REGION: Surging condo prices raise questions

Facing default, developer pulls off string of high-priced sales

By ZACH FOX - Staff Writer | Saturday, August 16, 2008 11:52 PM PDT ∞

In the middle of a historic recession for North County's housing market, one south Escondido condominium complex experienced an extraordinary burst of sales.

Twelve small units in Brookhaven Condominiums, a development of two converted apartment buildings, have sold since December for $360,000 or more ---- roughly double the prices of similar condos in the neighborhood. Indeed, the dozen Brookhaven units had surged by 31 percent in value since 2006, even as the median price of condos in the area plummeted 54 percent.

Neither Brookhaven's developers nor their bankers would explain this remarkable performance, despite repeated requests from the North County Times.

But two of Brookhaven's buyers say they face foreclosure and tarnished credit records. And details of the condo sales obtained via county records tell a story of what appear to be high-risk loans and market-defying sales resembling excesses seen during the regional and national housing boom.

For most homeowners, that boom ended abruptly in the summer of 2005, eventually destroying trillions of dollars in equity across the nation, tipping thousands of families into foreclosure and triggering a worldwide banking crisis that lingers today.

Soon after the Brookhaven project's inception, its developers seemed poised to be similarly buried by the housing crash.

A development team composed of two couples ---- Steven and Nancy Renfeldt from Escondido and John and Lisa Meadors from Highland, Utah ---- purchased the complex in April 2005 for $3 million, according to county records.

The developers secured a $3.4 million construction loan, which was later increased to $3.5 million.

Rehabbing in a housing crash

The team, which called themselves Meadors of Renfeldt Development, suffered from poor timing: Seven months after their purchase, the housing market began a landmark decline that has left values 29 percent lower on average in San Diego County amid the worst sales downturn in at least 20 years.

And converting apartments to condos took time. In July 2006, the two couples completed the renovation, which featured new kitchens outfitted with high-end granite slab countertops.

By November 2006, three of the 20 condos at the complex had sold for between $275,000 and $334,000.

Four months later, in March 2007, one more would sell; a 948-square-foot unit for $256,000.

Then the sales dried up, according to county records.

Within months, the development team was struggling to repay its construction loan, evidenced by a notice of default filed in December 2007, according to county records.

Facing thousands of dollars in losses and few buyers, the developers apparently got creative in November 2007.

An unusual sale

After eight months of no sales activity at the complex, which is near the corner of 15th Avenue and Escondido Boulevard, a 1,128-square-foot condo sold for $385,000. However, according to the county assessor's office, the sale never happened.

Two weeks after the November sale, a second deed transferred the condo back to the developers.

The buyer of record, Julie Cottam of Escondido, said she never provided any money for the condo and did not know she briefly owned a unit in the Brookhaven complex. She said she signed some documents as a favor to a friend, Nancy Renfeldt.

"I don't know if it was a deed. I just trusted her; I was a friend," Cottam said, adding she never planned to buy the condo.

Renfeldt didn't return several phone calls from the North County Times seeking an explanation of the transactions and other questions. John Meadors, reached by phone, characterized himself as only "an investor" and referred all calls regarding the condo sales to Nancy Renfeldt, whom he said had stopped taking his calls.

Rising prices

But the transaction may have been important in setting a benchmark that raised the apparent value of the unsold units in the Brookhaven complex.

However fleeting, Cottam's ownership turned up as a sale on the local real estate industry's most important search tool, a database operated by Sandicor, a San Diego real estate firm.

Sandicor's system is used by real estate agents daily to list units for sale, see what is available for buyers and determine the market value for everything from a Gaslamp District loft to a sprawling ranch in Bonsall.

Soon after Cottam's transaction appeared on the database, business improved for the developers.

A month later, in December 2007, a 948-square-foot condo sold for $360,000. The price was up dramatically from the $256,000 paid for an identical unit purchased the previous March, the most recent sale.

The buyer who broke Brookhaven's long sales drought was Maria Roberts of Tijuana.

