Deutsche Bank has issued a report ranking U.S. mortgage servicers on the speed of completing short sales transactions.

For prime lenders, the winner is GMAC, with an average transaction time of six months. CitiMortgage was in second place at 7.5 months.

Countrywide, now owned by BofA, sucks wind in the prime category, coming in last with an average transaction time of 13 months.

The report ranked mortgage servicers in four categories: Prime, Subprime, Option-ARM and Alt-A. Of all the servicers in every category, Equicredit had the lowest possible score, taking an average of 29 months to complete a short sale.

Read the article at REOInsider.

Last week the California Senate approved SB 1178, extending anti-deficiency protection to homeowners who refinanced their original mortgage loans and are now facing foreclosure.

SB 1178 now moves to the Assembly for approval.

From the C.A.R. press release:

“Currently, if a homeowner defaults on a mortgage used to purchase his or her home — known as a ‘purchase money mortgage’ — the homeowner’s liability on the mortgage is limited to the property itself,” said C.A.R. President Steve Goddard. “Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate. SB 1178 corrects this inequity and extends the same protections to consumers who refinance their home loans.

“Today’s vote was a victory for homeowners in California,” he said. “SB 1178 now moves to the Assembly for approval. C.A.R. is calling on our elected representatives to swiftly pass this much-needed legislation and send it to Gov. Schwarzenegger for signature.”

The Sacramento Bee reports that as the number of short sales in the area rise, so do the imaginative ways some people can come up with to exploit them.

The SacBee article warns of these schemes:

• Unlicensed short sale “negotiators” are approaching homeowners, asking for thousands of dollars up front to negotiate with lenders, said Tom Pool, spokesman for the California Department of Real Estate. Only attorneys and licensed brokers can ask for money up front – and only after the DRE approves the agreement with an individual seller. The DRE recently published a consumer alert about this and other scams.

• Real estate agents or these negotiators are lowballing offers to overwhelmed banks, a practice called “flopping.” After the bank approves a short sale at a low price, the agent or negotiator quickly flips the house to a new buyer for much more. Elizabeth Weintraub, a Sacramento short sale agent with Lyon Real Estate, said would-be floppers often want to use their own title companies. That’s a red flag.

• Real estate agents say banks are illegally seeking extra money in hidden side deals before approving short sales.

• Some homeowners, especially savvy, well-off owners who owe far more than their houses are worth, are hiding savings and income to persuade lenders to agree to short sales. Many can afford their mortgages, said Coldwell Banker short-sale specialist Mike Toste of Roseville. But they also know it will take years to recoup their 2006 values.

Last week, DRE issued a Short Sale consumer alert statewide “warning consumers and real estate agents about the perils and potential pitfalls of short sales.”

(Blatantly commercial message: we’ve had a Short Sale Buyer Advisory posted on our website for awhile now – it’s available at no charge by signing up for a free trial of our Risk Management Program.)

“The number of short sales is on the rise and many consumers do not understand the consequences of such a transaction,” DRE Commissioner Jeff Davi said. “Moreover, the Consumer Alert educates consumers and real estate agents to recognize the elements of a fraudulent or questionable deal.”

The alert is posted on DRE’s website – go here to fetch it.

California state lawmakers passed SB 401 this week, which exempts homeowners who have lost their homes to short sales or foreclosure, or who have received loan modifications, from having to pay state tax.

From the Sacramento Bee report:

The bill extends the state ban from 2009 through the end of 2012. It also bans state taxes on federal stimulus grants for renewable energy projects.

Who is affected:

Primarily, the bill affects people who had debt forgiven as they lost homes in foreclosures, short sales and deeds in lieu of foreclosure last year – and through 2012 now. Also affected: those who got loan modifications that cut the amount they owe the bank.

In short sales, a bank might accept a sales price of $250,000 when it is still owed $350,000 on the home. In deeds in lieu of foreclosure, the bank simply takes back the house and may forgive what’s still owed. The difference is the forgiven debt. Borrowers can avoid state taxes on up to $500,000 in forgiven debt.

The Franchise Tax Board says the tax forgiveness measure mostly applies to people who refinanced their homes to get better interest rates or extract equity, and then had a short sale or foreclosure where debt was forgiven.

But the tax board also warned that refinanced dollars taken out as cash and spent on items other than home improvements may be taxable.

Who is not affected:

Those who bought houses and never refinanced before doing a short sale, loan modification or foreclosure are unaffected. In most cases the banks just take back the houses. There is no forgiven debt, and no tax bill, said the tax board.

Investors are also unaffected. They still must pay state taxes on forgiven debt. The bill affects only people who live in their home.

What is yesterday’s news (literally) may become tomorrow’s big headache for many homeowners who participate in a short sale.

A Feb. 3 article for CNNMoney.com explained how banks and other lenders are now pursuing former homeowners with “deficiency judgments” – asking them to pay the difference between what they owed on their mortgage and what the bank could finally sell the home for at auction.

This is even if the bank approved the short sale.

And get this: the poor homeowner featured in the article who had to declare bankruptcy because she was being chased for $65,000 from her short sale…was a real estate agent.

There are 30 states in which this is legal – fortunately, California is a “non-recourse” state and doesn’t allow deficiency judgments. But Californians still aren’t safe – if you refinanced your original loan (and that’s a lot of us), some or all of it may still be subject to a claim.

So how do you protect yourself? If you’re pursuing a short sale in California, add a savvy real estate attorney to your team (we just happen to know a few of them…).