Archive for the ‘Foreclosure’ Category
Saturday, December 8th, 2012
If you are facing foreclosure and have more than one lien (mortgage), there is a new law that could greatly affect you. The California Supreme Court just denied review of a state appeal court ruling that allows second “purchase money” lien holders to sue homeowners for deficiency judgments after a first lien holder has foreclosed. Don’t worry, I’ll break it down in simple terms.
In California the homeowner is protected from lawsuits for the amount of the difference between what is owed on the mortgage, and what the home sells for at foreclosure auction (or even a short sale) – this is called a deficiency judgment. Other states allow lenders to sue homeowners for deficiency judgments, but California is a non-deficiency state. So if you only have one loan and are foreclosed upon, you are safe for now from a lawsuit by your lender.
The new ruling applies to secondary lien holders and foreclosures. Back in the boom of the real estate market many people took out two loans to purchase their homes. The second lienholder almost always loses big when there is a foreclosure, as there is not enough money to cover the debt owed to the first.
NOW, that second lender can sue the homeowner after the foreclosure for the deficiency, BUT only if the second lender is not the same lender as the first. (It is important to remember is that many loans are bought and sold on the secondary market, so even though you may originally have had two loans held by the same lender, one may have been sold. So it is imperative to know who your lienholders are before heading into a foreclosure).
It is very important for any homeowner facing foreclosure to contact an attorney to discuss their particular scenario, to make sure that you understand whether there is a chance you could be sued after foreclosure. Do not wait until the last minute – this could severely effect your options and what you could possibly do to avoid future lawsuits. For more information on this particular case, here is the citing: Cadlerock Joint Venture, L.P. v. Lobel, 206 Cal.App. 4th 1531 (2012); 143 Cal. Rptr. 3rd 96.
Wednesday, July 11th, 2012
It is official – today California passed the controversial Homeowner Bill of Rights. The controversial bill, which actually consists of a series of bills, was created to protect the rights of mortgage borrowers and those caught in the foreclosure process. The law will take effect January 1, 2013, and focuses on the following:
Single point of contact with lenders: The bill will ease borrower access to their lenders by guaranteeing them a single point of contact in their communications throughout the pre-foreclosure process. Oftentimes borrowers (and agents alike) get the runaround and speak with a different person every time they communicate with the lender. One person may provide information, but on the next call a different person may say something opposite. A single point of contact with the lender could be beneficial.
Dual track foreclosures prohibited: Banks will not be allowed to foreclose on a property while the borrower is attempting to seek a loan modification. Oftentimes, borrowers who have been attempting loan modifications find their home is sold at auction while they are waiting to see if they will qualify. This is due in part to the lack of communication between the different bank departments – the right hand not knowing what the left hand is doing. Many see this as unfair to the homeowner, who is trying to do the right thing to avoid foreclosure.
Homeowner right to sue banks: The bill will allow homeowners to sue their banks under certain circumstances for wrongful foreclosure. This is the most controversial part of the legislation. Many feel it will create frivolous lawsuits, which will lengthen the foreclosure crisis and in turn prevent the housing market from recovering.
Rescue money for blighted neighborhoods: The bill also will provide money to local governments and receivers to fight blight, which resulted from numerous foreclosures and abandoned homes. This is meant to increase property values in these neighborhoods, which in turn will improve local real estate markets.
Protection for renters: The bill will offer protection to renters who live in homes that have been foreclosed upon. Purchasers of these rented homes will be required to honor existing leases, and will be required to give renters 90 days to find a new rental property. Under the current law buyers of tenant-occupied foreclosed homes can refuse to honor leases and even kick out the tenants.
Extension of National Mortgage Settlement provisions: The new bills will extend coverage beyond the 5 lender servicers who were named in the National Mortgage Settlement – if your loan is not covered under the settlement because it is not serviced by one of these 5, the new law will ensure that many of the main provisions of the settlement will apply to your loan.
Despite the controversy, the Homeowner Bill of Rights has noble goals and may actually benefit many borrowers. The lawsuit provision could be disastrous, and it remains to be seen how effective it would be even if used appropriately. All eyes will be on California after January 1 to see how these new laws play out.
