A Metro NYC Real Estate Horror Story

 

In 2006 a house not too far from mine came on the market at a very rich price. $2.7mm for a five bedroom home on four acres. It was a nice place. At the time I thought it was way over priced, but I was praying it would sell. That comp would have put money in the pockets of all the neighbors.

It didn’t sell, and then 2007 happened. There was not much price erosion that year. But there were no sales either. So that house sat on the market. The price was lowered several times through 07 and 08. The RE agents let it be know that the seller was “negotiable” at every new sales price. Nothing sold in 2008.

The house was sold this week. It was a short sale. The sale price was $600,000. Less than 25% of its asking price three years ago.

The owners had a total of $1.8mm on the house. A $1.2mm 1st lien and a $600,000 second. I don’t know how the sale proceeds were divided up. The 1st got less than 50% of principal. The 2nd probably got pennies. The loans had been in default for more than a year, so the $90k in arrears were wiped out. An absolute disaster for the lenders.

The new buyer is solid. He shopped for a mortgage on the property for three months. They finally got a mortgage with an advance rate of only $417,000. This number is the Agency limit; therefore the only lender out there was Fannie Mae. This comes to an advance rate of 70%. The buyer had the $183k required down payment so the deal got done.

There are hundreds of $1 million homes within a few miles of this property. This morning they are all worth 40% less.