From the Record:
Even wealthy hit by foreclosures
Nine years after spending millions to build their dream home in Franklin Lakes, Kevin and Cheri Schmidt lost it recently to foreclosure.
The Schmidts have sued their bank, saying it’s to blame for their trouble. The bank declined to comment, saying it doesn’t discuss pending litigation.
Although foreclosures mostly affect lower- and middle-income households, the Schmidts’ story shows that families in upscale towns have also felt the pain of losing a home as the economy and housing market cratered. A check of upcoming foreclosure auctions in Bergen County found properties in Saddle River, Old Tappan and Ridgewood, among other more affluent towns.
According to RealtyTrac, a California company that tracks the foreclosure market, about 4 percent of Bergen County’s current foreclosure cases involve properties valued at over $1 million.
Kevin Schmidt, now 63, has had a long career as a builder and inventor. He and his wife were able to build their sprawling home — which included a pool, home theater, home gym and three-car garage — without a mortgage because he had just sold an invention, the cleaning product Dishwasher Magic, to another company for more than $5 million. They spent $800,000 to buy the lot, and an estimated $3 million to knock down the house on the property and build the new home.
What followed was a run of business setbacks and bad timing, as Kevin Schmidt embarked on several real estate ventures just before the housing market collapsed in the worst crash since the Depression.
In 2007, the couple borrowed against their property, taking out two loans totaling $2.9 million from Oak Ridge-based Lakeland Bank Corp., to get tax write-offs and cash to finance construction projects. The Schmidts say one of the loans had only a three-year term, and when it came due, the Schmidts asked the bank to combine it with their mortgage to lengthen the loan term, and lower the interest rate. They say a bank employee agreed to do so, if the Schmidts sold an investment property in Wyckoff.
…
The couple have moved to a rental and started a new business venture, IceBoxx, machines that create and bag ice cubes in supermarkets.The state’s largest housing counseling organization, New Jersey Citizen Action, says that it has seen a number of homeowners like the Schmidts, dealing with foreclosures of high-priced homes.
“These were people who never would have imagined themselves in a situation like this,” said Phyllis Salowe-Kaye, head of Citizen Action. “But there’s no equity left in the house, and they can’t understand what they did wrong.”
This story has nothing to do with the real estate downturn and foreclosures in wealthy communities.
Hey honey, lets take this windfall profit and blow it all on a house, THEN … let’s take all the rest of our money, and mortgage the home we just built (which we could have owned free and clear) … and make an EVEN BIGGER BET on NJ real estate … in 2007.
What could possibly go wrong? Suppose if he tried to play this game 5 years prior, he’d be rolling in tens of millions today. Day late, 5 million dollars short.
Too bad he didn’t read the blog, could have saved himself millions, would have probably served him well to have had a hard ass financial advisor too.
If there was any money in interactive kiosk ice dispensaries at retail, the really great set of guys at Outerwall would have done it already.
From the article,
The court papers said a judge had ruled that, aside from the question of whether the bank had promised to modify the loans, the bank was justified in foreclosing because the Schmidts had not paid their property taxes.
This part of delinquency has always confused me. If the home
ownersoccupiers fail to pay not only their mortgage, but also the taxes, does the bank have to jump in to somehow avert a greater (or total?) loss? OTOH, in the case of properties where the bank never seems to get around to foreclosing and the occupiers live there for 4+ years without making mortgage payments, is it likely that the occupiers are paying their properties to keep things semi-copacetic? Maybe an unwritten quid pro quo between the bank and the defaulting borrower? Borrower does minimal upkeep on the house and pays the taxes giving the lender time to cherry-pick when, where, and which properties to take in as REO from their tremendous pool of non-performing “assets”?Some lenders will either pay property taxes outright, or continue to pay them if they were being paid out of escrow (when the borrower ceases to pay), to prevent the property from having a tax lien applied, and potentially pushed into foreclosure by the lien holder.
30yr would probably be the best to chime in here, but I’ll speculate:
Primary lien holder might choose to do this if there is equity in the property such that they’ll have a higher level of recovery in foreclosure. They would still be liable for the outstanding lien and penalties after they take the property back, so it might just be a matter of it being less expensive to pay it upfront, and subsequently penalize the borrower with additional fees for this benefit.