Photos courtesy of Dreamstime
Wednesday, May 30th, 2012
Are you thinking about short selling your home, but worry about possible tax consequences if it does not close by December 31 (the end of homeowner tax relief under the Mortgage Forgiveness Debt Relief Act)? You may be in luck, even if the Act is not extended.
The Mortgage Forgiveness Debt Relief Act (MFDRA), which prevents the federal government from taxing the difference between the sales price and amount owed on a mortgage in short sale and foreclosure situations, expires on December 31 of this year. Many agents are advising their clients to make decisions quickly if they are planning to short sale their homes, so that there is time enough for marketing and obtaining lender approval before the deadline – and since we are already at the halfway point in the year, time is ticking. But there is another way to protect yourself from the federal taxation even if the act expires and you want to short sale your home.
Little known to many, the Internal Revenue Code, section 108, provides a “moment of insolvency” document that could save you from taxation should the act not be extended.
Section 108 has an “insolvency” exclusion, which allows you to avoid taxation if you can show you are insolvent. To figure out whether you qualify, you need to take your total liabilities immediately before the discharge of debt, minus the fair market value (this includes exempt assets like retirement accounts and pension plan interest) of your total assets before the discharge. The resulting number will give you the extent to which you are insolvent. This amount cannot be taxed federally.
It is important to note that many people who are short selling or foreclosed upon do not have assets to cover their responsibilities, thus the reason they are in this position. So if the MFDRA is repealed and you didn’t have time to short sale your home before, you may still be in luck. I highly advise you to consult with your CPA or tax professional to see if you are insolvent.
Monday, March 19th, 2012
There is a lot going on in the short sale and foreclosure arenas, and much of it may effect buyers, sellers and underwater borrowers. Here is the latest news:
Short Sales: Will They Soon be Shorter? There has been talk about making short sales shorter – not a new topic of course but this time the talk comes down from the Feds. The latest is that they want to make short sales more reliable as far as timing. The guidelines will only apply to Fannie Mae and Freddie Mac loans, and the full plan will be announced September 30.
Here are some of the highlights, according to the California Association of Realtors (CAR):
• Second liens: The plan entails better standardized rules between Fannie and Freddie regarding second liens and how they are to be dealt with (of course, there is no elaboration here). There is also a plan to set fixed amounts so that banks will know in advance how much they can expect to collect in a short sale. If there is no guessing and haggling with the first lender and/or the buyers and sellers to come up with an agreeable number, the second lender will be more likely to acquiesce to the short sale.
• Mortgage Insurers: The idea here is to prevent mortgage insurers from dragging out short sales. Rules will be introduced that prevent their ability to do so (via timelines), which is one of the causes of breakdowns in short sale negotiations.
• Mandatory Timelines: While there has been no information on what these might be or how they will be enforced, this is the crux of the short sale approval problem – if we can establish timelines in which a lender must respond, short sales definitely will become shorter.
• Valuation Problems: Another big problem in getting short sales accepted is valuation – there is a push to get lenders to take steps to get better property valuations, and to disclose the lowest price they will accept on a short sale property. I for one feel that lenders should eliminate agent BPOs and rely on local appraisers to come up with these numbers – I have had bad BPOs and bad appraisals almost ruin transactions.
Changes in Settlement Structure for First and Secondary Lien Holders: Second lien holders tend to get the short end of the stick when negotiating short sales, and usually walk away with very little money toward the debt that was owed. First lien holders, on the other hand, have more power in negotiations with the seller and tend to far far better, thus creating problems where subsequent lien holders refuse to settle, which of course can cause short sale approval to take a very long time or not happen at all. A new plan proposes the first and second lien holders share equally in the losses through the short sale settlement.
Banks are Overvaluing Homes, Making Foreclosures Worse: A recent article in the Huffington Post last week stated that banks are not making proper valuations on distressed properties, which in turn makes it less likely homeowners can get loan modifications, sending more properties to foreclosure. Using proper valuation methods to come up with correct numbers could prevent more foreclosures, allow more short sales and auction sales to third parties, and also allow for the possibility of more loan modifications.
