'Sitting on time bombs': Cal. investor defaults on nine homes

Here's a glimpse into the real estate mania of a couple of years ago, and the fallout: "A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market."

A mistake? Really, you think so?

More, from Reuters: "Shawn Forgaard, a 37-year-old software company project manager (pictured), bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience."

Reuters reports Forgaard, of Santa Cruz, used $800,000 in stock options to build his small real estate empire. Beginning in 2004, he bought houses in North Las Vegas, Phoenix and Palm Springs. He kept overhead low by using negative amortization loans.

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Shawn Forgaard with his wife and child, via Reuters.

Comments

[Jonah LaFollette]

You never put all your eggs in one basket...investing 101. No charge...

:)

[jon]

he's a smart guy in software, obviously either greed or dumb got the best of him

[Cal]

He made a ton of mistakes, but he is taking responsibility for his decisions, feeling the consequences and isn't asking/hoping for a bailout.

OT: Here is the second set of data I have seen regarding sales for April 2008, no real bounce in prices or volume. I keep waiting for this tremendous surge in activity the Realtors keep crowing about, but so far closed sales definitely haven't reflected it:
http://tinyurl.com/6m2zxo

[formerlahomeowner]

He knew that property values will decline? Then how come he did not sell those investment properties when he knew that real estate will go soft. Gambled away his stock options because of greed. Bulls make money, bears make money, hogs get...Well, you know the rest.

He is young and can make a comeback.

[e chantes]

goldman sachs got it right, another 20% to go

[Ryan]

I sincerely hope the mortgage bail-out plan excludes speculators such as this guy.

[Willie]

Is the wife, the baby and the dog going into foreclosure as well? I would like to bid on them all!

[shallow hal]

Hey, when did Gregory Harrison become a software manager?

http://snipurl.com/gharrison

On the plus side he has a hot wife, so he's got that going for him.

On a serious note, neg-am loans should be banned. For the majority of borrowers nothing good can come from them, yet I still see WaMu advertising there option payment plans which include a neg-am payment.

Good to see they're learning from their mistakes.

[bottom line]

Shawn says...

"I knew I was sitting on time bombs," Forgaard said. "I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance."

Um, Shawn, using those neg am products erases equity. You should have stuck to your knitting, er, computer science.

[Brian Flanagan]

From the article:

"Where I went wrong is I invested heavily in an area that wasn't my passion and I had a really demanding full-time job so I couldn't pay attention to nuances, the little indicators telling you the housing market was going soft," he said.

What little indicators would that be? The foreclosed signs sprouting like weeds? The daily articles in the newspapers or stories on TV? Subtle, nuanced signs; very easy to miss.

[Doug in Toronto]

Purchasing 9 homes with negative amortization loans? This guy has been watching too many "Flip This House" episdoes. I'm willing to bet that most of the folks who have appeared on programs like that are in the same boat. I don't have a lot of sympathy for anyone who intentionally takes out a bad mortgage just to flip houses in the hope of making a fast buck. Problem is: these shows are still on the air, and as P.T. Barnum said "there's a sucker born every minute".

[Britt Brown]

Contrary to the notion, everyone does not win. I think this young man is a cultural snapshot. The image shows pretty clearly that risk and reward is two-edged. Not everyone gets away. Even the pretty ones.

[gary]

Good idea to buy the R/E, dont let the negative people get to you. If the market was still good and you sold and made a bundle they would think your brilliant. Next time, and your young, there will be a next time my experience is I put 25% max in anything. RE/ High RiskMarket/Savings/Low risk market. Have fun.

[dilbert dogbert]

Ya gotta swing for the fences to hit a home run. Nothing ventured nothing gained. With the internet full of cautionary stories about the housing market in 2004 it is a puzzle that someone in the industry couldn't have found some good advice about real estate. Guess he listened to those paragons of RE wisdom the Relitters.
Lucky guy. Good looking wife and kid and he is young so he has time to bounce back. Good luck to them.

