Last year the Legislature passed Senate Bill 931 adding Section 580e to the California Code of Civil Procedure.  This new Section established that the beneficiary on a loan secured by a first deed of trust on 1 to 4 unit residential property could not pursue a deficiency judgment after a short sale which they had approved.  The law applies equally to purchase money, hard money and refinance loans.

 This year the Legislature passed Senate Bill 458 which amended Section 580e by making it applicable to junior liens as well.  It also applied additional limitations to the loans subject to the section. In addition to not being able to get a deficiency judgment it provides at Section (a)(1) that after a short sale no deficiency shall be owed or collected and no deficiency judgment shall be requested or rendered provided the short sale closed escrow and the lender was paid the amount they agreed to accept.

 Although the law does not specifically say so it is likely the courts will interpret that section to mean that it applies to a short sale closing either before or after July 15, 2011, the effective date of the new section.  That analysis is based on the provision that the short money cannot be collected and no deficiency can be requested.  It also will bar lenders from turning these loans over to a collection company which some lenders were doing even though the earlier section barred a deficiency judgment.

 The amended law provides at Section (b) that the holder of a note shall not require the seller to pay any additional compensation, aside from the proceeds of the sale, in exchange for their consent to the short sale.

 Some people have taken the position that, since only the seller is prohibited from providing additional compensation, the 2^nd lender can request the buyer or real estate brokers to pay them additional money above that the 1^st has agreed they can receive from the sale. 

 That might be true if only this code section applied.  But if the 1^st lender has based their approval on their consent to the 2^nd only receiving a specified amount then any attempt to pay the 2^nd more without the consent of the 1^st would likely be considered loan fraud.  If the 1^st finds there is more money available in the transaction they will rightly feel it should go to them rather than to the 2^nd.  That is the purpose of being in 1^st position.

Section 580e (c) provides that if the borrower commits loan fraud the limitations of the section would not apply.  The lender would then be able to pursue the entire unpaid balance. If you are the broker in a transaction where the 2^nd lender requests the broker or buyer to pay them some additional money either within or outside escrow you need to make sure that either the 1^st lender specifically approves the additional money being paid to the 2^nd or you run away from that transaction as quickly as possible.  Participating in a fraudulent transaction can expose you to monetary liability to the lender, revocation of your license by DRE and criminal prosecution.

The real question remaining to be answered is whether this new law will be a great protection of the seller from liability after a short sale or whether it will lead to lenders denying short sales in favor of pursuing foreclosure where a deficiency by a junior lien holder may be possible.

If you have any questions on this article or any other aspect of real estate law please contact the Hanson Law Firm at 916 447-9181 or log on to our website at www.HansonLawFirm.com.

Calling a Bank about a loan is THE most frustrating experience … even more so than sending in a loan mod request package — for the 15th time.

From a legal perspective, it gets worse, especially when “Joy” or “Nancy” tells you one thing (like, “You’re approved for our internal Loan Modification Program…”) but refuses to put it in writing. Or the letter you get says something different than the Bank’s representative said on the phone.

What do you do to protect yourself?

Try this:

When someone from the Bank calls, tell them: “I am recording this call for LEGAL purposes. Please state your full name and your birthdate – for identification purposes.”

How much you wanna bet the call will end – right there?

It will. And that’s OK.

If the Bank representative won’t agree to be recorded – END THE CALL. Nothing that is said in it will will matter anyway. The Bank will change its position. And you won’t be able to prove a thing. (And having the Bank’s representative refuse to be recorded, can work to your advantage later in court…)

Oh, and when Joy or Nancy balks, remind her that the Bank is recording the call already. For “training purposes.”

In July, the California legislature passed SB 458, which revised Ca Code Civ Procedure 580e to prevent “short sale” deficiencies on second position loans.

So, here’s the rub. No one knows for certain if it is retroactive.

If you closed a deal in 2010, and the Bank has not yet sued for a deficiency on that second loan, can it do so now? What if it HAS filed suit, can you get out of the lawsuit now based on CCP 580e?

There are arguments – pro and con.

HLF can represent borrowers who have been subjected to these kinds of claims – and brokers/agents who are being brought in for indemnity cross complaints because a borrower is being sued by a Bank for a deficiency.

It’s all so much fluff and bother.

A “great victory” is achieved by the “National real estate interests.”
The FTC announces it won’t seek redress for MARS violations against real estate professional s doing ‘short sales.’

HELLO….. ANYBODY OUT THERE?

The FTC lost jurisdiction to enforce when the Consumer Financial Protection Agency took over.
The FTC can’t enforce!

Government speak – at it’s worst.

And don’t forget ladies and gentlemen:

The DRE, the State AG and those loving types called “plaintiff’s attorneys” still can (and will, I’d bet) enforce.

So, let’s not all get our happy faces on just yet.

(I’m just sayin’ … )

Lance Churchull writes:
“One thing I have wondered about in the past is why the two government-sponsored entities, Fannie Mae and Freddie Mac, found it necessary to have different rules for short sales, but then I remembered that the “G” in GSE stood for government and, of course, the government usually makes things more complicated than they should be. Well, on April 28, 2011, the Federal Housing Financing Agency (FHFA), which has been overseeing Fannie Mae and Freddie Mac since their near financial collapse, decided it would be better if they had uniform rules for delinquent mortgages. The FHFA has directed that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee with the stated purpose of creating an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, including the short sale process. The director of FHFA said, “Once fully implemented, the enterprises’ aligned policies will require earlier contact, more frequent communication and prompt decisions.”

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.

RISMEDIA reported today (April 15, 2011) that a new bill to improve the process for approving short sales might soon bring relief to distressed homeowners who are unable to keep their homes and hope to avoid foreclosure. The bill, recently introduced in the U.S. House and strongly supported by the National Association of REALTORS®, would impose a deadline of 45 days on lenders to respond to short sale requests.

