A vacation, a new Lexus... and then, default

An e-mailer (thanks, TW) pointed out this Wall Street Journal story about the foreclosure mess in Corona. The story contains one of those anecdotes that deserves retelling.

As the Journal tells it, the family in question buys a four-bedroom house in 2004 for $557,000, then refinances three times, most recently last year, for $835,000. They use most of the refi money to pay off credit cards. Got it.

Now owing $6,300 a month on the refinanced house, they try to sell it -- for $839,000 -- into a market swimming with inventory. No deal.  Meanwhile, eyeing a new life in Texas, the family buys a 3,600-square foot home outside Houston this summer for $283,000.  "It was easy," says the wife, Karenn Oropeza. "We had good credit. The deal was done in seven days."

Now they own two houses. Got it.

Over the summer, the family of four takes a vacation to the Caribbean and buys two cars: a Lexus and a Suburban. They stop making mortgage payments on the Corona home in June, and they move to Texas.  The California house is in default, and likely headed to foreclosure -- the Oropeza's doubt they will be able to sell it.   "We're sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money," Mrs. Oropeza told the Journal.

TW observes, "They pulled about $300k in equity (based on inflated appraisals) out of their California home.  They spent the proceeds on vacations and new cars and a new house in Texas.  They then walked away from the California home. ... They basically got a free house and a couple nice cars in exchange for a bad credit score for a while."

Your thoughts? Comments? Insights? Email story tips to peter.viles@latimes.com.
Thanks, TW.

Comments

[buz algood]

When I become president I will fight for working families such as the Oropezas, who only want the American dream. Clearly Government can do more to help those at risk of losing their home. We need comprehensive mortgage relief and Federal intervention to help the working families and children-Blah, Blah, Blah. Beware all politicians who enter down this path. We all know the story of the foolish Oropeza family.

[JK]

because people think we are a bunch of flakes who walked away from the house and tried to make money," Mrs. Oropeza told the Journal.

Arrrggghhh!!! Someone go buy this woman a clue! You are flakes! You didn't try to make money, you did make money! I would love to exchange a few years of bad credit for $300,000!

Meanwhile, responsible families are saving every dime living in crowded conditions making all kinds of sacrafices so they can afford to save a down payment to enter into this inflated market that the Opopezas helped create! Are they worried? Nah, they are off to Texas living mortgage free and enjoying the good life! I gotta stop, my head is going to explode!!!!!!!!!!

[realitybites]

This isn't the great "steal of the century" that it sounds like. There is this little problem called recourse debt, which they clearly have because they refi'd and pulled thousands in equity out of the house. There is a high probability they'll be forced into filing bankruptcy not to mention owing thousands more to the state and IRS in taxes for forgiven debt. Those free cars and that free house may not be so safe..

[MW in Silverlake]

They have to live in Texas now... that's one of the worst fates of all. Poor things.

[Becky]

Let's see... they have two new cars, paid-off credit cards, and a new house. It'll be a couple of years before anybody needs to look at their credit rating - which will have started to recover by then.

Then again, the way these people spend, they'll be looking to pull cash out of that Houston house in about six months. Won't they be surprised when the house-as-ATM hasn't increased in value and there's no equity to convert?

I cry crocodile tears for them...

[Cal]

The debt is recourse but I havent exactly heard of anyone flooding the courthouse going after people for the remaining amount.

I bet what will happen is the bond holders will take the hit and charge off the loan, getting the tax "benefit". They will then sell the loan to some credit collections people for pennies on the dollar and the Oropeza will be hounded for the next 7 years by collectors.

Everyone wins!

[tew]

To realitybites, re: "this little problem called recourse debt". Texas has probably the best "homestead" laws in the country for people going BK. No way, no how are they losing the house in Texas.

http://en.wikipedia.org/wiki/Homestead_exemption

And if they stashed away a few grand they can hire a lawyer to keep creditors off the trail for a long time (once they track them to Texas, which could take a while).

Anybody got access to Houston area records to see how much they put down?

[John Jones]

it is not as easy a ride as one thinks. I did it out of pure necessity and did none of the above. Long story short they will pay for at least five years. Some of the things people do not think about is many empliyers now ask these questions etc.... so there are many balck eyes one could get other than bad credit it is hung around your neck in many ways

[LA-renter]

Yeah, the WSJ wants to villify the foolish/moronic mortgage takers.

I'd love to get angry, but I pray for the likes of the Oropezas.

My bets with Becky's prognosis.

Remember: "They use most of the refi money to pay off credit cards."

