Short Sales – Extending anti-deficiency protection to refinanced loans.

SB 1178 which was sponsored by the California Association of REALTORS® just passed the California State Assembly.  Currently there is no anti-deficiency on a short sale unless the loan was a “purchase money” loan – cash out, refinancing, and home improvements loans are not protected in short sales.

Since many San Diego homeowners had refinanced or pulled additional money from their homes the possibility of the lender chasing the debt after the short sale was possible.  With SB 1178 this won’t be possible and once the short sale has been approved their is no recourse for deficiency.

SB 1178 now moves to Gov. Schwarzenegger for his signature. If signed, SB 1178 will become effective June 2011.

Under existing law, if a homeowner defaults on a mortgage used to purchase a home—commonly referred to as a “purchase money mortgage”—the homeowner’s liability on the mortgage is limited to the property itself. However, homeowners who refinanced the original purchase debt, even if only to obtain a lower interest rate, were not extended the same protections. SB 1178 corrects this unfairness and extends the same protections to consumers who refinance their home loans.

“Cash-out” debt for home improvement or consumer expenses is not protected by SB 1178. Similarly, additional new debt secured by the home, such as a home improvement loan, is not protected—only original acquisition debt.

“Today’s vote was a victory for homeowners in California, but the fight is not yet finished,” said C.A.R. President Steve Goddard. “We are urging Gov. Schwarzenegger to swiftly sign into law this crucial piece of legislation. Passage of SB 1178 will ensure lenders underwrite refinance loans at least as carefully as purchase money mortgages and will provide much-needed consumer protection.”

Source: California Association of REALTORS®.  Photo courtesy of Flickr.

The San Diego home owner has been through quite a bit in the last few years. Home prices have dropped significantly, jobs have been in short supply, and those handy equity loans dried up overnight. Short sales are on the rise.

To add insult to injury the same jerks that got many of them into unmanageable sub-prime loans first moved into the loan modification scam business. Govenment involvement pretty much shut the loan modification schemes down so now they crawled back out as Short Sale Speciailists.

Preying on desperate people in unfortunate situations the bad guys are back, and unfortunately once again taking advantage of the situation with short sales, typically by getting in the door with loan modifications pitch.

Over the next few weeks I will be writing a series of posts about the loan modification and short sale process. Included will be free resource materials posted for immediate download without registration.

Beware of anyone trying to capture your phone number or email address, many of them are the ones hoping to lure you into the database only to spam you until you are most desperate.

Ask around for recommendations from friends or professionals, do not be pressured into a decision without knowing the facts. Seek out an agent in your local market place with a solid reputation that has empathy and understanding.

Recently I attended a real estate conference. I was totally taken back by one speaker that boasted how many short sale listings she has taken over the phone, even having one poor seller take the MLS picture for her with his camera phone. They were enthusically promoting strategic short sales and a $300.00 program to determine if a Seller could qualify for a loan modification.

They went on to promote knocking on doors of folks with notice of defaults, bringing NCR listing agreement to be filled out on the spot, not leaving your car in front of their home, and not to dress up.

For heavens sake, if someone cannot take the time to meet with you face to face, do not do business with them – you are just another notch on their “top producer” status. Seek out an agent in your local market place with a solid reputation that has empathy and understanding.

Here is a suggestion, if you Google “short sale” and you choose the top hits with easy solutions, particularly the paid submissions, you should be extremely careful.

Another tip, if they are knocking on your door you want to be careful. Many of the leading brokerages are encouraging this behavior in the hopes of capturing the short sale market. Sending newbies into the field clueless of the process is not going to help anyone except the Brokers bottom line.

What can you do right now?

Fannie Mae has just launched an on-line resource to educated struggling homeowners. You can reach them at www.KnowYourOptions.com. Material is available in both English and Spanish.

• You will find options for staying in your home.
• Options for leaving your home.
• Resources.
• Scam alerts.

And  most important, how to take action. You are not alone with many of your friends and neighbors in the same boat. What will make your situation worse is not taking some action and reaching out to professionals to help you.  The answer may be a short sale, loan modification, or bankruptcy.

You can read more about short sales by visiting our category.

View, download, or print Financial Checklist.

California Department of Real Estate (DRE) posts consumer alert warnings regarding short sales and what to watch out for

Not a day goes by that I don’t have several e-mail solicitations to attend the “Short Sale” certification, leads, or expert seminars.  It seems that short sale experts is the latest craze with clueless real estate agents jumping on the band wagon.  It’s the wild wild west out their folks and plenty of people have crawled out from dark places to take advantage of people already in tragic situations.

You can view and download the full report here.  Here are a few excerpts of the more frightening  practices.

Be aware that in response to this new program there may be an increase in the number of companies soliciting homeowners in distressed situations and offering to conduct the short sale negotiations with your bank/lender in exchange for charges and fees. Their interest may not so much be to help you as it may be to try to be the vehicle through which they could “flip” the short sale for a profit.