Nothing down

Roberts' husband, James, said the couple, who make a living as commodities investors, had no knowledge of the Escondido real estate market.

"They said several (condos) had sold for that price, so it had to be a good price," he said.

What the couple didn't know, he said, was that the condo was the first sale at that price, according to county records.

The deal was financed with a loan from Washington Mutual that required no down payment.

The mortgage was extraordinary because it came four months after the onset of a widely reported global credit crunch. As foreclosures spiked in 2007, banks shut down risky loan programs, including those that required low or zero down payments.

Further, Maria Roberts' no-down-payment loan was issued on a condo that sold at a much higher price than a comparable unit nearby. The day before the Roberts sale closed escrow, a larger condo, also recently renovated with upgrades, sold for $310,000, or $215 per square foot.

The Brookhaven condo Roberts bought was sold to her for $380 per square foot.

Washington Mutual declined to comment, citing privacy policies.

Investors take the pitch

James Roberts said the sales pitch on the investment worked like this: The couple would hold the property in his wife's name for a year while the developers paid the mortgage by finding renters. After a year, the developers would buy back the property and cover any depreciation.

For their trouble, the Robertses would receive $50,000, he said. They have received only $20,000, he said.

One month later, another sale to Maria Roberts closed with a 5 percent down payment, according to county records. But that wasn't part of the deal, said James Roberts.

Further, Roberts said they never put any money into escrow for the down payment.

Now, the Robertses face foreclosure on both condos as the mortgages went unpaid.

"The banks are screaming at us for the mortgage payments. And we're screaming back at the bank because it shows she purchased two when she only purchased one," James Roberts said.

Maria Roberts' December purchase and the fleeting Cottam deal in November preceded a remarkable run of sales at Brookhaven.

Prospects improve

By June, Renfeldt and her partners had sold 12 condominiums in the complex ---- an impressive record, considering new condo sales in all of Escondido stood at "negative-five" through the first two quarters, according to data from MarketPointe Realty Advisors, a San Diego research firm.

MarketPointe counts canceled contracts as negative sales, meaning Escondido had five more cancellations than new sales from January through June.

The Brookhaven condos sold for an average of $361,000 each, or $381 per square foot, according to county records. Discounting Brookhaven, all other condominiums in the neighborhood have averaged a price of $144 per square foot this year, according to Sandicor records.

"They're so blatantly overpriced," said Troy Sauvageau, an Escondido real estate agent. "That's what blows me away. Maybe they're sitting on an oil field, I don't know. All day long in Escondido you can find stuff" in the low $200,000 range.

Bucking the trend

Further mystifying housing analysts is the 31 percent appreciation in the sales prices of Brookhaven's condos from December 2006.

Meanwhile, the median price for a condo in that ZIP code dropped by 54 percent.

"I'm extremely hesitant to believe that," said Robert Martinez, research director for MarketPointe, about the appreciation of the Brookhaven condos.

As those condos sold, Elba Coronado was trying to sell her Brookhaven unit, which she bought in December 2006 for $275,000. Her real estate agent, Sauvageau, listed it at a range of $320,000 to $335,000, according to Sandicor.

Sauvageau said he received little interest, while Renfeldt and her partners were able to sell others for $360,000 or more.

Also remarkable, amid a worsening credit crunch, all the 2008 sales in Brookhaven carried mortgages with down payments of 12 percent or less. The average price on Brookhaven condos has been 164 percent higher than the average price of all other condos in the area.

"You would think that after the huge market meltdown, that banks and lenders would be paying a whole lot more attention to make sure they're appropriately pricing the collateral," said Paul Leonard, director of the California office of the Center for Responsible Lending in Sacramento.

With no knowledge of the Escondido condo market, Leonard said he could not comment specifically on the Brookhaven complex, but "to the extent that I hear about transactions like this one, it's clear that there are still some problems that need to be fixed."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Read his blog, "On the Realside," at www.nctimes.com/blogs/minding_your_business.