Flipper 1, bagholder 0

Now this isn't going to end well. Here is a preforeclosure in Foothill Ranch with an interesting recent history. It went REO in 2007 and Deutsche Bank sold it to a flipper, who in turn sold it for a profit to the current owner. Now, said current owner appears to be unable to afford the house.

How would you like to be in this situation right now?

64 Tessera Ave, 92610
Asking price: $699,900
Asking price/ sq ft: $241
Purchase price: $1,000,000
Purchase date: 10/18/07
Size: 5 beds, 3 baths, 2,900 sq ft (built in 1997)
MLS: S560990 (55 days on Redfin)
Zillow Zestimate: $756,500
HOA dues: $70
Type: Single Family Residence
Style: Traditional
Stories: 2
Lot size: 4,762 Sq. Ft.
From listing: Large Home at the end of cul de sac street in Beautiful Foothill Ranch.. Fabulous Neighborhood, Very Open Floor Plan, Dramatic Circular Staircase, Newer Custom Paint inside and out, Main Floor Bedroom & Bath, Spacious Gourmet Kitchen with Island and Granite, Large Family Room with Fireplace, Cathedral Ceilings and Lots of light. granite installed in all bathrooms and laundry room, 6' baseboards thru-out entire home, newer plush carpet and extensive use of Travertine in all bathrooms, kitchen, entry and laundry room. Newer range, dishwasher, water heater, recessed lighting. Landscaped front and rear.*** Panoramic Views of Hills, Canyon and City Lights, Association Pool and Spa. Minutes to Schools,library, Shopping, Restaurants, Parks, Whiting Ranch Trails and the 241/133 Tollroad.

Here are some more details on what happened: The property changed hands in 2004 for $675,000, and that buyer used 100% financing. The house went into foreclosure a couple years later, and we believe it went back to the bank for $723,000 in December 2006.

In May 2007, the lender sold the property for $820,000. About five months later, our flipper sold the property to the current owner for $1 million. That's a profit of $180,000 before expenses.

The current owner used 90% financing and put $100,100 down. The loan went into default in December.

In a situation like this, the thought that this could be fraud also crossed our mind. However, we don't think it's that likely for a few reasons. The last names of the previous two owners are different (though they could still be related or in collusion). It took about 14 months for the notice of default to be filed, so it's not like the current owner stopped paying on the mortgage right away. And, the current owner put more than $100,000 of his own money into the deal.

Assuming the property - a big short sale - can be sold for the current asking price, the loss would be $342,094, including 6% sales costs. The owner would lose his entire downpayment, and the lender would take the hit for the rest.