ACTION star Nicolas Cage lost his residence in Bel Air recently. He was trying to sell his 11,000 s.f. for $35 million but there were no takers. At the auction sale, someone offered $12 million, but secured creditors of $18 million did not agree to sell it for that low price. It’s hard to imagine how Mr. Cage can lose his residence to foreclosure because of unpaid mortgage payments. He is ranked the 5th highest paid actor with an annual take of $40 million but was unable to keep $18 million of mortgage current resulting in foreclosure of his house. Just because he lost his residence doesn’t mean his homeless. Mr. Cage apparently has fourteen other ‘palatial’ houses around the world. But the foreclosure certainly affects his credit score, as if he cares. There were six mortgages on the property. He had apparently paid cash of an undisclosed amount for the property. He then obtained a first trust deed in 2005 of $425,000, a second trust deed of $10.35 million and a third of $5.5 million, a fourth, and fifth and sixth trust deed totaling $2.1 million for a grand total of $18.375 million of secured debt against his residence. He apparently thought that he had only borrowed half of what the house was worth because he was trying to sell it for $35 million. $18.375 is a lot of debt even for Nicolas Cage.
His mortgage payment on his residence is close to $200,000 monthly, or $2.4 million a year. He certainly makes more than $2.4 million a year so how come he cannot make the house payments? Well, he probably has a lot of expenses. He has 14 mansions around the world. I presume he also owes money on these properties. You can just imagine how much the monthly payments are on those. If each one of those houses has a mortgage of $10 million, he would owe $140 million. On $140 million, he would have to pay $1.5 million a month, or $18 million a year. He also owns an island in Bahamas, a private jet, four yachts, and millions in art and jewelry. The man has a lot of assets worth a lot of money. Just because he lost his residence doesn’t mean that he’s poor. In fact, Mr. Cage is a very wealthy person despite the loss of his Bel Air residence. When he is working, he can make $40 million in one year. But actors don’t work every year. Maybe he hasn’t worked for a year. So, he would have to rely on income from investments. The stock market is up 40% in the last 12 months but in the last 24 months, it was down more than 50%. If he has $20 million of stock investments, a very respectable return of 10% is only $2 million. $2 million short $18 million to cover all of his mortgage payments for all his mansions worldwide. Let’s just say that he has a cash flow problem. His cash inflow is short of his required cash outflow, requiring him to sacrifice his residence in Bel Air to foreclosure.
Although on a much smaller scale, many readers are in Mr. Cage’s financial situation. Clients make $130,000 a year. That’s a good household income by any standard. However, they went overboard on their residence. They have a first mortgage of $1.0 million, and a second mortgage of $200,000. The combined mortgage payment is $6,000, excluding real estate taxes of $1,500. Their net income is about $8,000 a month. Certainly, clients are in a deep hole. Just the mortgage and taxes on the house is $7,500. 95% of their net income is used to pay the mortgage and taxes. There is still $3,000 a month for food, insurances, car payments, school tuition, etc which are not covered by any income. What should clients do? Should they follow what Nicolas Cage did and leave their residence, losing it to foreclosure?
Perhaps abandoning the house is a better choice.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803. (Advertising Supplement)
( Published April 10, 2010 in Asian Journal Los Angeles p. C4 )
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