Foreclosures are Down from a Year Ago, but on the Rise: Foreclosures are down from the same time last year, but are up from the previous month. Typically foreclosures slow down during the holiday season, and combined with the robo-signing settlement this could be why their numbers went down at the end of the year and into 2012. However, some say the declining numbers show progress in the mortgage industry…hmmm, what do you think? For statistics on specific states and more information on foreclosure numbers you can read this article from DSNews.
Tuesday, January 17th, 2012
I have had several clients recently ask how to purchase a foreclosure property, and it is a great question. Oftentimes buyers do not differentiate between the purchase of a foreclosure, a pre-foreclosure, and a post-foreclosure. Let’s take a look at the different ways to purchase property in various stages of foreclosure:
1. Auction (the one true way to “buy a foreclosure”). If you want to buy a foreclosure this is the typical way to do so. Auctions are definitely tricky and you need to understand the process and what you may be getting into. There are several things you really need to understand before going to auction – for explanation read this article. I usually do not recommend auctions to my clients, as there are some caveats (oftentimes you cannot inspect the property first, you do not receive any disclosures, you may be bidding against experienced auction-goers, etc.) If you do decide to go to an auction make sure you are well prepared.
2. Short sales (aka pre-foreclosures). A large percentage of foreclosure-related sales are sold via short sales or lender owned listings. Purchasing a short sale can be a good way to get a better price on a home, but the buyer has to have no aversion to waiting to close escrow – sometimes as long as 3-6 months. The good thing about a short sale is that you will get to inspect the property, and usually you will be provided with disclosures from the owner. For more information on short sales and how they work, you can visit the short sale information tab on my website. I have also written numerous blogs about short sales.
3. Lender-owned/REO (aka post-foreclosures). REO (real estate owned) properties are those that are owned by the lenders who hold the note. They have already gone through the foreclosure process and are now active in the market. Most often, these properties are priced below comparable sold homes, and often the price is reduced every so often if the property has not sold. Post foreclosure properties can also be owned by “flippers,” who purchased the property at auction, did some work, and are reselling it for profit.
The good news then is that many of these homes can be purchased at a savings. The not so good news is that buyers will not likely receive disclosures, as the bank obviously never lived in the property. However, the purchase process is like that of a normal sale – buyers are able to view the property, obtain inspections and reports, and exercise due diligence to their satisfaction with the property condition.
What about all those foreclosure websites? Foreclosure websites can be helpful, but honestly if you have an experienced agent s/he can do the research for you, saving you money in subscriptions. If you are focusing on a particular neighborhood, your agent can research the neighborhood via the public records, and find out who is delinquent, and which properties have notices of default or auction dates filed. If the property is not yet listed as a short sale your agent can see if the owner is open to doing so, allowing you to write an offer and have it presented to the bank. You can also find out auction dates (which often get postponed – the new dates do not necessarily list on the public records, but your agent can do further research). If you are a skilled auction attendee and purchase a lot of foreclosed properties this way, subscribing to one of these sites is a good idea.
There is no magic bullet that will get you a screaming deal on any of these properties. But if you do your homework you can likely acquire nice home at a savings. If you are not afraid of the challenge these can all be great ways to buy your next home. Make sure you have an experienced agent to help you if you are buying a short sale or REO property. If you have any questions about foreclosure please do not hesitate to post them in the comment section below, or email me at Rachel@LaMarRealEstate.org.
Saturday, December 10th, 2011
We have heard news of deed for lease programs rumbling for some time, but Bank of America announced this week that it will begin making them a reality. What this means is that struggling homeowners will be able to turn their deeds over the the bank, and then sign a lease to stay in their homes as renters. There is a lot of controversy over these programs, but lenders are attempting to find ways to avoid more foreclosures and feel this may be one way to do so.
Here’s how the plan would work: the bank would approach troubled homeowners before a foreclosure to see if they would be interested in staying in the home as tenants. The bank would then short sell the home to investors, who would handle the leases. The owners would have less of a credit impact because they would have a short sale instead of a foreclosure, but they would also be able to build up their credit because they would be instant tenants.
