Today we are going to search for some of the biggest Southern California foreclosures. Even though some of these places are relatively cheaper than their peak price they are out of reach for most ordinary mortals. In fact, it would appear that many that once were assumed to be wealthy are unable to hold onto their properties either. It is a question of budgeting. A person taking in $1,000 a month will end up in financial problems if they spend $2,000 a month. This applies to a person making $50,000 a month and spending $75,000. How many Hollywood stories have we heard of where large sums of money went up in a puff of blue smoke due to conspicuous spending? These mega foreclosures highlight big losses for banks. This is the meat of the shadow inventory. A foreclosure with a $1 million loss on one SoCal giant is the same as a bank losing $20,000 per home on 50 Arizona homes.

Pasadena million dollar foreclosure

The above home provides a juicy story from the housing bubble if numbers could actually speak. This home is in the elite 91106 zip code of Pasadena. Let us examine some of the details first:

Beds: 6 Baths: 5 Square feet: 4,650 Originally built: 1917

We should also look at the previous sales history:

May 2002: $1,325,000 November 2005: $2,300,000

What I found interesting on this place is that two buyers lost this home through foreclosure. The person that bought this place in 2002 had a NOD filed in July of 2005. By October 2005 the place was scheduled for foreclosure. This is how quickly things move in a bubble market since the bank knew the seller could sell and make a profit. Keep in mind that the people had already had issues making payments but were able to unload the home for $2,300,000. So think about how many people got saved like this during the bubble years. The initial owner was unable to make the payment at $1,300,000 yet they turned close to a $1 million profit even though they were in default!

The person that bought this home in 2005 started mortgaging the place up practically every year. Let us look at the history here:



So here we have another owner that was unable to afford the home from day one and this is a $2.3 million dollar home. But leave it to WaMu to give the owners a $250,000 home loan in April of 2006. This of course wasn’t enough so in November of 2006 this owner went to Countrywide and took out a first of $2,640,000 plus a second of $330,000. Now we’re up to nearly $3 million in loans on a home that sold for $1.3 million back in 2002. Keep in mind both of these buyers had no ability to carry the home and this is apparent through the loan history. So in 2007 they go back to WaMu and take out a first of $2.72 million and a 2nd for $250,000. Two months after that, a third mortgage of $89,000 was placed on the home! Now the home has $3,059,000 in mortgages all with Washington Mutual. Of course, only a short while after that Washington Mutual imploded and went down as one of the biggest bank crashes in U.S. history.

Here is the thing. This home isn’t on the MLS. It looks like it was taken back by the bank in August of this year. This year it made a few appearances for sale but was removed:



Apparently no one bit even with a $500,000 cut from the top amount of mortgages. This will likely cost the end note holder WaMu (now owned by Chase) one million dollars. Will they be foolish to let another third person buy this place who is unable to make the payment? Just run the numbers assuming this home sells for $2.3 million:

Down payment (20%): $460,000 PITI (6% jumbo loan): $13,426 (monthly net payment)

To be safe, a potential buyer would need an income of $500,000 a year. Of course the pool of buyers is limited since they would also need nearly a half million dollars for a down payment.

This home went through nearly a decade of owners who had no ability to pay the mortgage. And we’re talking about a home that at one point took on over $3 million in mortgages! The public has no way of knowing this because it was a non-event. It isn’t on the MLS and the media hasn’t covered the “rich” that are clearly living way beyond their means. Of course some would like to think this entire housing debacle was caused by Wal-Mart employees buying Real Homes of Genius in unpopular areas.

However the biggest Southern California foreclosure is likely to be Nicolas Cage’s home:

“(L.A. Times) The closing scene played out this week when a new owner picked up the sprawling mansion for $10.5 million, a relative bargain for a trophy home that had been listed several years ago at more than three times that amount. The buyer was identified only as a limited liability company, a common cloaking device in high-profile real estate transactions. The 1940 Tudor had failed to generate any bids in April when it was offered at the county courthouse steps in Pomona. Six loans totaling $18 million encumbered the house, which the actor had decorated in a style one local real estate agent dubbed “frat-house bordello.” Among personalized touches were garish room colors, three dozen bronze wall sconce holders made from a cast of the Oscar winner’s arm and hundreds of elaborately framed comic-book covers lining the walls.”

Run the numbers on this one:

$18 million in mortgages – $10.5 million winning bid = $7.5 million loss

It is amazing that the wealthy have enormous leverage to gamble on real estate. During the boom say you bought a $2 million home you were able to then sell it at the peak for $5 or $6 million. There is no way most ordinary folks can accumulate that much wealth that quickly for simply flipping a mortgage. Yet we are now seeing how it cuts both ways. Keep in mind that these loans permeate through the system since we’ve bailed out the entire banking industry. Where is the outrage about these wealthy people who speculated and lost big? The taxpayer is paying for it. We’ve had plenty of media coverage on low income people “causing” the entire housing crash. What about these homes? The market definitely isn’t what it used to be here in Southern California even for paper millionaires.

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