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.