Those who are against these programs argue that homeowners, who cannot afford their mortgages any longer, are being rewarded by not having to go through foreclosure and then being able to stay in their homes as renters. [In typical short sales most lenders forbid homeowners to rent back the homes after a short sale because they do not want the homeowner to benefit in any way from the sale.] They are afraid it will encourage many others to do the same.
Those in favor of these programs say that it will prevent so many foreclosures and will help to build the market back up – with less foreclosed properties and vacant properties, values will stop falling. Plus, the lack of vacant homes will strengthen those neighborhoods hard hit by foreclosure.
No matter what side you are on, this is one program that may actually help build the market back up over time, if enough homes can make the cut. It will be interesting to watch and see what happens.
Friday, October 28th, 2011
Buying and selling anything in this economy can be a bit tricky, and that goes for real estate as well. Many buyers, who think they’ll be able to negotiate a phenomenal deal, are often discouraged when they actually get out there in the market and try to do so. Likewise, sellers who price their homes at market value may find it hard to hook an offer, oftentimes having to reduce their price well below comparable value to get it sold. Sellers who do not have to sell are opting not to, which makes for less inventory. Why is it so hard to buy and sell real estate right now?
1. Lender hurdles. Getting qualified for a loan these days is very difficult. Even those who have steady jobs, make sufficient money and have a nice savings on the books are facing troubles. The lenders, who I believe are the main cause for much of the stagnation in the market and the overwhelming number of foreclosures (see previous blogs if you want more detail on this), simply have a death grip on their funds. Anything that is seen as risky, any tiny little thing, gives them cause to deny a mortgage application. This applies both to traditional sales and distressed properties.
If you are a buyer you need to make sure you are working with a mortgage professional who has access to different products, and can help you to figure out which one is best for you.
2. Foreclosures/Lender owned properties. Foreclosures have been weakening the market for years, and there is no end in site. The lenders simply have too many properties on their books, the majority of which have not even been released to the open market. Once they are, prices will suffer. This tends to make sellers withhold selling their homes (the ones who can), in order to wait for a “better” time to do so. Buyers, who should be able to reap the benefits from the lower prices, still have to go through the loan qualification process. Many buyers are now also afraid because of recent lawsuits claiming bank-owners did not in fact possess title to the homes. If purchased at auction buyers usually do not have the opportunity to have home inspections or even get inside the property; if the property is sold as an REO (lender-owned, post-foreclosure) the buyer can view the property but is provided no disclosures related to it’s history.
3. Short Sales. Short sales should be a no-brainer, as I have blogged about many times. There are willing buyers out there who want to buy homes in neighborhoods they otherwise would not be able to afford, but for a short sale and the lower prices. Sellers of short sales obviously want to and need to sell to avoid the scarlet letter “F” on their credit. Similarly, banks save lots of money selling their properties short rather than going to foreclosure. Despite the end goal being common, short sales as we know can take a long time. The main reason for this is because of the banks, who dilly dally around and take forever to approve them, work off bad BPOs, and often have inexperienced and downright nasty people in their loss mitigation departments.
4. Title issues. Another problem plaguing the real estate industry is title issues, especially in homes that have been foreclosed upon. There have been several lawsuits against lenders who have been found to have wrongfully foreclosed on homes – after the home had been sold and new owners had moved in. These types of suits seem to be growing, and there is no telling what will happen to the new owners. If found that the banks did not have the authority to sell (because they did not physically possess title), the sale is rendered void. We will have to wait and see what effect this will have on purchasers, but surely it will may scare some buyers away from these lender-owned properties. For sellers, it is imperative to understand any title hurdles at the time your home is listed
5. Appraisal and BPO issues. It seems appraisal issues come into play these days more than in times past. This is especially true in areas where there have been a lot of foreclosures or short sales, which bring down comparables. If an appraiser has to look outside a neighborhood s/he may use comps from another neighborhood or complex that really does not compare to the subject home. If the appraiser is from out of the area s/he may not understand the particular nuances of a neighborhood, and that can also affect valuation.
