Happy Happy Lenderman’s Amazing Devaluation Miracle

In May, I wrote about my neighbors, who despite having low-end blue-collar jobs, had managed to pay $869,000 for the gorgeous house across the street. As it turned out, they didn’t pay at all, because they’d been given a loan with no money down and no questions asked by the underwriting genius I dubbed Happy Happy Lenderman. It was no surprise to anyone, except maybe Happy Happy Lenderman, when they stopped making payments, any payments at all, on the house a few months after moving in. It was a surprise to me, however, that the bank seemed to be perfectly happy in letting them stay on indefinitely, for free, while not making much effort into trying to get the house sold. It’s highly unlikely they ever paid the property tax, or for the garbage, both of which are mandatory and continue, but are applied as a lien, if not paid.

Finally, however, in early August, they did move, though it took five police officers to convince them they really did have to evacuate the house. The bank also gave them another $1700, just cuz maybe they felt they hadn’t lost enough money on the bad loan or something. In the move-out process we saw them take some uprooted trees from the back, and the washer and dryer. A new realtor took over to sell the property, since the former realtor had been handling the sale as a “short sale” and this was a true foreclosure.

So last weekend, the house was open for prospective buyers, and curious to see how much had been stripped, I walked over. I have to explain that when the house was sold last it had been completely renovated on the inside, including having new custom doors inside and outside, a new Jennair oven, and new carpeting and tile.

OMG, the damage deliberate neglect and heavy wear can take! Two sets of cleaners had gone through the house already, and a gardener was working on cutting down the rampaging yard, but the formerly gorgeous house looked like a real pit. The carpets, which had been beige, were heavily spotted, and the realtor said he’d already put in a request to the bank to have them replaced. The pool, which would have remained clear enough with just a regular application of chlorine, was disgustingly green. The tiles were chipped, all the appliances in the house were scratched, and everything was very worn.

There were quite a few people looking at the house, and I was happy to speak to them. I would love to have new neighbors who’d take care of the house, and actually pay for it. They noted the damage and asked how many people had lived in the house (a lot), and how much it took to take care of the pool ($50-$100 a month if you’re as anal about it as me). And some just left in disgust.

I wondered if the house would actually sell. When it had been on the market with the people who didn’t want to leave, it was priced at $700K, a bit more than similar houses were going in the soft market. But a nice couple had come along in May and offered $625K for it, and been turned down. I didn’t know until later, when I took a flyer, that this house, which had once been a showcase, was now only valued at $544, less than even a smaller fixer upper on our street (also a foreclosure) had sold for last month. That explained all the interest!

Well, it would be nice to have new solvent neighbors get an opportunity to become homeowners. But at that price, it’s certainly tempting to landlords, who could easily rent it out for more than the mortgage costs, or a flipper (who’d just have to but some elbow grease and cosmetic upgrades) into it. We tried to conspire with the neighbors to snatch it up, but I think the smart buyers are already bidding on it.

So we’ll see: fair is fair as far as the price goes, since the house far removed from the showcase it once was. But to have it drop so much in value: by more than 30% just because someone couldn’t be bothered to do due diligence on a loan, sucks.

Oh, and what happened to my foreclosed-upon neighbors? They simply bought another house (this one in Hollister, where houses do cost less than in San Jose) under someone else’s name.

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