Buying Investment Property In San Diego

Report:

Alvarez, a mother of two, bought her house on Little Lake Street as an investment property with a 20 percent down payment. Six months after buying the house, Alvarez refinanced and took out a $95,000 line-of-credit, according to county records.

“We put $100,000 down. We didn't want to lose that,” said Alvarez, who defaulted on another house in May. “A lot of people are losing their down payments. Now they don't have anything. My husband and I put it into our business. We survived with that money.”

Like Alvarez, several people who pulled equity out of their Little Lake properties say they spent it on business expenses or mortgage payments. Only when prodded, and in one case reminded, did they acknowledge using the money to buy a timeshare, new cars and jewelry.

The most common response to the question of how the money was spent was: “To pay bills.” Many could not remember what those bills were for.

Bankruptcy specialists say part of what led to the housing market collapse was systemic. Lenders set themselves up for problems by not requiring buyers to prove they could afford the loans, or to provide traditional down payments.

That stripped buyers of a tangible incentive to stay in their homes. The stigma of foreclosure and damaged credit are real, but temporary.

“Twenty years ago, individuals were doing everything in their power to save their houses,” said Radmila Fulton, a bankruptcy attorney. “Now they're more willing to walk away. Why pay now when they can rent for less than their mortgage payment?”