Congresswoman Richardson defaulted on 3 CA properties

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As we covered a few days back, Congresswoman Richardson’s spared foreclosure on her Sacramento home by a serendipitous loan modification made waves when the first report suggested that her home had gone in to default. Richardson denied the home went in to foreclosure and she was generally given the benefit of the doubt by this blog and others. Foolish us, when did we ever begin trusting the words from the lips of politicians?

Richardson went back on her initial statement to say that the home did go in to foreclosure but the foreclosure was ‘improper’ because she had reached an agreement with her lender to avoid the foreclosure.

From the LA Land blog which has been all over the Richardson foreclosure story:

From the Associated Press tonight: “Rep. Laura Richardson claimed Friday that her Sacramento home was sold into foreclosure without her knowledge and contrary to an agreement with her lender. She said that she is like any other American suffering in the mortgage crisis and wants to testify to Congress about her experience as lawmakers craft a foreclosure-prevention bill.”

Richardson, a Democrat from Long Beach, had earlier denied reports that the Sacramento home was in foreclosure, even as the buyer of the home stepped forward and publicly offered to resell it to her for $535,000, the same price she paid for it in early 2007.

A new wrinkle tonight: The blog Foreclosure Truth reports Richardson also fell behind on payments on her principal residence in Long Beach, and faced possible foreclosure on that home as well: “Turns out her home in Long Beach was also recently in foreclosure with a Notice of Default filed by Title Trust Deed Service Company with the L.A. County Recorders office on March 31, 2008 as document number 546450 on behalf of Litton Loan Servicing. According to that document she was $19,921.74 behind on that mortgage as of March 28, 2008. Checking on the trustee sale number for this default it appears that this foreclosure action has in fact been cancelled — quite possibly due to a loan modification as claimed.” Richardson’s office has not responded to L.A. Land’s request for comment on that report.

Now a Daily Breeze report shows that Richardson has defaulted not just on her Sacramento property but on three California properties.

For example, she refused to discuss the mortgage terms on the Sacramento house, refused to say how many payments she

had made, and refused to say when she learned that the mortgage was in default.A notice of default was issued in December, but Richardson offered no evidence that she had taken any remedial action before April. By then, the auction had already been scheduled for one month.

The home, which Richardson bought in January 2007 for $535,000, sold at auction on May 7 to a real estate investor for $388,000. The lender, Washington Mutual Bank, took a loss of nearly $200,000 on the deal, and

the buyer, James York, agreed to pay her property tax bill.Richardson said that she was not aware the home had sold until she was contacted by reporters this week. She produced correspondence from Washington Mutual Home Loans, dated April 17, that indicated her loan was reinstated and the auction would be put on hold until June 4.

She produced an e-mail, dated Thursday, indicating that she was trying to work with the lender to have the foreclosure rescinded.

A spokeswoman for Washington Mutual Bank, Sara Gaugl, declined to comment on the matter.

“We have not received consent from Ms. Richardson that would allow us to discuss her loan situation,” Gaugl said.

County records indicate that the San Pedro home went into default in September 2007, at which point Richardson was behind on her payments by $12,410.71, and had made no payments since June.A notice of trustee sale was issued on April 17, and an auction was scheduled for May 14 on the courthouse steps in Norwalk. The outstanding loan balance was $367,436, on an original 2005 loan of $359,000.

However, the auction was put on hold.

Richardson produced records from Wells Fargo Bank, which holds the note on her San Pedro home. That document, dated March 21, indicated that Richardson had qualified for a loan modification that would prevent the foreclosure from going forward.

Cal Western Reconveyance Corp., which was responsible for collecting the debt, confirmed that a hold had been placed on the auction, and the auction date had been postponed to July 14, pending a workout of the loan.Again, Richardson produced no document to confirm that she took any remedial action on the San Pedro property before March.

The Long Beach home, which is Richardson’s primary address, went into default on March 28. Richardson had not made a payment on the house since November, and owed $19,921.74 on the property. Three days later, the default was rescinded, indicating that Richardson had arranged to make the payments.

While Richardson did not apologize for her actions, she did attempt to explain them.

Tanta from Calculated Risk asks some important questions about what the Congresswoman was doing buying the Sacramento home in the first place. The Congresswoman used 100% financing and Tanta brings in to question how she qualified for the loan in the first place.

I have no idea what loan terms Richardson got for a 100% LTV second home purchase in January 2007, but I’m going to guess that if she got something like a 7.00% interest only loan (without additional mortgage insurance), she got a pretty darn good deal. If she got that good a deal, her monthly interest payment would have been $3123.75. Assuming taxes and insurance of 1.50% of the property value, her total payment would have been $3793.13.

The AP reports that Richardson’s salary as a state representative was $113,000 in 2007, and she received $20,000 in per diem payments (which are, of course, intended to offset the additional expense of traveling to and staying in the Capitol during sessions). I assume the per diem is non-taxable, so I’ll gross it up to $25,000. That gives me an annual income of $138,000 or a gross monthly income of $11,500.

The total payment on the second home, then, with my sunny assumptions about loan terms, comes to 33% of Richardson’s gross income. I have no idea what the payment is for her principal residence in Long Beach. I have no idea what other debt she might have. I am ignoring her congressional race and job changes and all that because at the point she took out this mortgage, that was all in the future and Richardson didn’t know that the incumbent would die suddenly and all that. I’m just trying to figure out what went through this woman’s mind when she decided it was a wise financial move to spend one-third of her pre-tax income on a second home. (There’s no point trying to figure out what went through the lender’s mind at the time. There just isn’t.)

The next, important question is – did the U.S. Representative commit loan fraud by using stated income that was inflated to complete the purchase of these homes? If she has committed loan fraud a la Casey Serin she should be immediately removed from her seat and prosecuted accordingly.