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New California Law: Code of Civil Procedure 580e Amended
Goodbye Deficiency Judgments!
An amendment to Chapter 82 of the California Code of Civil Procedure 580e was put into effect Friday, July 15th, 2011 concerning deficiency judgments when selling a home of not more than 4 units for less than what is owed on the mortgage.
A deficiency judgment is a legal tool that allows a lender can come after the homeowner for the difference between what is owed on the home and what the final sales price of the home through the legal system. This amendment forces lenders to take what they get and be done with it, accepting the proceeds of sale as settlement of the debt provided that:
1) The property is transferred to a buyer by a deed of trust (aka sold to another buyer)
2) The lender has approved the sale and proceeds of sale go to the lender minus costs of sale.
and
3) There is no fraud involved.
Previously, this applied only to first mortgages but now, with this amendment, all mortgages are included.
The state found this change in the code so important that they decided not to wait until the first of the year to enact it and it is in effect now.
Click here for the language of the amendment.
What This Means
This is the second law enacted this year to help homeowners to avoid foreclosure by selling their home “short”. Selling a home short means that you are selling your home for less than you owe on your mortgage.
Effective January 1 of this year, a law was passed to include all first mortgages whether they were a “purchase money” loan or a refinance. A purchase money loan is the original loan secured to purchase the property.
This amendment changes that to include all mortgages, secured by residential real estate of not more than 4 units provided that it is not owned by a corporation or political subdivision of the state. Additionally, this law will not apply if the mortgage is given to secure the payment of bonds or other evidence of indebtedness. Generally, this doesn’t apply to the average homeowner.
Ramifications Of Selling Your Home Short
With the Governor’s signature on SB 458, all hurdles aside from one have been removed from selling your home short. The only real ramification of selling your home short, aside from a short term credit hit, is owing taxes on the difference between what the property has sold for and the amount owed as the IRS counts this as income.
Most are finding that not even this is dramatic enough to be concerned about but just to be safe, always consult a CPA with regard to the tax issues of selling your home for less than what is owed. I have a CPA referral. If you need one, please let me know.
Avoiding Foreclosure
On the federal level, all programs instituted by the current administration to avoid foreclosures have been an abysmal failure, hands down. Nothing has worked. However, on the state level, laws have been enacted making going through the short sale process and avoiding foreclosure as easy and ramification free as possible for homeowners.
It’s the common sense thing to do. With the possibility that real estate values could plunge an additional 20% or more in the coming year or two, we need laws that protect homeowners from what they didn’t create and what was forced upon them by the financial system of this country.
Click here for an article concerning where our market could be headed.
Our state government doesn’t want to see anyone go through the foreclosure process when it can be easily avoided. The banking system is now on board by shortening time frames to approve short sales and, in some cases, compensating homeowners to sell short.
This should be resoundingly applauded.
The plain fact is this: No matter what your situation, keeping an asset (aka your home) that is worth less than what you owe is a form of long term financial suicide. There are no comparisons to this housing recession and housing recessions of the past. There is no precedent to determine what could happen in the near term.
What economists do agree on is that we’re not close to being out of the woods on this one. Not close at all.
With most economists expecting that values will not be recovered in our market for the length of the average mortgage term, getting out from underneath your underwater mortgage is a smart financial decision.
If you are considering selling your home, whether you need to sell it short of your mortgage balance or not, please call, email, text or simply fill out the form below and I’ll get right back to you. Our goal is to help as many homeowners as possible.
Looking for the value of your Rocklin or Roseville home? Go to Rocklin House Values.com or Roseville House Values.com for detailed info on home values in your neighborhood.
Thanks for visiting!
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Get Paid To Short Sale Your Home!
Up To $12,000!
Banks are now promoting short sales over foreclosure for homeowners struggling to make their payments. Citibank is paying up to $12,000 after homeowners complete a short sale.
Servicers, those who service loans for investors and their own portfolios aka…where you send your payment, are streamlining the process and shortening time frames to get homes closed as a result. More and more short sales are closing and homeowners are able to go forward, put the past behind them and look forward to purchasing in the next few years.