Flipping of Short Sale Properties: Either an unscrupulous agent or a short sale negotiator will misrepresent the true market value of the property to the bank/lender and/or fail to forward all offers to the bank reflecting the true market value. They try to buy it themselves through the use of “straw buyers”, many of whom are limited liability companies, which are their alter egos. They will use false broker price opinions or appraisals to support a depressed valuation. Once the unscrupulous agent or a short sale negotiator has convinced the bank of the false value, they have their straw buyer purchase the property and immediately attempt to sell it at the true market value, re-visiting buyers who had made legitimate offers. Had the property been sold for the most amount of money that the market will bear, the potential tax consequence to the seller is diminished. Conversely, by accepting an artificially deflated offer, the seller’s potential tax liability is increased.

If your house is already listed with a real estate broker and the broker recommends the services of a “short sale negotiator” or its variations, “debt negotiator”, “debt resolution experts”, “loss mitigation practitioners”, “foreclosure rescue negotiators”, “short sale processors”, “short sale coordinators”, “short sale expeditors” or some other type of unlicensed short sale or debt specialist, ask him or her to provide you with a printout of that person/company’s real estate licenses.

The Department of Real Estate strongly recommends the following before considering a short sale.

1. Consult a licensed and qualified real estate agent to represent you in the transaction.  If you want you can check the status of an agent’s real estate licensed at the DRE website.
2. Consult the advice of an accountant or CPA.  You can search for them on the California Dept. of Consumer Affairs website.
3. Consult with lawyer.  Search for one on the San Diego County Bar Association website.

Some good news for those in California considering a short sale with SB 306 being signed by The Governor which makes changes to the short sale process and in doing so may avoid foreclosures. Details so far is a bit spotty but I found some information on Senator Ron Calderon’s site regarding the bill.

“California’s slumping economic climate and housing market have combined to create a fertile climate for the exploitation of consumers,” said Senator Calderon (D-Montebello), chairman of the Senate Banking, Finance and Insurance Committee. “My legislation is aimed at protecting struggling borrowers who desperately want to keep their homes, aiding consumers who wish to purchase homes, and jump-starting our housing recovery.”

A short sale is a sale in which a homeowner sells his or her house for less than what is owed on the mortgage, with the knowledge and approval of the lender. Short sales help homeowners avoid the financial and emotional toll of a foreclosure; help neighborhoods avoid the decay, vandalism, and negative pressure on property values that have come to characterize vacant, foreclosed property; and help lenders avoid the money-losing foreclosure process.

SB 306 facilitates short sales, by ensuring that escrow agents receive up-to-date, accurate information they need to cleanly transfer title to a property that is sold via a short sale. Prior to enactment of SB 306, escrow agents frequently lacked the information they needed to cleanly transfer title on short sale properties, which led to delays, and sometimes cancellations of these sales.

SB 306 also clarifies last year’s SB 1137, a bill that required lenders to contact borrowers to discuss options for avoiding foreclosure; gave renters of homes that fall into foreclosure more rights; and gave local governments greater ability to crack down against foreclosure-induced blight. The clarifying changes in SB 306 will help borrowers and renters, by resolving unintended ambiguity in the prior legislation.

The bill was co-sponsored by the California Escrow Association, United Trustees Association, and Escrow Agents’ Fidelity Corporation. It will become operative on January 1, 2010.

“Our housing market can be the engine that starts us on our return to economic prosperity,” said Senator Calderon.

Stayed tuned as more information becomes available on this important bill. Find more information in our Short Sale Category.

Last post we disussed the importance of selecting a REALTOR® that has both the time and experience to market your property for short sale approval.  Today, I would like to explain our Short Sale Marking Program in general, and of course would welcome the opportunity to discuss in more detail with you.

In general lender(s) usually want to look at one strong offer rather than get into a multi-counter offer battle with multiple buyers.  Each lender is different, but the majority of short sale approvals are like this, leaving the listing agent to determine the best offer to submit for approval.

Usually this means cash or higher down payment lower loan amounts rule.  Buyers with VA or FHA offers are usually passed up for lender requirements and appraisal conditions.  I have recently represented many of these Buyers, and I can tell you it is very challenging competing against the strong cash or low loan ratio buyers.  It takes experience on your agents part to know how to choose the strongest and best offers.

Even a normal seller wanting to be on the market is difficult.  You have people wandering through your home day after day, last minute calls for showings, and having to keep the home looking as good and clean as possible.  Our marketing program involves a technique that will eliminate as much of this hardship as possible and generate the maximum pool of buyers in a given marketplace.

Each home and marketing plan is different, but we find the following to be effective for today’s marketplace.  First, your home is listed for sale in the multiple listing service including full pictures and details including showing and offer procedures.  Second, your home is placed on Broker Caravan to expose it to as many local agents as possible.  Flyers and marketing material are available for them to take to interested clients and prospects.