Second line holder might choose to do this to protect their right to initiate foreclosure (on their terms) vs a tax lien holder taking it into foreclosure. Suspect if there is a sufficient equity position in the home (above and beyond the first lien amount), this is probably the only way to achieve some recovery.
Otherwise, there may be some legal implications of having to scramble to manage the foreclosure auction if initiated by a third party (tax lien holder), versus being able to foreclose on the banks terms and timeline.
I was wondering if I was going to see this article posted! :) I read it this morning in the paper. Some of us old school guys still like to buy a Sunday paper. :)
These people are financial 1diots but it does fall in line with what I’ve been saying: There are many more just holding on with very little assets to back them up. One strong wind and they’ll get blown off the edge of a financial cliff.
Eddie,
You are describing most of the USA. One illness away from bx. With two workers loss of income hurts when one is down. And if the one down is the healthcare provider then it’s a double hit. Ones doing well are those that are either prudent, very savvy or talented, lucky, inherited something, or those older folks with what used to be the standard, ( pensions, retiree benefits, social security, Medicare-by the way all of the things set to be reduced/ eliminated in the next 20-30 years.)
The govt checks for Medicare is the biggie. Take that away and _________ general hospital would/will own lots of real estate. Stay Tuned.
And, I might add, these people in the article aren’t wealthy… they never were wealthy. It was an appearance. Again, there’s no metric to measure those on the brink. There’s no pain coefficient or warning calculation. They become a statistic after the fact. For every disaster like this one that comes to light, there are three more waiting to be crushed.
You are describing most of the USA.
Which is why I, like many others, refuse to pay $650,000 for someone’s p1ss hole with $13,500 in annual extortion taxes to become someone’s personal TARP. Dear seller, f.uck you. When things return to normal, then I’ll consider. Until then, let them drink themselves into bankruptcy.
Eddie – This guy is one of the 6 foreclosures in Franklin Lakes I’d posted the other day – F-12006614. You might want to reconsider your definition of wealthy, he sold his company for $6 million, that’s pretty good in my book.
Lakeland took it in 5 months, this must be a god damned record for the fastest foreclosure in the State of NJ.
I have a client similar to these people. They are brilliant, shrewd, insightful, and have absolutely no idea how to invest or the risk they are taking. They created their own trading strategy and pay me to essentially tutor them through different issues. So the vast majority of the time I am sitting there in a combination of being impressed with their ability to independently think through complex financial issues, and stunned by their hubris.
Most of the conversations revolve around some version of “ok, why shouldn’t we do this?”…..my answer is “because you have no fcuking clue how risky this approach is”……the other thing is that they absolutely refuse to benchmark themselves……
I keep telling them that it will end badly, and constantly have to enforce liability waivers…..ugh….
It is the same with artists, athletes, doctors and lawyers……even Jerry Jones…..it is hard to be stunningly brilliant in more than one thing……I guess grim and clot can counter such claims with their lives……
grim says:
December 1, 2013 at 6:56 am
This story has nothing to do with the real estate downturn and foreclosures in wealthy communities.
Hey honey, lets take this windfall profit and blow it all on a house, THEN … let’s take all the rest of our money, and mortgage the home we just built (which we could have owned free and clear) … and make an EVEN BIGGER BET on NJ real estate … in 2007.
What could possibly go wrong? Suppose if he tried to play this game 5 years prior, he’d be rolling in tens of millions today. Day late, 5 million dollars short.
Too bad he didn’t read the blog, could have saved himself millions, would have probably served him well to have had a hard ass financial advisor too.
10 – I’m sure Taleb would have a few things to add to that.
let’s pray they don’t ask how to buy a car or about some other basic commercial transaction cause they will find out to be paying for sh!t
“….pay me to essentially tutor them through different issues. “
3rd world infrastructure
@NewsBreaker: FDNY: 67 injured, 11 critically injured, 6 w/serious but threatening injuries, 4 dead in Metro-North derail http://t.co/FI744yg0aP @Newsday
Chi,
Don’t forget JJ……………………
“it is hard to be stunningly brilliant in more than one thing……I guess grim and clot can counter such claims with their lives……”
he sold his company for $6 million, that’s pretty good in my book.
