Monday, May 12, 2008
Three Little Pigs Really Only One Pig
Shawn Forgaard, a California software company project manager, bought ten homes, one for his family and nine as investments. In 2004, he started buying properties using $800,000 in stock options putting 10-40% down on negative amortization loans (payments don't cover the interest, balance increases over time.)
Now Forgaard has defaulted on nine of the properties, the banks will foreclose, forcing him into bankruptcy. He told Reuters, "Everyone stumbles. I'm not going to hide or run or live in denial, or with regrets. On the surface it looks like total devastation, but it's just the opposite. I'm confident our lives will be much, much richer as a result."
That's all very well and good. But, who is going to pick up the tab for your stumble Mr. Forgaard? Who is going to pick up the tab for all the other real estate investors who bought into multiple properties for which they couldn't pay, subsequently stumbling? How many of the foreclosed properties belong to the same borrower?
Nearly everyday, we are told about the zillions of homes in foreclosure and the families about to be thrown out on the street. Last January, RealtyTrac reported 153,745 foreclosure postings. That's a lot.
Nearly 250,000 California properties were in some stage of foreclosure in 2007. One in 52 residential units are involved, that's 1.9%of homes. It's worse in Nevada where 1 in 30 homes, 3.4%, are in the foreclosure range.
As alarming as the figures are, not everything is disclosed in the numbers. We have been led to believe that each foreclosed property equals one family. During the real estate boom, many people like Shawn Forgaard, entered the market as investors and purchased multiple properties. Now those properties are in foreclosure. How many Shawn Forgaards are out there?
The life of Indigo Red is full of adventure. Tune in next time for the Further Adventures of Indigo Red.