Then, with the approval of the Seller, I suggest that we have a small period of time before considering offers.  For instance let’s say that you list the home on Wednesday, and then have the broker caravan on Thursday.  The MLS printout and agents calling for showings will be informed that the Seller will consider offers presented on Sunday and will respond on Monday.  This gives everyone the option of putting their highest and best offer together, gives them adequate time to have a lender prepare a loan qualification letter at the offered price or verification of cash funds, and gives everyone a fair chance.

I call this exposing your listing to fire.  The most powerful tool that any REALTOR® can offer you, is to expose your listing to the multiple listing service.  None of us knows where your buyer will come from, which agent is out there working with that buyer.  Rather than trying to double end a transaction with dual agency, exposure to the maximum buyer pool is in your and the lender(s) best interests.

Careful attention is given to initial market price, complete MLS data including maximum pictures and feature list and showing information.  You would be surprised at the lack of attention to detail or missing pictures on many listings on the multiple listing system – Sellers would be well advised to check on their listing to make sure it is complete.

The advantage of this system is it gets you on and off the market fairly quickly.  The last thing you need in these times is to be constantly cleaning and entertaining prospective buyers that may not even be qualified to purchase.  Once we have selected the best offer, we take your property out of active status and place into pending status.  The lockbox is removed and you don’t have to go through more showings.

Short sales can take anywhere from 60 days to 6 months to get lender(s) approval.  Success lies in the ability of the REALTOR® to work closely with the lender(s) in moving the approval process forward.  The lender will have Broker Price Opinions or appraisals done and will consider their option of the short sale approval vs. the foreclosure process.  They should decide based on the best option for them. Unfortunately, I cannot always say that happens as most lender(s) short sale and foreclosure departments don’t work together.

On a personal note from an unexpected job loss and a recent divorce, I can tell you I empathize with your situation.  The best advice I can give you is take some action rather than let the process paralyze you.  Options exist and realize that you’re not alone.

I invite you to call 858-352-8280 or e-mail me should you wish to discuss my marketing plan in more detail.  I have foreclosure software to determine where you may be at in the process and we can start the process of you moving forward in ACTION.

If you want to know more about RealtyV2 visit our Client Bill of Rights.  If you wish to know more about Jeffrey visit his Linkedin Page for professional resume and references, or check out what others are saying about me.

There has been a huge shift in real estate values leaving many folks underwater on what they owe a lender vs. current market value of their home.  There are some options for those that cannot afford to continue to pay mortgages, while others with stable jobs should consider a loan modification.  You can find out more about loan modifications at a recent post - Hope Now .  There is a self-assessment tool to see if you are eligible for one.

Please realize that you are not alone in this situation and reach out for help -- education is key, and caution is critical as there are many out in the marketplace to take advantage of desperate homeowners seeking loan modifications .  If your situation will allow a loan modification, this will most likely be your best option to save your credit and home.  Contact your lender(s) immediately -- you don’t need a paid service to do this and many lenders have streamlined the application process.

Take a moment and watch this important video from the Federal Trade Commission.

www.youtube.com/watch?v=GvxOC5SBEyI

If you are in a financial situation where you cannot make your mortgage payments due to job loss, financial difficulties, or other hardship a short sale may be one option.  You should consult an Attorney, CPA, or appropriate professional for your individual situation, and if a short sale would be in your best interest.  Only they can advise you of this choice after careful consideration of your individual financial situation -- don’t rely on a Real Estate Agent or Short Sale expert for advice.

Excerpt from Fair Isaac Corporation.

If you feel that you aren’t going to be able to make your mortgage payments, take action. Seek advice from a certified credit counselor, speak to your lender, research your refinance options – or do all three. The worst thing is to ignore the problem and continue missing payments; this has the double whammy of hurting your credit standing (leaving you with fewer options), and also putting your home at risk of foreclosure. Here are some helpful tips for avoiding foreclosure from the U.S. Department of Housing and Urban Development.

There are is a bunch of misinformation on the effect of  a short sale vs. foreclosure on your credit score, or FICO.  I would suggest that you visit www.myFICO.com which is hosted by the Fair Isaac Corporation who originated FICO scoring. Below are several questions and answers regarding the impact of short sales on credit from their website.

Are the alternatives to foreclosure any better as far as my FICO score is concerned?

The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial perspective, just that they will be considered no better or worse for your FICO score.

If you are considering bankruptcy as an alternative to foreclosure, that may have a greater impact to your FICO score. While a foreclosure is a single account that you default on, declaring bankruptcy has the opportunity to affect multiple accounts and therefore has potential to have a greater negative impact on your FICO score.

How does a foreclosure or short-sale affect my score?

Credit bureau reports are limited in how they represent foreclosures today, so it’s generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation.

The FICO® score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy.

Finally, take a moment to read the following question and answer.

A short sale is putting your home on the market, finding a willing buyer, and presenting the offer to the Lender(s) to see if they will approve being paid less than they owe.  The process is time consuming, and many short sales are not successful due to uncooperative banks, homeowners that don’t qualify for hardship, or the foreclosure process.  Using an inexperienced real estate agent is also a reason for short sale approval failure.

Continue to Part 2 of Considering a Short Sale