Click here to read about this program.
Bank of America (yuk!) Closing More Short Sales Than Foreclosures
In keeping with the above article about being paid to sell your home short, Bank of America has come out in an article saying that they have closed more short sales than foreclosures over the last 18 months.
As of May this year, B of A closed 9000 short sales to 7000 foreclosures in the last 18 months.
It makes good financial sense and the banks know this. They save a lot of money allowing homeowners to sell short than to foreclose.
The fact is, selling short is an alternative to having a severely underwater mortgage or going through the foreclosure process. Selling short helps to put a tough financial position behind you as quickly as possible and gets you back on the road to purchasing a home thereby actually improving your financial position by being able to purchase a home for a much, much lower price than what you owe on your current home.
Selling short is taking control of the process the best you can. You could stay in your home, stop making payments and wait for the bank to foreclose. The average time to foreclose in our area is 271 days and you could stay in your current home thus delaying your recovery time. Is that really the best decision? For some, perhaps but for most, not so much.
The longer you wait, the more likely it will be that you’ll make the same mistake again. The waiting time is about 3 years from the close of the foreclosure process to being able to purchase another home. If you closed on your short sale today, you’d be buying again in 2014. That is about the time the economist are saying that we’ll start to appreciate again.
This would give you an opportunity to purchase while prices are still low. Keeping an underwater mortgage is a long term financial nightmare whereas getting out of your underwater mortgage is a short term nightmare. Very short term in comparison. Click here for more information.
California Law 580e
In addition to the banks making it easier to go through the process, the State of California is also making it easier to go through the process. Civil Code 580e relieves the homeowner of liability on all first mortgages whether it’s a refinance or purchase money loan. Second mortgages aren’t covered but that’s where the negotiation process comes in.
Click here for more information on California Civil Code 580e.
We negotiate with the second mortgage holder to accept what the first mortgage allows without the seller having to sign a promissory note to close escrow.
No one wants to lose their home but keeping it could be more financially detrimental to your retirement and so many other aspects of your life. It just doesn’t make any sense to hold onto an asset that has lost 50% of it’s value and continues to decline especially when more is owed on that asset than it’s worth.
Click here to see how Morgan Stanley reacted to this situation in 2009.
If you’d like more information on selling your home for less than is owed, you may call, email, text or simply fill out the form below and I’ll get back to you promptly.
Looking for the value of your Rocklin or Roseville home? Go to Rocklin House Values.com for Rocklin homes and Roseville House Values.com for up to date neighborhood house values.
Thanks for visiting!
Links:
http://www.sacramentorealestateviews.com/wp-content/uploads/2011/06/HousingWire-%C2%BB-CitiMortgage-paying-borrowers-12000-after-a-short-sale-%C2%BB-Print1.pdf
http://www.sacramentorealestateviews.com/wp-content/uploads/2011/06/HousingWire-%C2%BB-BofA-completes-more-short-sales-than-REO-for-last-18-months-%C2%BB-Print1.pdf
http://www.sacramentorealestateviews.com/2011/03/new-california-law-favors-underwater-homeowners/
http://www.sacramentorealestateviews.com/wp-content/uploads/2011/06/Morgan-Stanley-to-Give-Up-5-San-Francisco-Towers-Bought-at-Peak-Bloomberg.pdf
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QUICK STATS: Distress Listings Comprise 68% Of Homes For Sale
Rocklin & Roseville Markets Short Sale Ravaged
We all know that the real estate market has been tough but not even I thought it would get this bad. (click to expand graph)
I ran some numbers, just out of curiosity, and found that distress sales, short sale and bank owned foreclosures, make up about 70% of the Rocklin and Roseville real estate markets currently.
- I generally don’t add in the “active short sale cont.” status properties but thought I should considering these homes are not in pending sale and could go in a few different directions:
1. Get bank approval and close.
2. The buyer could walk and it could come back on the market. (this happens A LOT)
3. It could not sell, go to foreclosure then be sold at auction.
As such, they should be included in the statistics until they are in pending sale or sold/closed. “Active short sale cont.” is to real estate what being in “limbo” is to hell.
