Sacramento Real Estate Views

“Can My Lender Take My Assets?”

Your Questions Answered

One of the questions I get frequently is the concern from borrowers that trying to sell their home short will result in the lender attempting to take their retirement or other assets to make up the difference in the sales price of their home and their mortgage amount.

First, the mortgage is secured by the property.  The mortgage reads, essentially, that if  you don’t pay the mortgage, you lose the house.  Second, California is a non  recourse state by and large.  This means that after the foreclosure or short sale, which the bank has approved, they are not entitled to come after a borrower for damages.

Laws have been recently enacted to protect the struggling homeowner against the lenders from judgments from lenders.  Civil Code of Procedure 580e being the example of this.

Legislators in California know, unlike the federal government, that the foreclosure crisis is too big to prevent so they have made it easy for homeowners to walk away from underwater mortgages by passing laws to protect them when or if they make a decision to so do.

The only liability a seller will have to deal with at this point is with the IRS.  The difference in the amount the home sells for and what is owed is considered taxable income.  The best bet is to hire a CPA or consult with a financial professional, I have a referral if you need one, to find out what your tax liability might be.

In my experience, most are finding out that they aren’t getting as much back as they thought they would otherwise get.

The Morality Of Foreclosure Or A Short Sale

Most people have a stigma and feel irresponsible at the thought of walking away from their home or going through the foreclosure process.  We all feel that it’s our responsibility to pay our bills on time and in full.  This is the responsible thing to do.

However the current economic conditions, especially with regard to housing, require a different perspective or mindset.  Keep the following in mind:

1) Since February of 2007, at least 400 banking institutions have failed.  Click here for the list.

2) In December of 2009, Morgan Stanley walked away from, aka “gave back” to their lender, $8 billion in commercial real estate in San Francisco.  Click here for the link to this story.

3)  In 2008, Morgan Stanley borrowed $107 billion from the Fed.  Citicorp borrowed $99.5 billion and Bank of America $91.4 billion just to stay afloat.  These numbers don’t include the money borrowed from the Treasury Department.  The country was on the verge of complete economic collapse.

4)  The amount lent to private banking by the federal government was about the same as the current amount of $6.5 million delinquent of foreclosed mortgages according to Bloomberg while borrowers/homeowners haven’t gotten any meaningful help from the officials we’ve elected into office.  Click here for the data on this

(As a side note, is it any wonder Obama’s approval ratings are so low?  Mystery solved.)

5)  The saddest commentary on this entire thing is that nothing has been done to correct or eliminate the conditions which would allow this to happen again.  The Frank Dodd act not withstanding.

6)  While borrowers/homeowners got no meaningful help, we manage to bailout foreign banks as well to the tune of $600 billion or more.  Sweet!  Click here for references or just Google “fed bank bailouts foreign banks” yourself.

Out of all of this my question is:

If the largest financial institutions cannot make decisions in their own best financial interest, why would the homeowners of this country make decisions that benefit the financial institutions such as paying upwards of $300,000 more for your home than you need to? Can you afford that?

The reason your home is underwater is not your fault.  The reason your home will not appreciate to your loan value for years to come is not your fault.

All of this was out of your control and was in the control of the most “trusted” financial institutions in this country.  Our government bailed them out and left the people most affected by this crisis high and dry.

Now is responsibility time.  Now is the time that we all get financially responsible as the banks have shown us what makes good financial sense.  Keeping a non performing asset isn’t a good financial plan for anyone.  Not for the banks or for homeowners.

Should You Walk Away From Your Home?

I’m not suggesting you get up and walk out of your home right now.  That may not, and I say this tongue and cheek, the best decision for you at the moment.  What I am suggesting is that you look at your situation and the direction of the wind then determine what the right course of action is for you.

Take a look at the following questions, answer them and decide for yourself.

1)  How much do I owe on my home?  What is my home currently worth?

2)  When will the housing market begin appreciate?

3)  If I were to short sale or walk away from my home, how soon could I buy again?

4)  What are the ramifications if I do let my home go to short sale or foreclosure?

5)  How will my credit be affected?

Do your research.  Find your own answers.  I’m here to help if you need help.  Please call, text, email or simply fill out the form below for a private no obligation consultation of your situation.  Personal and free.

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Short Sales Becoming Preferred To Foreclosure

Wells Fargo & Wachovia Making It REALLY Easy

I had a lunch meeting with my favorite title company sales representative today, and yes I bought for you RESPA geeks, who had some very noteworthy news to report about short sales.

I often get new information from a variety of sources and my title connections are great because they see so many transactions coming through their doors and can fill me in on trends.  They are great resources for up to date information.

On The Spot Approvals AND Quick Closes?

Have I died and gone to Fantasyland?

I was told today that Wells Fargo and Wachovia, a Wells Fargo acquisition, are sending out a field representative who already have an idea of what the bank will accept for a home in distress and give an on the spot short sale approval.  This allows the homeowner to sell short and avoid the credit degradation of foreclosure and preserve what’s left of their credit rating.

This is good news for everyone.

I was also told that, while the percentage of NOD’s continues to grow, the banks are preferring short sale as an option for distressed homeowners over foreclosure.  “They just don’t want any foreclosures, they want short sales” was what I’ve been told.

While homes in the “foreclosure process” have increased, this isn’t a reflection on just how many foreclosed homes will come on the market or how many will be taken back by the banks.  It could go either way, short sale or foreclosure.  Right now it seems the decision is up to the homeowners willingness to work with the banks to sell short.

A Change of Heart?

There are many reasons this is happening not the least of which is the government is subsidizing the lenders for allowing homeowners to sell short.  Another reason is that a home that is sold short typically stays occupied longer and taken care of until it’s sold.

That means the bank will not have to pay someone to clean it up or make repairs prior to selling it.  The appearance of the home will be better and will sell for more money than if it were a vacant home.  As I’ve pointed out statistically, short sales sell for more than vacant bank owned homes.  Click here for additional short sale info.

This does benefit the lenders but it also benefits the homeowner.  The classic win-win scenario.

If you’re you’re behind on your mortgage or have received a notice of default, your best option may be to sell short.  Please call us for a confidential consultation if you think a short sale might be your best avenue to a fresh start or just fill out the form below and we’ll get right back to you.

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