The Oropeza's luck will run out. If the WSJ revisits the family in a couple years they'll be bankrupt on new debt.

[toby]

Let's see... they have two new cars, paid-off credit cards, and a new house. It'll be a couple of years before anybody needs to look at their credit rating - which will have started to recover by then.

Posted by: Becky

Maybe 7 or 8 years from now. That's a heck of a long time to have not just crappy credit but basically no credit.

I mean, they're defaulting on a $835,000 loan.

So everything from opening bank accounts to turning on utilities to getting a new JOB, getting a cellular phone will be either almost impossible or require a big deposit.

I don't know, I don't think it's worth it. Not for Houston property. Maybe if the house was in Hawaii or Manhattan or some other historic high valued area...but not Houston.

[Thomas Johnson]

Houston is the end of the line for these scamsters. Texas has one of the toughest homestead laws in the US. They have to have greater than 20% equity to pull cash out in a refi. Our appreciation rate has been a "white hot" 6% and is now slowing. I bet they lose this house by 2009 when they have to pay property tax, I am sure they don't have an impound account. They can live in the paid for Suburban.

MW: I resemble that remark, but if you need employment, we'll be hiring here as CA goes into recession. Come on down, ya'll!

[Teddy]

and not to mention my taxes probably going up in 2009 to fix your mess!

[Hugo Chavez]

This is capitalism, get used to it babies. Some people win, some people lose. It's like jumping from credit card to credit card, and it's the bank who got hit, not an innocent bystander.

[anon1137]

realitybites - I believe there's a bill in Congress to forgive taxes on recourse debt.

Will everybody please deposit $500 (after taxes) into the tray to help this poor family who was the victim of unfortunate circumstances (signed, Alan Greenspan). They'll swing by later in their new Lexus to pick it up.

And another $500 for each of the unfortunate investors on Calle Canon Road.

[Jimmy]

TW observed: They spent the proceeds on vacations and new cars and a new house in Texas.

From the WSJ: “Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down”. They didn’t spend the proceeds on new cars and probably got 100% financing on the new house in Texas; but I digress.

What actually did happen to the $300k+- that they took out of the Corona home?

More from the WSJ: “After the government-brokered mortgage plan was announced, Mr. Oropeza says he called the toll-free helpline and left a message, though he doubts he will qualify to get his Corona house back”.

Again, what actually did happen to the $300k+- that they took out of the Corona home?

These are the FOLKS that we’re gonna bail out?????
I like the use of the word “folks” to describe everyone from the true blue collar guy trying to buy a modest $150k home to the Oropezas who control $1million in property.

Granted the Orepezas are immoral scum…..but that is between them and their maker…….but didn’t they commit fraud by not disclosing their intent to default on the Cali home when buying the Tex home?

Sorry for the long winded rant, won’t happen again because I just punched a hole in my screen!

[Tombstone Realty]

You just told us that story just to get us all upset, didncha.

I'll have to wait for my fire-on-a-stick to recharge after Greenspan this morning.

[greg]

Crazy story. Does sound like the homeonwers didn't intended to defraud anyone...just rolled the dice that they could see the Corona home and be all good. I'd like to know how 'TW' knows the appraisals are inflated. That seems to be a unfounded accusation...if all of the homes in that subdivision were going for $800K+ then that's probably what it was worth at the time of their last refi. Pretty much anything in SB, Riverside and San Diego counties is worth less today that it was 1-2 years ago....that's not the appraisers fault its the market.

[enlightenment]

Per http://en.wikipedia.org/wiki/Homestead_exemption which says "Homestead exemption, however, does not apply to forced sales to satisfy mortgages, mechanics liens, or sales to pay property taxes".

For the last item, does that mean that California property taxes will be able to work against their "Homestead exemption" assuming they didn't pay CA taxes?

[someday the ants will eat grasshoppers]

You know, I too have been fuming about Greenspan's remarks all day. How can we give money to reward greed, speculation, and unprecedented risk taking?

But then I thought of a way we CAN bail out all the folks at risk of foreclosure. I am in favor of giving everyone who is at risk of default goverment-sponsored vouchers...that they can spend on moving vans to move back into rentals so they can start saving responsibly like the rest of us.

I mean, when we hear talk of a "rescue fund," aren't the moving costs the worst hardship these folks are facing? We can't be rescuing them from homelessness--or then I'll be really mad. If they can't pay rent like the rest of us after Uncle Sam loads up the moving van, they surely should not own a house, right?

Who's with me on vouchers?

