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.


Anonymous said...

This serious problem is not going to be going away too fast.
I can tell you right now it's going to effect the election. As is the price of gas.

Indigo Red said...

Absolutely, dd2. I think waht we are seeing is what's called a paradigm shift, a metamorphosis in the way we think about things.

Our personal opinions aside, "global warming" is here to stay, gasoline prices are not coming down and inflation will continue as the market grows, the world's resources are being shared by far more people and our way of life is the model which cannot be sustained.

Like it or not, driven by forces out of anyone's control the times they are a-changing and the world is following close behind.

As for me, I don't like it.

Indigo Rose said...

As I live just over the border from Reno,Nevada I am well aware of the large amount of foreclosures in Nevada, although most are in Las Vegas.
I am also aware of the housing development that was just passed by the Reno city council to build over 5000 new homes in an area that doesn't have enough water to sustain the homes already there.
So, who will buy these homes, and how much water will be diverted from No. Calif, So. Oregon agriculture to supply this developement?

Tom said...

There's probably a bunch of these folks out there. If I remember correctly, there was a TV program called "Flip this House" where people would buy a house, fix it up, and then resell it for a profit. It's not too much of a stretch that these people bought more than one house to fix up, borrowed money to buy the house and the seed money to fix it up, and then couldn't sell the house.

Of course, you and I pick up the tab for them taking a gamble and losing...

Tom C said...

Pigs for sure, and lots of them. Don't let the banker, the realtor, the buyer, or any one else off.
I tried to eliminate all of my debt but the mortgage. We paid most things off early. The time came when I had to stop going to work. Looks like planning and hard work will see us through my vision issues.

Indigo Red said...

Rose, I've gotten many investment opportunities to buy Las Vegas properties. Too much of LV is mortgaged to absentee owners. All the opportuinities looked good until I recalled LV has no water because it's in a desert.

The Flip This House guy, Tom, is still on and scamming people. He got rich not from actually buying properties but from selling his secrets on tape.

You're a wise man, Tom C. Being nearly out of debt at this time is a good deal. Even with failing eyesight, you see many things much more clearly than the majority of folks.