Then why are they bankrupt and renting? People who accumulate a large sum of money and squander it foolishly are not wealthy. They never were wealthy. Being “wealthy” is not just a linear measurement. At the very least, it’s knowing how to secure it.
Eddie,
Unfortunately if this all ends badly it will probably take out even the most prudent.
Most likely will end up badly for all.
This is part of the design, however.
The ones that escape were in on the plan from the beginning.
There are six “supposed” foreclosures listed in Franklin Lakes, a greater number in pre-foreclosure and still more waiting to be led to the execution chamber.
Phoenix,
It wouldn’t surprise me if you were right. It seems like the harder we fight, the more resistance we encounter.
Eddie,
I do not fear the ones on here that talk about their stockpiles of guns and ammo. They are just defending what they have.
It is those with nothing to lose that concern me most.
Those that had nothing to start off with don’t feel it as much as those that will lose it. Think of the movie Trading Places.
Now watch what happens when it becomes 50% of the population.
[19] Phoenix
That is why people prep. Unfortunately, changes in times call for changes in professions. If TSHTF, I think this will be a lucrative line of work and I think I’d be good at it.
http://m.youtube.com/watch?v=ANPsHKpti48&desktop_uri=%2Fwatch%3Fv%3DANPsHKpti48
Grim the shill
Saying that you create value is ridiculducles. If you have given to your regulars 70mil then how come they feel poorer? Priced out of the areas they could afford with their present income a few years earlier. Or unable to remain and planning to leave NJ. In fact you do just the opposite. The economic policy and financial decisions you endorse is detrimental for everyone. Instead of addressing the rising unaffordability of nnj housing, the out of whack pricing and taxing you create a false optimism that buying now is the right thing to do. Your stance is akin to the hand that feeds you: the fed. The fed also argues that it creates value while it is slowly lead us to poverty and financial instability.
Your arguments that the pricing is right?
ONE is that the rich move to NJ presumably from NYC, the old trick of the NJ realtor, but your stats show increase in all tiers. SECOND is that house pricing is ok because housing in Sweden, London and a particular European neighborhood you happened to visit a few years ago when you could afford it, is very expensive. Unfortunately this does not mean that there is no bubble there nor that nj should follow their economies.
All your arguments are lame. You are only here to push own agenda (which now includes pushing sales and justifying bubbles). If there is some value in this blog is from your posters. But you craap on them with the lameness of your arguments and by distorting reality. You are so naïve you believe this asset rising will help you and others to get out of this rut but people only have that much to spend and housing distracts from goods and services and soon will be no job left.
[9] grim – this is another thing I’ve suspected for a long time, but it might not apply in this case as I don’t know what the market value of the home was. But anyway, wouldn’t it behoove banks to divide their non-performing assets into two classes, those that book a loss and those that don’t? Drop the hammer heavy and often on borrowers where REO equals no loss, and do your best to spread out the rest? Meanwhile, the first group are the ones who are most capable of making good on a restructuring agreement, while the second group are just casualties of war whose number hasn’t come up yet?
Lakeland took it in 5 months, this must be a god damned record for the fastest foreclosure in the State of NJ.
[17] After the guy from Rockaway Township weighed in this weekend, I’m convinced there is a cover-up. Public records show people who have been delinquent for 4+ records with no resolution, yet no auction, short sale, or any mention on major RE sites of delinquent status. Try to find the longest delinquent status on RealtyTrac, Trulia, or Zillow and what I think you will find is that houses show up as pre-foreclusure and then mysteriously revert back to “Not for sale.” If this wasn’t true, you would see auctions that were in league with foreclosure actions but they are an entire order of magnitude smaller. Where is the money coming from that mysteriously appears to resolve these situations? Answer: Nowhere. The situations are not resolved, they are just swept under the rug. Grim: check the number of actual sheriff sales and auctions in Rockaway Township and show that it balances percentage-wise against the number of housing units. I guarantee it won’t. Morris County Sheriff and Clerk records are extremely transparent so you can get really good numbers there. RT is also entirely suburb, except for the mall. No downtown, no commercial districts, just houses and schools. If we dig in there for data, I think there is a larger, buried truth. Delinquent borrowers are just left in place and the market knows it. I think it’s the same in top tier towns, but the market doesn’t know it yet, but I think they’re starting to figure it out in the next concentric circle in toward NYC>
There are six “supposed” foreclosures listed in Franklin Lakes, a greater number in pre-foreclosure and still more waiting to be led to the execution chamber.