[Michael Snyder]

Talk about a poster child!! Seems like those late night infomercials are no substitute for common sense. What saddens me is the hard times this man's greed will bring to his family.
Shawn Forgaard defines "no load" investing with his stupidity. Securing loans with "options" prove the loan officers who went for this scheme were even more HUA (head up, well you can figure it out) than Mr, Forgaard. They might have insisted he vest his options so they were at least lending against an asset who's value was known. Mr Forgaard might have contained his "enthusiasm" and left his family with a future in the face of a reversal and somewhere someone might have noticed the negative he'd have to carry as these home loans reset to rates in excess of the rental income he was enjoying.
The good news for Mr Forgaard is Wall St. is always looking for new faces who can lose billions every quarter. The work pays well & this will look good on his resume.

[blackbox]

He bought a house near the beach in Northern California at the near perfect time, and he had $800K of free money in the bank, and he is going to declare bankruptsy shortly. He did not lose he's job, and he has no medical problems or legal issues. Wow, no wonder most people go thru thier lotto winnings on average as short as 5 year timeframe. Some people just have no idea how to handle money... even very smart guys....................

[JW]

Of course, Barney Frank (& friends) want to include jackasses like this guy in the great mortgage bailout of 2008. Makes you proud to be an American, doesn't it?
It makes me wanna barf!

[bigunit]

Who got rich on this deal? Likely the broker doing the loans. I would imagine that the yields and rebates on 9 negative amortization loans would net a loan broker $15,000 a piece in commission - more if they represented the buyer in each purchase transaction.

[George O]

Wow, I would love to talk to the lenders of the fifth, sixth, seventh, eight and NINTH houses!! Exactly how many houses would they let him purchase before they got worried?!?!? Insane...completely insane!

[RB]

Cal, I disagree with you. Forgaard took a pretty big gamble, lost, and then opts to declare bankruptcy so he won’t have to pay off his debts. In my book, that is NOT "taking responsibility for his decisions."

Otherwise, did anyone take a look at the Reuters article? Peter includes the one photo of the Forgaard’s, but Reuters shows another taken from a wider angle. For some unknown reason, their driveway starts in front of their living room window and front door. I have to wonder what kind of junk they were buying, or why the developer of the quickie-McMansion didn’t use the existing drive or fix the curb.

[Jack]

Cute dog!

If he bought from 2004-2006, as the article said, he should have been able to flip all those houses and get out before the market deflated. Smart flippers never held properties longer than three months max.

I'm amazed that lenders continued lending to him with so much already on his plate.

[puckhead]

I hate to pile on to the guy. But at the end of the article, he says that HE WANTS TO START HIS OWN BUSINESS??????????????? The man is as clueless now as when he bought nine houses in the worse bubble locations in the US. He has no money, given his past track record, what bank or investor is going to fund his new business? Dude, find a good company, work hard and stay put. You have no head for business.

[THOMAS]

Is the dog for sale?

[dclogang]

“Concentrate; put all your eggs in one basket, and watch that basket...” -Andrew Carnegie

I guess this fella wasn't concentrating and he didn't watch his basket.

I don't feel sorry for speculators and get rich quick people.

I'll buy in the SFV when prices plummet to below $200k.
If not, I'll continue to rent. Why blow my savings on a down payment when it will evaporate in a few months?

[Truth2Pwr]

Check back in a year and my money says that'll be "had" a hot wife. They might sing "Stand By Your Man" in West Virginia, but in Cali the state anthem is "What Have You Done For Me Lately?"

(besides, she isn't all that hot anyway)

[Joseph... the Real Estate Guy]

What a fool!

[TheTruthShallSetYouFree]

"Where I went wrong is I invested heavily in an area that wasn't my passion and I had a really demanding full-time job so I couldn't pay attention to nuances, the little indicators telling you the housing market was going soft," he said. "I was in over my head."

WTF?!?! You have got to be kidding me. "I invested in an area that was not my passion." I'd say buying nine investment properties isn't a passion but a heroin addiction.

Dude's a clown and will spend years recovering from this while little Jimmy has to wear old sneakers and go to community college. But he has no regrets. Sure, you keep telling yourself that when you go to bed and when you wake up in the morning.

TheTruthShallSetYouFree

[MyLessThanPrimeBeef]

Finally, we meet the legend who was so nimble he was able to go from dotcom to real estate to what, commodities now? Is that what he's getting in with his own business?

