When Real Estate Was Hot

Ah, the good life:

At first glance, this property's purchases and sales look ordinary. It was bought for $520,000 in 2000, and it sold for $909,515 in 2008. It isn't until you go through the property records that the extraordinary nature of this property is revealed (Thank you, Brittney.) This is a long and complicated story, so bear with me.

• This property was purchased for $520,000 on April 6, 2000. The buyer put $120,000 down and financed $400,000. It didn't take long for the kool aid to begin flowing.
• In July of 2001, he refinanced for $500,000 taking out $100,000 of his initial equity.
• In January of 2002, he took out a $544,000 loan taking out all $120,000 of his initial equity plus an additional $22,000.
• In February of 2002, he took out a $30,000 stand-alone second.
• In March of 2002, he took out a $50,000 stand-alone second.
• In August of 2002, he took out a $67,800 stand-alone second.
• In October of 2002, he opened a $20,000 HELOC.
• In November of 2002, he refinanced with a $596,000 first and a $149,000 stand-alone second and presumably paid off all the other loans. At this point, his mortgage equity withdrawal stands at $345,000.
• In January of 2003, he opened a $20,000 HELOC.
• In January of 2004, he refinanced with a $793,600 first and a $148,800 stand-alone second.
• In April of 2004, he refinanced again with a $940,000 first and a $176,250 stand-alone second.
• In October of 2004, he refinanced the stand-alone second for $400,000
• In March of 2005, he refinanced the stand-alone second for $550,000

Total indebtedness: $940,000 + $550,000 = $1,490,000.

Total Mortgage Equity Withdrawal: $1,490,000 - $400,000 = $1,090,000.

What can you say about that? Does anyone care to opine on how this was an investment or a medical issue? I think we can rule those circumstances out. Let's be real here: this guy's house was making $200,000 a year, and he took it out and spent it. It is what it is.

Lenders are stupid. What else can you say about that? How can you loan this guy so much money only to find your collateral is worth $600,000 less than the loans you made? There are bad loans, there are really bad loans, and then there are loans like this one. It boggles the mind. If this property sells for its asking price, the total loss to the lender will be $648,700 assuming a 6% commission.

I wonder how this guy is adjusting to the loss of that $200,000 a year extra income? I will bet it is not as much fun as spending it was.