So Are We In A Double Dip or Aren’t We?
The Case/Shiller index just came out for the first quarter that reflected that most of the nation is in a double dip housing recession. I did a quick check on values in our area and values did tick up in April in all zips of Rocklin and Roseville. Sacramento county has remained the same.
I ran the preliminary numbers for May in 95765 zip of Rocklin however and the values, preliminarily, look like they came back down in May. The average sales price in April was $313,000 and in May it looks like it declined again to $295,000.
It looks like we’ve entered into a period of volatility in housing where we’re going to be seeing the same basic pattern in values that we saw in the early 90’s going forward. Up a little, back down some, up a little, back down some.
It’s fun to watch and very interesting to dissect.
Looking for an agent to help you buy or sell a home in Rocklin or Roseville? If so, please call, text, email or simply fill out the form below and I’ll contact you promptly.
If you’re considering selling your home in Rocklin or Roseville, visit Rocklin House Values.com or Roseville House Values.com for neighborhood by neighborhood home values. Both sites are brand new and under construction but check them out and if you need the value of your home, just let me know.
Thanks for visiting!
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5 Things You MUST Know About Short Sales
Short Sales Occupy A Large Percentage Of Our Market
With the new California Law in the Civil Code 580e, selling short just became an easier decision for most people. No matter if you have a purchase money or refinanced first mortgage, there is no longer any lender recourse in the State of California for selling short or going through a foreclosure.
That makes selling your home short the best option for you if you need to get out from underneath your underwater mortgage or if hardship has made your current home unaffordable.
Most people don’t know much about short sales. Makes sense as the last time we saw them in the region was in the late 80’s and early 90’s during the last housing downturn.
Selling your home short means that the lender has agreed to accept less that what is owed on the mortgage of the home.
So here are 5 things to keep in mind when making the decision to sell your home short.
1) It doesn’t cost you anything to sell short
The services of a Realtor to list your home and negotiate the short sale with your lender is free to you. Nor do you pay for repairs to the home or any of the incidentals associated with selling your home.
Everyone is paid from the proceeds of the sale of the home. When the lender approves the sale they are also approving what’s known as a HUD 1 or estimated sellers net proceeds from sale document. This document is a list of all costs of sale.
2) Short sales are reflected more favorably on your credit report
Depending on where your current credit rating is now, you stand to lose less in terms of the credit hit with a short sale versus a foreclosure. In addition to that, you’ll be able to buy another home sooner than later as a result.
Short sale is looked upon as you having done everything you could do to get the home sold and uphold you’re end of the bargain with your lender. While it’s true your home will be sold for less than you owe, the bank has approved the sale. They have agreed to take less than what you owe.
3) Lenders aren’t postponing foreclosure auction dates like they used to
In the past, if you were in a loan modification process or short sale process and the lender had filed a Notice of Default against you, the lender would extend
the time of the foreclosure auction, called a postponement, to give you more time to get through whichever process you’re going through.
Now, if a notice of default has been filed with the county your home is located and a sale date has been scheduled, getting it postponed will not be easy if the lender will agree to postpone at all.
You could be in the process of a loan modification or short sale to find that your home was sold at auction that morning. It’s happened to many people in our region.
If you’re struggling or considering walking away from your home, you want to make a decision then act before you get a notice of default so that you can be sure you have enough time to get your home sold.
4) Your lender is required to file a 1099 with the IRS
Although the law states you’re not responsible for paying back the deficiency between the sales price and loan amount of your first mortgage, the IRS dictates to the lenders that they must file a 1099 with IRS for the difference between what the home sold for and what amount was owed is lower.
There could be a tax liability toward the homeowner as the IRS considers this to be income. If you have declared bankruptcy or owe more than you can pay on other bills, there is an insolvency test that could also relieve you from the tax liability. Consult an accountant if you have questions about tax related issues.
5) When buying a short sale, it’s going to take some time
I’ve closed many short sales successfully. With short sales being such a large part of the inventory of homes for sale it’s almost impossible to exclude them from consideration when shopping for a home.
