The Daily Obfuscation: One house's trip through the boom and bust

With refinancing easy, it was like an ATM for the owners. But that ended.

By David Streitfeld
Los Angeles Times Staff Writer

August 12, 2007

In the county of Riverside, in the city of Corona, on a street called Plume Grass, there's a foreclosed house that no one wants to buy.

How it got that way says a lot about why Wall Street is in turmoil and the housing slump is worsening.

A three-bedroom house with a cathedral ceiling and lots of storage space, it's been on the market for 103 days, with no offers or even nibbles.

The only guaranteed way to move it would be to drastically slash the $419,500 asking price. That's something the owner, GMAC Mortgage, refuses to do.

And so the house sits. What's it really worth, this rather ordinary suburban dwelling?

A decade ago, just as Southern California was emerging from the last real estate slump, it was worth $148,000. That's what Theodore and Cassandra Judice paid the developer, Beazer Homes, borrowing nearly all of that sum.

For a few years, the house fulfilled its traditional role: It was a place to sleep, to eat, to raise their two boys. "It was a blessing, a beautiful place," says Theodore Judice, a telecommunications worker.

Life threw some curveballs. Cassandra, a healthcare worker, had medical problems and left her job. Theodore had a year or two when he wasn't working full time. And, always, there were credit card bills and home equity loans to pay.

In 2000, they refinanced, drawing cash out in exchange for a bigger monthly mortgage.

Corona, and America, was soon full of people doing the same thing. Lenders have never been so careless with their loans, knowing they could easily resell them to Wall Street. With home values on the rise, houses took on a new role. They became ATMs where you never had to make a deposit but could withdraw endlessly, or so it seemed to many at the time.

Theodore would marvel at his neighbor's boats, their swimming pools, their toys. He and Cassandra did some remodeling -- getting the patio done, he remembers, was particularly urgent.

The offers to refinance came in the mail every day, sometimes two or three of them. Theodore would tear them up. Eventually, though, he would succumb.

The couple refinanced again in 2001, 2003 and 2004, borrowing larger sums each time. Each time they drew money out, Theodore would say, "We're not doing this again." And then they would need money, and they would do it again.

In September 2005, the Judices borrowed $447,500. Almost immediately after that, they put the house on the market for $480,000.

It was time to go: They had drawn so much cash out of their home they couldn't afford to live there anymore. The ATM had turned into a trap. With no equity cushion, they couldn't afford to cut their price either.

"They got offers, but they weren't high enough for them to break even," says their agent, Peter Pesek. "They wanted to keep waiting for something better." It never came; the market had peaked.

The couple moved to Austin, Texas, and bought another house. They couldn't afford both mortgages, so for Plume Grass they tried to negotiate a short sale, an agreement in which the lender accepts less than it is owed. The deal fell through.

A notice of default was filed June 9, 2006, making the house one of the first in Corona to enter the foreclosure process in the current downturn.

Traditionally, many homeowners who receive default notices can "cure" their loan and get current with their payments again.

The Judices, who were $13,402 in arrears, didn't even try. That's likely to be the pattern for many homeowners this time around. The sums involved are just too high.

"We made some bad decisions," acknowledges Theodore, 46. "No one ever came to our house and forced us to do anything." He figures it will take him several years to clean up his credit record.

For some of his eager lenders, there will be no second chance. Two of them, American Home and New Century, are now bankrupt.

GMAC Mortgage took ownership after the foreclosure. The lender asked Leo Nordine, a veteran foreclosure agent based in Hermosa Beach, to clean up the house and evaluate it for resale.

On March 15, Nordine filled out his first report on the property, a lengthy form requiring him to give GMAC comparable sales in the neighborhood, his recommendations for repairs and a suggested price.

Under the entry "property values," he checked the box for "declining."

Next to "number of competing listings in subject's neighborhood," he wrote: "Tons."

He recommended $6,000 in cosmetic work and a low price to get out in front of the market. "Don't overprice," he warned.

His suggestion: $425,000 for the house as it was, $437,500 if the repairs were done. He emailed the report to the GMAC offices in Shelton, Conn.

The lender didn't authorize the repairs, and stuck a price of $445,000 on the house.

No one wanted it.

On May 30, Nordine filed an updated report. Under "positive comments," he wrote: "Good floor plan, quiet street, OK area."

Negative comments: "Most overdeveloped city in California. There's over 1,000 houses for sale in Corona. Sales are dead."

Nordine advised reducing to $409,000. GMAC agreed to drop the price, but only to $419,500. Six weeks earlier, that might have done the trick. Not anymore.

A week later, Nordine filed another evaluation: "No problems, other than the cataclysmic market." He recommended $399,000.

The lender didn't respond.

On June 27, he suggested $390,000. Lower the price, he urged yet again: There are three times as many lender-owned homes on the market now as there were a few months ago.

On July 31: "This is the worst market I've ever seen." He proposed $385,000.

There was no answer. GMAC, like most lenders, has been in turmoil. In late April it said it would fire 700 workers. The asset manager for the Plume Grass house was one of them.

To sell the house now, Nordine said late last week, would require a price of $379,000.

"The banks will wise up after a bit," the agent said. "I think the fall is going to get really ugly."

A GMAC spokesman said Friday morning that the lender's goal was to sell all its properties, including the Plume Grass house, for "fair market value."

Several hours later, either wising up or merely responding to the glare of publicity, GMAC sent Nordine an e-mail authorizing him to drop the price to $395,000.

david.streitfeld@latimes.com

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