The legislation, the “Prompt Decision for Qualification for Short Sale Act of 2011,” was offered in Congress by U.S. Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.).

“The current short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a homeowner from foreclosure,” said NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I.

“REALTORS® and consumers continue to raise issues about delays in the short sale process, because lenders are unable to decide whether to approve a short sale. After many months of delays, and with no response from lenders, potential buyers are losing patience and cancelling their contracts, often resulting in the property entering foreclosure. A short sale minimizes the negative impact on sellers and generally costs the lender less than a foreclosure,” said Phipps.

NAR has been actively pushing the lending industry to improve the process for approving short sales, which represent about 13% of recent home sales, according to NAR data. Phipps praised Reps. Rooney and Andrews for their efforts on the bill and urged Congress to pass the bill quickly.

I say that’s so much wishful thinking.

Here’s the link to register for listings from BofA.
Who knows…

https://realestateagent.bankofamerica.com/baapp.aspx

According to Fair Issac Company (My FICO) a company that provides analytic, decision making, and credit scoring services for financial service companies a credit score will go down by 40 to 110 points after being 30 days late. Further, the scoring drop will increase to 70 to 135 points after 90 days late on a mortgage payment.

The average scoring drop in a short sale, foreclosure or deed in lieu is 85 to 160 points. You need to keep in mind that in both short sales and foreclosure it is possible that the credit score drop could be closer to 200-300 points.

Credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place. Both a short sale and foreclosure are considered a loan that was not paid as agreed.

March 10, 2011

An important message from the CALIFORNIA ASSOCIATION OF REALTORS®:

I write on behalf of the CALIFORNIA ASSOCIATION OF REALTORS®, whose 170,000 members continue to witness the devastating consequences the home foreclosure crisis is having on California’s families, neighborhoods, and communities on a daily basis.

The number of families affected by foreclosure is staggering. During the past three years, more than 640,000 Californians have lost their homes. With the number of homeowners who owe more than their home is worth hovering at 30 percent, experts predict there will be many more foreclosures in 2011 and 2012. Unless we take immediate, aggressive action to assist these homeowners, any meaningful recovery in the housing market and overall economy will continue to be delayed.

Tragically, only a fraction of those who face foreclosure will remain in their homes when all is said and done. Those whose incomes and financial circumstances meet strict guidelines may qualify for a loan modification that will reduce their monthly payment to more affordable levels. Yet the federal Home Affordable Modification Program (HAMP) is expected to prevent only 700,000 to 800,000 foreclosures nationwide before it expires at the end of 2012, and the program does little to help those homeowners who are unemployed or otherwise no longer able to meet their financial commitments. Their last hope is to sell their home, which often means convincing their lender or the investor who “owns” the loan (and, in many cases, the holder of a second mortgage lien and the mortgage insurer) to accept a “short sale.”

With a short sale, homeowners with a proven hardship negotiate an agreement to sell their home for less than the balance owed. Although not every homeowner or mortgage is eligible, those who are able to finalize a short sale avoid a foreclosure on their credit record and can move on with their lives. Last year, 20 percent of home sales in our state involved short sales.

Short sales can play an important role in our state’s economic recovery by accelerating the pace of home sales and reducing the inventory of bank-owned homes on the market. There are other benefits as well. Homebuyers who can qualify for a mortgage at today’s low interest rates also are able to purchase a home at below-market prices. Banks get a nonperforming asset off their books and avoid the headaches associated with disposing of assets they don’t want to own in the first place. Neighborhoods have fewer abandoned homes, and local businesses have more customers with money to spend.

Unfortunately, many homeowners are unable to successfully negotiate a short sale. According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.

What’s the problem? For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures. Many homeowners have second mortgages, which further complicate matters. Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process. Poor and slow service by many banks and servicers has only exacerbated the problem. Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times. These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.

Increasing the number of closed short sales by speeding up and streamlining the short sale process is one important way we can help California families avoid foreclosure and move our economy closer to recovery. That’s why the California Association of REALTORS® is taking steps to enable more families to arrange a short sale. Recently, we advocated for improvements to short sale guidelines established under the federal Home Affordable Foreclosure Alternative (HAFA) program. We’re meeting with major banks, U.S. Treasury officials, government-sponsored entities (including Fannie Mae and Freddie Mac), and others to urge them to standardize processes, comply with federal guidelines, improve communication with other stakeholders and increase staffing with the goal of eliminating service issues. We’ve also offered our members training in every aspect of the short sale process so they can assist their clients.

But we can’t do it alone. That’s why we’re focusing the spotlight on short sales and calling on regulators, elected officials, nonprofits, business organizations, companies, and individuals with a stake in California’s economic future to resolve this issue and others that get in the way of a recovery. It won’t be easy, and some compromises will be required. The important thing is that we need to act today. Our families and our communities can’t wait any longer.

Sincerely,

Beth L. Peerce
President
CALIFORNIA ASSOCIATION OF REALTORS®

We recently EZined about an October 2010 case where the court found liability for a listing broker for failure to disclose the transaction was a short sale.  We disagreed with the court – which found liability.

Not everyone agrees with us.

For instance, Peter D from Ventura says:

Quote:  ”You are full of shit!  Fraud is fraud!!

“Any property that is under water MUST be disclosed to buyer as a short sale!  Failure of a realtor or broker to disclose that the home is under water any may be subject to short sale is wrong!!!!!!!!!

You cannot agree to sell you home for less than it’s worth….only a lender can do that!  Realtor and broker should be sued!!!!!!!!!!!

“The court ruled correctly!!!!

GO F yourself and get me off this &^%$# mailing list right now!!!!!!!!!=”       End Quote