Bad BPOs (Broker Price Opinions – these are ordered by the banks and are typically completed by certified real estate agents, not appraisers) also wreak havoc on short sales. Some properties are hard to appraise/establish value, if they are one of a kind or there are no valid comps in the vicinity, or where the condition of the comps do not compare to the home being appraised. California has hinted at drafting a law about how foreclosure and short sale homes can be used as comps for a traditional sale home. There are problems either way when a home is hard to appraise. Suffice it to say there is a lot of deal-killing going on because of bad appraisals and BPOs. [NOTE: This is not meant to be a degradation of appraisers - most are highly skilled professionals.]
Buying and selling property can be difficult in these troubled times, but the silver lining is that there ARE great deals out there for buyers, and it is possible for sellers to sell their homes as well. One simply needs to know how to best accomplish her/his goals. To do that, you need to start with a great agent.
Monday, October 24th, 2011
There has been plenty of recent housing news that could effect the value of your home, so here are some of the latest updates:
Bill to allow visas to foreign home buyers. Congress is considering a bill that would allow foreign homebuyers to purchase residential property in the U.S., in an effort to stimulate the housing market. Buyers would need to spend at least $500,000 to obtain the visas, and would be allowed to split the money and purchase more than one home, as long as one property was at least $250,000. The buyers resident visa would be in place for as long as the buyer owned the home, and the buyers will have to live in their U.S. home for at least six months out of the year.
Mortgage rates may be lowered. The Federal Reserve is considering lowering the mortgage rates again, as the current low rates do not seem to be stimulating housing and the economy. They plan to purchase more mortgage backed securities, with the goal that banks will be able to help homeowners with refinancing and stimulate purchasing, without causing inflation. Since most of the problems with refinancing involve problems with fees or restrictions, will this really help? This could create more mortgage rate risk for the Fed, and realistically how many people will it help? It certainly won’t do anything for the millions of underwater homeowners. It seems to me this is digging a deeper grave, but I am not a mortgage expert so I will leave this to those who are, but my gut feeling says this is not the best solution.
Next generation of homeowners have little confidence in housing. A new study released by Federal Reserve Bank of Boston has found that the younger generation is less willing to purchase homes. Older respondents seemed to be more confident about homeownership after large declines, while younger participants felt opposite. Older respondents saw the drop in the market as cyclical, with the expectation of recovery, whereas their younger peers view the current situation as more permanent. Could this have an effect on housing in the long term?
Study says bank owned property sales may not peak until 2013. The latest study claims that we will see a lot more foreclosures, and therefore many more bank owned homes, until 2013. Bank of America Merrill Lynch analysts claim that although we will not see price drops as steep as those of 2008, we could see a 10% increase in these REO (bank-owned) properties from 2012 to 2013. For more details of the study click here.
State court voids home sale…could this happen across the country? A Massachusetts state court recently ruled that a home recently sold post-foreclosure was improperly sold, as the lender did not hold the title. The sale was found to be void. So what happens to the new owners? Certainly there will be a big lawsuit against the title companies. But if this becomes the standard who is going to want to purchase a post-foreclosure home? Home buyers rely on title companies to convey clear title…so isn’t this punishing the purchasers and not just the bank? After all, if the title company certifies title is clear and escrow closes, how would a homeowner have any reason to know that there was a problem with the title? I’m not even going to speculate as to how badly this would fare for housing and the economy in general.
HUD homes for only $100 down: In the spirit of stimulating housing purchases, HUD has decided to offer buyers the chance to purchase a HUD REO (lender owned home) for only $100 down…yes, you read that right, one hundred dollars. Of course there are restrictions: the home must be a HUD home (a home that is the result of a foreclosure on a FHA home loan), the sale must be for list price, FHA guidelines apply (you have to qualify for a loan), and the state of your purchase must be one that is listed. To find out more search the internet for HUD’s $100 downpayment program orvisit their site.
Monday, October 10th, 2011
Cash for keys programs – where the banks pay money to the homeowners if they walk away from their homes and leave them in good condition – have been common in the foreclosure arena for some time. Now the banks want to apply this principle to the short sale industry. I have been hearing tidbits about this for about a month now, but a weekend article in the San Diego Union Tribune confirms that this is now official.