[Uncle Billy]

The line between "intending to commit fraud" and managing to do it out of blind avarice is gettin' mighty fuzzy. Check out story from Wash. Post on how the typical scam works. Nice to hear that fbi does have units dedicated to RE crime.

Real Estate pump and dump:

http://tinyurl.com/2vhwyq

[albert ionidi]

I don't have a dog in this fight , but I sure love seeing what is happening to my country. SAD !

[Joan in Vegas]

From the WSJ article: "But Mr. Oropeza says he no longer expects a transfer, so every other week, sometimes more often, he says he flies west to make his usual rounds of retail locations in the Inland Empire."

My guess is his transfer involved a new background check, which outed his bad credit to his employer . . . like Toby said in an earlier post, EVERYTHING in this guy's life is going to be difficult because of their bad choices. Maybe he can deliver pizza in his new Lexus.

[Uncle Billy]

This is a great article. Seems our current housing fun is nothing new.

( http://tinyurl.com/2yyj5h )

“If all the profits of the years of healthy credit were added up,” he wrote, “and the balance sheet struck between that and the loss at the explosion, the advantage gained by the credit system would still be found to be great. The advancement of America depends wholly upon it. It is by credit alone that she has made such rapid strides, and it is by credit alone that she can continue to flourish.”

[tom borland]

so much jealousy, scorn, and bitterness. Sometimes when I read the comments section I can't tell if I reading the comments of a bunch of shareholders in a bank or the comments of people who's moral outrage is slightly tempered by the fact that they were unable to avail themselves of the same opportunity. It's like sympathizing with Bill Gates when he was pursued by the feds for monopoly status. He may have been right, but why give him the sympathy? If I got this worked up about all of the things my tax dollars paid for that I hate, I'd never get anything done.

[Martin]

Well they have to live in Texas now, so I can see why they want government relief.

[Mike S]

And how many of you expressed your view to the person you elected to represent you in Congress?

You can call, or cut/past your comment in an email and letter instead of just blowing off steam.

[ray]

NO PROBLEM!!!! GREENSPAN WITH THE BACKING OF THE UNITED STATES GOVERNMENT WILL BAIL EVERY ONE OUT!!!

SO GO OUT AND LOAD UP ON AS MUCH CREDIT AS YOU CAN!!!!!

[FM71]

From the WSJ: “Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down”.

More from the WSJ: “After the government-brokered mortgage plan was announced, Mr. Oropeza says he called the toll-free helpline and left a message, though he doubts he will qualify to get his Corona house back”.

HAH! These people are liers! They knew exactly what they were gonna do. They ran their bills up, bought cars, went on a trip and when they started to feel the heat took what was left of that money and fled to Texas where they would try to start a life in the "Foreclosure Witness Protection Program."

Does anyone actually think that Mr. Oropeza wants that house back with that payment? It's all lip service on their part. They knew well in advance what their plans were. They actually believe their own lies. Now they fly to CA every couple of weeks? How long before the airfare racks up their credit cards again? This time without the safety net of equity and refinancing. Am I the only one who see what fine parents these people are? Nice example they are.

The WSJ did a puff piece on these people. They need to be tarred and feathered, paraded around Corona, humiliated and then lined up and shot!

OK, I'll settle for them doing some jail time, and I guess I better switch to decaf this morning.

[mommy]

i love this blog -- my husband is a faithful reader as well!

i have some friends who did something similar, though both homes were in california, one in sacramento, one in so. cal.. it's hard to hear them complain about their financial situation (their credit is shot, their 1st home is on the market as a short sale...) when you're sitting in their house full of new furniture, new central air & heating, watching their giant flat-screen t.v. they're my friends and part of me wants to be happy for them for scoring this coup, but the other half of me is biting my tongue every time the talk of money and housing comes up. my husband and i find it unfair that we have been pretty prudent and patient, and they are rewarded as homeowners.
we're renting again after selling our north long beach home 13 months ago. our rent in a lovely area of long beach is the same as our mortgage was in a "less than stellar" area of long beach -- we are happy as clams! we bought a used car, CASH, and are sitting on the rest of our cash until we can afford to buy in the neighborhood where we now live. we're almost there -- prices have started to drop below $500k from the $600s about 18 mos. ago.
i just have to hope that somehow karma will reward our patience and all things will work themselves out! i would not want to live with their daily anxiety, homeowners or not, that's for sure!

[MyLessThanPrimeBeef]

If you can find ten good men amongst the borrowers, brokers, lenders, Wall Street bankers, Fed chairmen, politicians and rating agenices, maybe a god, some god, not always vengeful, will save us from this Sodom and Gomorrah of a mess.