4+ years
Ex Pat,
Last time I was there, birchwood section was mostly spanish, a large change from years ago.
The demographics everywhere are changing except in small pockets.
Interesting
http://www.dailyrecord.com/article/20131201/NJLIFE/312010025/Homelessness-rises-in-affluent-Morris-County
The reason for the 5 month foreclosure in Franklin Lakes and the 4+ year foreclosures that never end is the same. Lakeland is not a big 6 bank. It was not impacted by the problems like robosigning that plagued the big 6 banks.
During the period of time when the big 6 banks actions caused most Attorneys General to put moratorium on foreclosures, until the NJSC ruling allowing amended Notices of Intent in foreclosures, small banks could foreclose very quickly. On the other hand big 6 banks lost years of time in their race to sheriff sale.
#4 payment of property taxes by lenders in a foreclosure…mortgages have language speaking specifically to this issue, the rights of the lender and the penalties incurred by the borrower should the lender be forced to advance property taxes.
Lenders want to avoid legal fees, interest and penalties.
Yep, 30 Year. The only banks doing FKs during the robosigning hiatus were your Lakelands, Hudson Citys, small state-chartered shops and other outfits who did clean, non slice-and-dice portfolio loans.
Frankly, I’m surprised that Lakeland even tried to do a workout for these dopes.
It occurred to me that if the Gints lose tonight, that both NJ teams combined will have the same number of wins as the Patriots.
Ya think?
http://www.huffingtonpost.com/2013/11/30/poll-americans-trust_n_4363884.html?hpt=hp_bn8
[27] 30 year -that’s good info about the big 6. It still seems to me that it’s not a clogged pipeline as much as it is a giant pyramid. Something like 100 loans go delinquent, 10 get a Lis Pendens filed and assignment, then 1 property goes to auction (numbers pulled out of thin air for effect). The gross numbers of properties going REO, no matter what bank, just all the REO for a given town, just don’t seem to comprise any reasonable, believable percentage of total housing units.
[25] Phoenix – that’s quite an exaggeration, but I get your point. I grew up on the top of Daniel St, so that’s my old stomping ground, and I too am astounded by the influx of hispanics from adjacent Dover( which is now 88% Hispanic) into an area that used to be 100% white, but it’s certainly not “mostly Spanish”. Birchwood Elementary School is now 52% White/33% Hispanic, vs. 74%/12% for the school district, which is still a huge sea change. Interestingly, Birchwood School outranks the “whiter” schools in the district:
http://www.zillow.com/nj/districts/rockaway-township-school-district-434951/
Ex Pat,
Last time I was there, birchwood section was mostly spanish, a large change from years ago.
The demographics everywhere are changing except in small pockets.
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Ex pat,
I used to have a friend named Brian who lived at the top of Daniel street, any chance you know him? Not in the cul-de-sac part, but the regular one on the high side of the street. You could see the world trade center from his living room window.
And yes, maybe I am off a little bit on Birchwood, but I used to ride my 10 speed up there, then later my first few cars. Had friends, dated girls from there. But the last few times I was there I noted the change. No actual calculation, just casual observation.
Wharton changed in a similar way. I don’t feel it is a change in these towns so much as an overall demographic shift. The houses in both areas seem to be well maintained and kept as nice as I remember them. Still middle class working family style homes.
Some of the nicest people in those areas.
[38] Phoenix – Brian Bosworth? I lived a few houses away on the same side of the street.
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