Major lenders, like Chase, Wells Fargo, Bank of America and others, have apparently begun offering cash to distressed borrowers in order to get them to agree to short sale their homes – up to $35,000 in some cases. Before you get all excited and pick up the phone to call your lender, you need to be aware of how this process works. As with any bank program, the bank controls the process, and you cannot simply call and opt into the program. Apparently the bank reviews distressed situations and contacts the homeowner. The money is paid at the close of escrow of the short sale.
How this system makes sense at all to the banks, who choose the lucky homeowners, is baffling. I find it hard to believe, as I am in the middle of a battle right now with one of these big lenders, just to get them to accept a buyer’s offer on my short sale listing that is perfectly in line with the comparables. But of course, some bank decisions remain and will always remain a big mystery.
My hope is that these lenders are finally realizing that it is up to them to fix the housing crisis, and that they need to get rid of all their distressed inventory to do so. Maybe some angel descended down and landed on the shoulders of the bank CEOs. Ah, but I know better: with the banks, it is all about how much they can make. They must be finally realizing that foreclosure costs them too much money, so giving away a few thousand dollars and blessing more short sales will save them in the long run. Banks don’t do anything because they care about people.
It will be interesting to watch this one, to see how many people actually get “chosen” to be involved with these programs. If you are one, please let me know. I will protect your privacy, but would love to know how the process goes, and whether it is as smooth as the banks say it will be. The proof will be in the pudding, so I am looking forward to seeing how many homeowners are truly helped by this latest lender brainstorm, and truly hope it helps.
Monday, September 26th, 2011
The distressed property market continues to be a big part of our real estate market, and there is a lot going on as of late. Here are some of the highlights:
First time homebuyers getting tired of short sales: A survey conducted by Campbell/Inside Mortgage Finance revealed that first time buyers have had enough with short sales. This segment of buyers purchased around 40% of short sales in August, compared to 54% of all short sales purchased in November of 2009. Some of the reasons sited for this drop in short sale purchases are frustration with timelines to get the home through escrow, paperwork glitches and appraisal issues, and overall dissatisfaction with short sale lenders. Short sales are still seen as good bargains by many buyers, as they typically sell for 27% less than similar traditional sale homes, making them a great deal for many first time and repeat home buyers who do not have to move immediately.
Florida may change to a non-judicial foreclosure state. The state of Florida, one with a large number of foreclosures, is heeding the cry of many homeowners and buyers by contemplating switching to a non-judicial foreclosure state. Currently a judicial foreclosure state – which means that all foreclosures must go through the court system to be finalized (and there is a huge backlog) – Florida’s foreclosures take longer than those in non-judicial states, up to three times as long by some estimates. Some lawmakers are afraid that these lags will cause lenders not to lend in the state, and that the current system stagnates the market and leads to neighborhood blight. The court system, as we know, can be very slow, so I think this is a good idea, although some lawmakers are opposed to a change with the status quo.
State attorneys general still not close to agreement in robo-signing scandal: Yes, it pains me to report that once again, there is no final decision in the robo-signing scandal. Lenders and attorneys general cannot seem to come up with a punishment for the lenders that makes all happy. Really? Whose money is being used for these attorneys general to meet ad nauseum and figure this out? I frankly think it ridiculous. Some AGs are saying that the banks should not be held liable for things that have not been investigated yet (what?), and that the liability should be placed on Wall Street and not so much on the lenders. Come on people – accept the blame and move on. The committee has stated that it the lenders will not be released from all civil liability…the saga continues.
Fixing the foreclosure mess may take more than a year. The latest statistics on fixing the foreclosure nightmare are that it may take more than a year, according to one story in HousingWire.com. Not a big surprise to many folks, and much of the long fix is due to the robo-signing fiasco. Over 4.5 million files must be examined for signs of improper foreclosure procedures, and new plans put in place to prevent such incidences from occurring in the future.
Some interesting numbers: 31% of all home purchases in California in August were short sales. In San Diego county alone, there are currently over 2500 short sales on the market today, with 1098 pending and over 3000 awaiting lender approval (contingent status). In the last six months in the county there have been 3412 short sales that closed escrow, with an average market time of 149 days. The point is that short sales are still very much a part of our current market, and I don’t think that will change any time soon.