Why people fall into foreclosure so fast

Foreclosure is the big news nowadays.

Here we have 2653 Magnolia Ave.
San Diego, CA. 92109

3 bdrm, 2 bath, 1103 sqft house
Year Built: 1955
2 garage parking spots.

This house was purchased July of 2006 for the hefty price of $770,000. Back in July, we were almost at record housing levels, so why would anyone dream of buying only to try and flip?

To make a long story short, it was listed 41 days ago with an incredible price range of $699,000 to $849,000. That's a $150,000 range on the price. Very strange in a market where the buyers are scarce.

Well, it looks like the owner is over $11,000 behind, and a notice of default (the first step in foreclosure) was filed on 4-14-2007. Now, I really hope for the sake of this person's intelligence that they had some unforseen tragedy because I can't see how any sane person would buy in the middle of last year with the intention to flip within 6 months.

Anyway, here's a loss breakdown at $699k, but keep in mind that this is probably a short sale price so the bank would be taking this loss.

Purchase Price	$770,000.00
Sale Price	$699,000.00
Association Dues	$0.00
Holding Period(mo)	9
Mortgage Paid	$37,537.50	(6.5% interest only)
Closing Costs	$4,000.00
Property Tax	$7,218.75
Estimated Monthly Rent	$2,200.00
Estimated Monthly Loss	$1,605.08	(if rented)
Estimated Monthly Tax Savings	$1,167.83	(using 28% tax rate)
Sales Commission	$41,940.00
Total Loss	$131,385.75

On a side note:

This was submitted by a reader to me via email. I want you to know that I really appreciate the help in providing content for my readers. I've been short on time lately, and you've all been very helpful in keeping this blog rolling. The voice of San Diego just posted an article about how the number of foreclosures in March just broke the all time record. That record was set in October 1996 when 389 homes were repossessed. Last month, 433 homes were taken back by the banks.

"The month's foreclosure rate mirrored the statistics for the entire first quarter of the year: A record 1,183 homes were lost in foreclosure in the first three months of 2007, edging past the previous peak of 1,059 in the third quarter of 1996, when the region was emerging from a recession."

That's very significant because every one of those homes is going to be for sale as a highly motivated REO very soon.

Also from the mystery reader:
Economist's blog on the problems with bailing out stupid buyers
2.7% of all homes sit vacant right now.... in other words we have too many homes, not enough people.
Washington post article on appraisal inflation. (we all knew about this)
Lenner is asking subcontractors to take a 20% loss on work already done.
Article from some analyst at Pimco telling people to still rent.
Article in the Washington Post spotlighting some anecdotal cases of people being upside down on their mortgages.
Washington Post article about how troubled buyers are neglecting to pay their HOA fees now.
Another pro-renting Washington Post Article
Subprime meltdown is spreading.
Sheeple's guide to losing money in the housing market.
Another major lender cuts profit forecasts.

The difference in closed sales since March of 2005 shows that about 1,000 more properties sold in 2005 than March 2007. So sales dropped by over 1,000 properties, or 33%.

The $ amount of closed sales for March 2007 was a massive 500 Million dollars less than March 2005.

MONTH	# of New	Closed	Closed
2005	Listing	Sales	Sales
January	6,311	2,297	$1,388,433,784
February	5,625	2,308	$1,337,690,916
March	7,062	3,564	$2,042,999,668

MONTH	# of New	Closed	Closed
2007	Listing	Sales	Sales
January	7,276	1,768	$1,036,452,704
February	6,237	1,820	$1,095,380,619
March	7,553	2,479	$1,538,806,180