clears a nice commission on the sale to boot. Selling real estate is where it's at.

Posted by: Brahma (incensed renter) at May 8, 2011 2:15 PM

Brahma, i doubt most of your last sentence. Lenders aren't in the business of paying commissions to agents who sell their own property short - think about it - the lender is taking a hit, so would they really pay the Seller?

Also, when a short sale is "strategic" meaning the seller can afford to hang on but chooses a short sale they usually ask for a cash contribution from the seller. So while he would not have had to pay the entire deficiency, he might have had to come up with some cash. Lastly, the lenders do issue a 1099 - but per current CA and Fed laws that phantom income is cancelled out - at least while the current laws are on the books.

Posted by: hangemhi at May 8, 2011 9:04 PM

hangemhi, if that's really how lenders handle properties that are sold short by real estate agents who also happen to be the owner, then I stand corrected. That comment was intended as bitter sarcastic snark, though. I was just assuming that most of the people at lenders are so clueless that they wouldn't take action against the seller, even when the knew that the listing agent was also the mortgage borrower.

About the 1099, if the seller doesn't have to declare and pay taxes on the forgiven amount which becomes the phantom income, then there's no point in issuing a 1099, is there? What's the person getting it going to do, frame it and put it on their wall as evidence of how financially savvy they are and impress their clients?

"And here's my 1099 from near the end of the housing bubble showing how I really put one over on JPMorgan Chase. If you act now and let me take this listing, I can put all my experience and knowledge to work for you!"

Posted by: Brahma (incensed renter) at May 8, 2011 10:35 PM

The second mortgage wouldn't be protected under CA law, would it? Why wouldn't the bank go after him for a deficiency judgment on that $142K?

There is some hope here that the "financially savvy" fraudster might actually have to pay the bank back. If only we could say the same about the bank repaying the taxpayer.

Posted by: embarcadero at May 9, 2011 7:36 AM

"Lastly, the lenders do issue a 1099 - but per current CA and Fed laws that phantom income is cancelled out - at least while the current laws are on the books."

I was under the impression that you could only exclude this cancelation of debt income on your primary residence, not investment property.

Posted by: tc_sf at May 9, 2011 8:30 AM

i'm not 100% clear on the cancellation of debt rules/laws so I won't comment since i might just end up adding to the enormous amout of mis-information floating around about short sale. i've also heard that some CPA's aren't clear either when it comes to primary residence vs. investment property. So in general, anyone doing a short sale absolutely has to hire a CPA and/or tax attorney and double and triple check their approval letter.

Brahma, i had a feeling you were being sarcastic, but knowing at least a little something about short sales i figured I'd chime in because of all the misinformation.

it is a fascinating topic, and may prove even more so as more and more well off seller's catch on to the idea that they may be able to do "strategic short sales". sure you may have to come up with some cash, but no where near the full balance.

Posted by: hangemhi at May 10, 2011 11:02 PM

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