How does this happen?

Mortgagee in possession place in Epping https://www.realestate.com.au/property/201b-midson-rd-epping-nsw-2121

Onthehouse says it last sold for $480k in 2005. This place would easily be 1.4, more like 1.6 (I’m not too familiar with Epping, median is about 1.4 so a 5 bedder should be a bit more). Wouldn’t an owner in trouble just sell it and make a huge profit?

 

Not if they borrowed against this property to fund other investment properties.

This might be a basic example of being Margin Called with property. If you need to sell your other ones that have gone bad, but there's not enough equity left so the bank comes after everything else.

 

Oh yep, that makes sense. I can’t believe I didn’t think of that, I’ve borrowed against my PPOR myself!

 

Beleive it or not this actually happens a fair bit. The owners think they might be able to keep delaying the bank or trade out of a short term cash flow problem and they get behind in their payments with the bank taking possession, even though there may be heaps of equity.

 

Or could it be they saw equity and thought free money and refinanced for holidays, cars, plasma tvs, renos

 

In 2010 I helped a couple buy their first home, it was actually quite close to Epping. They build a really nice 4 bedroom house, cost about $500k all up. The sold an investment property to get the deposit together.

A couple of years and their first child later, they were having trouble with their budget. The credit cards had gotten out of control. She wasn't working. He'd had a promotion but they just couldn't get ahead. The good news is that they had a bit if equity in the property so they wanted to consolidate the credit card. The loan was topped up to 80% again.

A few years later, the same problem. They closed the previous surplus credit cards, but the remaining one had more limit increases. He's had a promotion and gotten a novated lease as part of it. She's working part time, not making much. They're in financial stress again and want another increase.

Things appear to go well for while. She has another baby. Not working again, credit cards are maxed out again. They didn't even bother to close the cards that had previously been paid off this time, they kept them for emergencies. I'm looking at the card statement and I can see someone's been buying at least 10 songs a day on iTunes.

So for the third time (2016 now) I do a top up on their loan. By this time they've got quite a bit of equity and their income is good enough that they can qualify for the third increase without too much trouble, they just can't control their spending. I refer them to a debt councillor. At this point I lie to them and tell them that they've maxed out their serviceability, they could barely do this increase and I don't think I'd be able to get them another increase in the future.

In 2017 the lender informed me that the couple were refinancing their loan to another lender. Seems they didn't want to use me for a fourth increase and got someone else to do it.

Their property would probably be worth over $1M today. The last top up I did for them was $150k more than they borrowed for the original purchase. They should have plenty of equity, they should have paid off a significant the original loan after almost 10 years. I hope they've gotten their stuff together, but I didn't see their relationship with money change over 8 years, I doubt it's improved since.

 

some people cannot be helped,

That made me laugh big time, have a look again, im sure you'll find other funny purchases!

 

They were probably embarrassed

I had something similar more than 10 years ago. Wife had $200k in credit cards. I consolidated these into their home loan and told her to cut the cards up.
About a year later she asked me over and when I got there I see whole new set of furniture - all paid for on credit cards. I consolidated them again into the home loan and told her husband to make sure they are all cancelled.

She ended up bankrupt. I think she did it again. So I ended up helping their daughter buy out the share of the main residence owned by the mother.

 

two bankruptices in 10 years!

that takes some effort

 

No, just the one. I meant she did the credit card spend up again.

 

The house sold for the bargain price of only $1,731,000

 

Not surprised, Epping is crazy. I lived there for a few years as a kid when it started to take off. My mother bought the house for $280k, even though my stepfather painted the bricks pastel green and yellow and put dark blue and gold wallpaper throughout the house it sold for double a few years later. Needless to say the new owners knocked it down.