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How Foreclosure Can Happen in San Francisco

September 13, 2007

Want to hear a NIGHTMARE from the field? Here’s an example of what can happen to you without the right representation…

Joe* was renting a fancy South of Market Loft back in 2004. One day, he came home to find a letter from his landlord saying that he was going to sell the loft and Joe had to move. Since most lofts are not under San Francisco rent control, it was true that he would have to move. Joe not only lived in his loft but also conducted his business out of it. The letter also said they landlord would be willing to sell the loft to Joe….

Why not? He knew the San Francisco real estate market was in the midst of a boom and all of his neighbors were selling their lofts for a great profit. Being self-employed, Joe did not have verifiable income or many assets. His credit was great so he was able to secure 100% financing NINA loan (No Income, No Asset). So what, if the loan had much higher interest rates that were only fixed for 3 years…the market was booming and his loft will appreciate.

And so, Joe bought his place. What’s the problem, you ask? It’s now 2007, and Joe’s interest rates are about to adjust. He can no longer qualify for a refinance because lending guidelines are stricter. Still without verifiable income or assets, Joe is stuck with his current loan. His current loan was already about 2% HIGHER than the typical loans and is about to jump up, A LOT. He can no longer afford to make the payments.

Okay, so he can sell the loft, right? Well, not so fast. Joe and his landlord conducted the sale privately, without benefit of Realtor representation or a sale on the public market. You guessed it! He paid WAY too much for his loft back in 2004. Instead of allowing a real estate professional to analyze the price for the listing and then letting the public make the final decision, Joe’s landlord set the price. Naturally, he inflated the price to his benefit.

2004 was the peak of this current market cycle. 2007 is at or near the bottom. Joe’s loft has not appreciated past the inflated price he paid. It was not worth what he paid then and it is not now. Joe cannot sell for a profit. In fact, he cannot sell for a break-even. This will be a loss and potentially, a big one.

The moral of the story: Capitalism works publicly for a reason. Buyers decide the value of a commodity, whether a stock or a house. By enlisting a trusted advisor and purchasing a publicly marketed home, you protect yourself. Allow the market to determine the value of your home, not the owner.

Of course, markets go up and down so it’s certainly possible to have your home’s value go down even if you paid the right price when you purchased. But just imagine how much worse it can be if you had paid even more than your home’s worth at the peak of the market…

*Names & details have been changed to protect the innocent.

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