[Cal]

RB,

Thanks for the feedback but I disagree for the following reason. He lost $800,000, his home and is going into bankruptcy. He put money down right alongside the banks and lost. That is much more a kick to huevos than most.

A system designed such that everyone would have to live with every financial decision they ever made would inhibit risk taking to a tremendous degree. We want to encourage risk taking as much as we want to punish excessive risk taking. I don't think this guy is a "bad man" compared to a Casey Serin. He paid his money and took his chances and lost.

[E]

So will we have to pay for their (possible) divorce in the bailout also?

[Joseph C]

The sad thing is that he actually put in between 10 to 40 percent down on his properties... It's not like he was doing a zero-down liar loan. Speculation, yes, but he seemed like more a long(-er) term investor than the "make money selling realestate without any money down" speculators!

[RZ]

How the hell did he even get funding for that many houses? Even with $800K to fund part of it, he'd need about $4 milion more for that many houses with the rates they were at. Did no one look at his huge outstanding loans and say, "hmm, this guy may be biting off more than he can chew"? Idiots all around...

[firesale]

The man is not clueless. He's just a greedy SOB!
Does he lose the wife and kid, too? How about
the house he's living in? BK's too easy for him.
They should all be headed to debtor's prison.

IDIOTS like this are costing responsible citizen in taxes,
inflation, and dollar devaluation, as our government
attempts to offset their mess.

Poster boy? Maybe for
con-artist of the year.
I see hustler written all
over him.

[Brad A. Greenberg]

"Wiser from the experience." Seriously? Was this guy that much of a buffoon that he needed bankruptcy protection to explain to him the perils of millions of dollars of debt?

[Charles Freck]

This guy's a RE Kook. No game paln. Didn't have anything on the other side of the equation. Buying 9 to dump 7 to end up with 2 free, now that's smart.

[MyLessThanPrimeBeef]

He's not alone in filing bankruptcy.

From Evans-Pritchard, London Telegraph:

The California city of Vallejo (117,000 inhabitants) has just made history by opting for Chapter 9 bankruptcy, the result of tax erosion from a 26pc fall in local house prices. Half Moon Bay may be next.

"This is the tip of the iceberg: everybody is going to line up for Chapter 9 in California," said John Moorlach, Orange County board chief.

http://www.telegraph.co.uk/money/
main.jhtml?xml=/money/2008/05/12/ccambrose112.xml

[LeeAnn]

I know someone who did this. A husband and wife who bought 10+ houses. When trouble appeared they put all the houses in the husband's name and got divorced. She will stay in their multimillion dollar house (put in her name) with the kids. He will declare bankruptcy if necessary. Then in three years she will sell the house and split the proceeds with him. That is the plan I heard. Not sure if this will work.

[NV]

this story has a ring of familiarity to it.
back in the early nineties I was renting out a college dorm room from a "former" real estate "investor". He was bitter on all those bankers who lent money to him, when business was good, but cut him off abruptly when the market softened up a bit. Bitter of course on the people that all of the sudden stopped buying houses (not homes, houses !), bitter on the newspapers now running stories of real estate doom, bitter on the partner who took the kids and ran for sunnier venues, bitter ...
However he had eager audience in the newly hired faculty. When asked about this their newly purchased houses, this supposedly smart people, had comments about the square footage, the size and numbers of fire places, hot tubs were hot items of course (this was the new england after all), and always ended with the mention that it has "good resale value"
The idea that a house is not to place make a home but rather an investment, was shocking to me then, and I thought for sure such anomaly will live in the collective memory long enough, that I will not see it in my life time.
Yet here we are, barely 20 years later.
These "investors" and their "investments" ought to be regulated. I think it is time we start thinking about housing the same way we do about food, electricity, etc. Seriously !
We don't allow this kind of activities with our food supply, water supply, electricity grid. Lets put housing under the same code of conduct this society requires and deserves.
For those willing to gamble away large sums, I've heard Vegas is still open. Let them "take their chances" away from where they can do damage to the entire society, that's way God placed Vegas far away in the desert isn't it !!!
Let our entrepreneurial spirit run free (wild if you prefer !) on the other aspects of our life.