Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Friday, August 31, 2007

1/5 of CA foreclosures weren't owner-occupied

What we knew anecdotally finally has a number: 1/5 of CA of the mortgages in CA that are in default aren't occupied by the people on title. This number could include people who have had to move due to job transfer, etc., but apparently, most of these absentee owners never moved in to start with. They were speculators looking to flip houses, and they lied on their paperwork to get lower interest rates and loans up to 100%. Although this plan may have worked for a few investors when the market was climbing quickly and a lack of available houses meant that inventory sold quickly, the situation changed drastically once more people tried it. Like many other investment fads of past years, the people who got on the bandwagon up to the peak could do well while those who started later lost out. But there's a key difference between this type of speculation and others in that it depended on loan fraud.

Sometimes, investors did it without their loan officer's knowledge. At other times, the loan officer and/or realtor suggested it and didn't explain to the investor that the papers that s/he was signing stated that the property would be owner occupied. In the latter case, the loan officer and/or realtor may have been trying to get a series of commissions, using inflated appraisals, and ultimately the difference in value through straw buyers who would ask for 100k or more back at close of escrow. When the scam works, the con artist makes out extremely well. And if it doesn't, the would-be investors are left with the deed, the debt, and often too much shame to report what happened. After all, it was their own greed that got them into trouble...

LA Times Article on Speculators in Foreclosure

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