[FLA LAWYER]

The can probably file for bankruptcy in Texas, keep the house and the cars - and cancel the debt from Calif. I don't know this for sure but Texas ( and Florida) are considered a "dead beat" state.

[Timc]

Well Uncle Billy, there really should be some scorn, because these are exactly the type of people who are part of the problem. Unfortunately, they did it legally for the most part, and there is no recourse mentioned in the article. I guess that this scorn is misdirected a bit because someone sold them these loans, the type of loans we are ALL going to pay for in the long run either by a bailout, increased taxes, or a recession.

To me it's the antithesis of the true American Dream, which used to be a modest home, a modest car, and a nice summer vacation. Now we see this inflated dream of an 800,000 dollar home, two expensive cars, and several trips to the Islands? Wow. And the question still remains, where is that 300,000 dollars, which is enough monies to prop up several modest American Dreams given to hard working responsible folks. But it was lent to irresponsible people by irresponsible lenders, and now they want all of us to foot the bill eventually.

[Carlos T.]

"The new loan.... saddled him with unsustainable monthly payments that he hoped to reduce through another refinancing".

??
Read that line twice. That's not logical. It doesn't make any sense. It's like Liberace flipping through a Playboy.

[CaliforniaDreaming]

You know, there really should be a way to prosecute scamsters like the Oropezas for fraud. I would love to see the loan holder of their Corona home pursue them for full repayment instead of letting them default. Aren't mortgage contracts legally enforceable?

[Jeremy R]

I am not envious. That is actually brilliant!!!! They worked the system perfectly, and per our lean laws, it worked out.

Our credit system is sorta silly sometimes, so I applaud them for taking advantage of it.

What DOES piss me off is having to BAIL people out. I am more pissed that I have to bail out a sweet hard working family that bit off more than they could chew, than I am that a family took perfect advantage of our imperfect system.

Bravo!

[sfvrealestate]

As a Realtor, I've seen lots and lots of cases like this. Essentially, people just took the money from their ATM -- uh, I mean house, and partied. But there are also lots of other homeowners who only borrowed against their homes for emergencies, medical and dental stuff, to get them over a job-loss hump, and so on. And they're upside down on their mortgages now, too, even if it's only by a little bit. Can we try to have a little good will towards these folks? It's Xmas after all.

[JEremy R]

what ever happened to debt to income ratio?

Even if the house is "collateral", I still don't get it.

They have about 1.1 million in debt

835,000 + 238 + 60

But probably have an income of like 90k/yr.

Even if they have the home as collateral for the bank, the bank should STILL consider debt to income.

Doesnt a bank want collateral as a LAST resort. they couldnt possibly think that these people could manage the debt. Even with good credit.

Once debt/income ratios are in play again, houses will drop 30%.

[Cal]

sfvrealestate: "But there are also lots of other homeowners who only borrowed against their homes for emergencies, medical and dental stuff, to get them over a job-loss hump, and so on. "

With the incredible price runups in California that would be a lot of surgery and dental work..

This isnt people taking out 10k for a temporary situation. This is massive amounts of equity being removed from a home.

The only other people who are underwater are those who believed the real estate hype and stretched to buy.

Neither of these groups really need compassion, they need some competent representation.

[Blows Against The Empire]

I applaud these folks for sticking to the banks whose greed created this mess. I do question their choice of Texas, however.

[JEremy R]

"Can we try to have a little good will towards these folks? It's Xmas after all."

No. As a family, we make 160k/yr. We will have over 20k in cash reserves at all times, and of course, tons of money in general retirement funds and other assets. We will also put 20% down so that we at least build some cushion equity.

In order to achieve that we can probably only afford a 375k home. Many in CA find that overly cautious, I call it prudent and a well established rule of thumb.

Supposedly the rule is that Only 30% of income should go to mortgage payments, and 3 months of total expenses should be saved up for a rainy day, on top of retirment plans. Add in things like unemployment, welfare, temp agencies, and 401k withdrawal plans, and there is no excuse in this country to be underwater THAT easily if they planned right.

Now if there was a huge recession and unemployement was 10%, then that's different.

If those rules are too strict, don't own. If you can never own in CA, then maybe its time to move. In 1998 the banks forced the issue via a debt/income ratio. Those rules have been eliminated, so now it is the individuals responsibility to budget properly.

If poeple strecth themselves thin, why should I care?

It isnt like they were renting and this happened. They CHOSE to take the plunge into homeownership in CA. No one made them do it.

If I rack up 30k in credit debt, will you feel sorry for me?

I think not.

[FM71]

"If I got this worked up about all of the things my tax dollars paid for that I hate, I'd never get anything done."

Posted by: tom borland

Good Lord Tom, can't you multitask?

[originalthinker]

Tsk, tsk, tsk... Too many words wasted here.
Let me boil it for you -- THE OROPEZAS ARE SCUM !

[JEremy R]

"If I got this worked up about all of the things my tax dollars paid for that I hate, I'd never get anything done"

How many times have you been asked to pay for you neighors overly expensive boat, kitchen repairs and new flooring that he bought on false credit? How many times have you been asked to pay for someone's gambling debt?

That is essentially what tax payers are being asked to do.

I am not asking for much. I am simply asking for the following:

If tax payers are buying people's homes for them, then tax payers should get paid back through increased property or sales taxes if the people remain in their homes.

If tax payers are fitting the bill, we should pass laws that require that mortgages not exceed 33% of your proven 2 year income. Tax payers have to protect themselves from increased risk if we are going to be in the business of buying people's homes for them.

Without these provisions we are saying
"buy more than you can afford. If you get in trouble, your prudent neighbor will pay for it. Afterwards, when you sell your home, you keep all of the profits. Meanwhile,your prudent neighbor can never move up because you have kept the prices overinflated on his dime."

[gabrielle323]

Wait -- can't the bank take their new house if they foreclose on the Corona house?

[FromTheSouth]

The people I know who run up credit card debt, and who pay it off via home equity, etc. are almost invariably doing it again the next year. So what is at work here? Why would someone behave in the same self-destructive manner? They KNOW what's going to happen, yet they continue. It almost sounds like an addiction.

I have no answers - I'm just asking.

P.S. From what I've read, California homes are unattainably expensive? I'm not sure I'd want to face the reality that with a good job I couldn't even afford a 2000 sq foot 3 BR/2.5 BA. (about $150K around here)

[sfvrealestate]

Cal, you're right , but please let me refine my point. If somebody bought a house with a crappy 100% loan as recently as two years ago, and took out a HELOC soon after for even as little as 10K, they very well could be upside down now as their equity has eroded. And Jeremy, I'll feel sorry for you if you run up that debt due to some emergency situation that's out of your control. In the meantime, dude, let's take that 30k and party!

[everything is gonna be okay]

I know of a couple who went upside down on their condo in the SGV...used a ton of equity to remodel it. Then stopped paying the mortgage and HOA dues almost a year ago. Lived there for quite a while rent free, then decided to bail and go home back to Europe.

Only in America!

[Frederick Frederickson]

Karp was naive about the so-called job transfer to Texas that just happened not to pan out. For people who file for bankruptcy, Texas has a homestead exemption and an exemption for one personal vehicle per adult. However, they have to own the home for 3 years before bankruptcy; otherwise the exemption limit is $125,000. Thus, the Oropezas bought their new Texas home, Lexus and Chevy Suburban and talked up the supposed transfer to establish Texas residency. At the appropriate moment, they’re probably planning to declare bankruptcy, walk away from their California debts and keep the Texas home and cars.

[chuck]

This story was nothing special really, so many people in SoCal did this same trick, living way beyond their means and now leaving emoty foreclosed homes. California is in big trouble, the state is deeply in debt, homes are plunging in value, lay offs are increasing , schools are failing, the freeways are clogged you should be glad these dead beats left the state for Texas.

[everything is gonna be okay]

I think the most sickening thing about these people, though, is that they see themselves as victims...as they pack up the plasmas, pack up the photo albums from their exotic vacations, and drive off in brand new luxury vehicles.

I know of an otherwise nice working class couple in this very situation, who as their house was on the market for way more than it was worth, and they were angry at their agent for not selling it for that inflated value (because they "needed" that price to pay for the plasma, mercedes, and cadillac, etc, etc), they took off for a 2 wk vacation to Italy. I just checked the houses for sale in their area...now listed for $100k less than they were 3 mos ago. They haven't sold and are officially upside down. I know that there is no way in hell they are going to take personal responsibility for their troubles! It's everyone elses fault!

The world is full of "pointer sisters"!!

aarrggh

[AJ]

I am so surprised that no one has mentioned what I thought was the best line in the article - that they refinanced using a mortgage broker that used to be the wife's hairdresser! I wonder if the hairdresser is back in the salon again, because they certainly can't still be selling loans.

AJ