Understand that when an agreement is written on a short sale, getting the seller and buyer to agree is easy. Getting the bank to approve your agreement is harder. Banks typically give their response about 30 to 45 days after the agreement has been submitted to them and almost always counter offer the original agreement.
Lately, although the seller may agree to a purchase price lower than market value, the bank most likely will not. They will counter back at whatever their appraisal says is market value for the home. Hire a real estate agent who can substantiate the agreed upon price to see if you can get a better deal from the bank.
If you’re thinking that a short sale may be right for you or if you’re looking for a home to purchase, please contact me. I’m experienced on both sides of short sales and can help you navigate your way to getting your goals accomplished.
Please fill out the form below and we’ll get right back to you.
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Underwater Mortgage Undermine Local Economy
Planning On Putting In A New Pool?
New information out this week is showing that homeowners continuing to pay on their underwater mortgages are having an adverse effect on the economy.
Wow…just when you thought it couldn’t get worse!
The Sacramento real estate market is especially hard hit in this crisis as a large portion of the jobs created in the area over the last 10 to 15 years have been housing related. The boom in the Sacramento region was ushered in by increases in local building.
Sadly, this is no longer the case. Building permits are down and many, many builders who were going whole hog in 2004/2005 are now bankrupt and can’t fulfill their obligations with respect to the home warranties they issued on new construction homes.
House Poor, Feeling Poorer
The resale market is affected by this as well. Families who are underwater on their mortgages have buckled down and are not spending as they would normally spend. They are house poor and feeling poorer as values are still in decline and sales are slumping.
Who’s is going to put money into a home that isn’t worth what they owe on it? Homeowners are stuck and unable to do anything about their situation other than walk away or sell short.
Tourism is down, consumer spending is down and every segment of the economy is suffering. Here’s the bad part..this isn’t going to go away anytime soon.
As long as the banks fail to do the only thing that will work for the long term financial stability of the homeowner, there won’t be any movement on this issue for years. The only solution is reducing the principal loan amount for the homeowner.
The government and some lenders are now talking about a plan to reduce principal loan amounts for borrowers. Otherwise, we’re looking at a long, slow recovery. Snails pace looks quick in comparison.
Values In The Move Up Market
Because families with underwater mortgages can’t sell and feel they must stay or walk away, the purchasing of move up homes is especially bad and this is getting worse which will drive values down. This will also take some time to recover but in the meantime, values on mid range homes above $300K are falling precipitously.
I’ve got clients who are just chomping at the bit to get moving as they are seeing prices coming down slightly and are wondering where the bottom of the market will be.
Right now, there is no telling and you can thank your lender for that. (and the government as well)
So Many Factors In Play
We have so much going on right now that is perpetuating the housing and economic crisis in the Sacramento real estate market that is virtually impossible to say when things will change for the better. The UCLA economist say late 2012 but who knows for sure.
So much can happen between now and then that any prediction is a complete guess. While it may be educated, it’s still a guess.
Are you tired of the stress you’re feeling regarding your underwater mortgage? I have a client who has been hospitalized because of the stress he’s feeling about the situation he’s in with his home. An underwater mortgage is not worth your health or the health of your family.
It’s a tough decision to decide to walk away or sell short but the sooner the decision is made, the better the homeowner will feel.
If you’re considering your options and would like some help, please contact us. You can call, fill out the form below and we’ll get back to you promptly.
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Foreclosure Cancellations Continue To Rise
Short Sales, Loan Modifications Reducing Foreclosures
A report today from ForeclosureRadar.com confirms that banks are favoring short sales over foreclosure. Foreclosure cancellations are at all time highs and the result is fewer foreclosed homes coming on the market and an increase in short sales available for sale.
While short sales and loan modifications aren’t the only reason for the reduction in the foreclosure inventory of homes for sale, this is a clear indication that the governments efforts to stem the tide of foreclosures is working.
Foreclosure Time Frames Also Rise
The time it takes the banks to foreclose is also a sign of short sales and loan modifications are being favored over foreclosure.
The time it takes to foreclose on a home in default has increased from 163 days in November of 2008 to 239 days in April of 2010. That is a 46% increase in a year and a half time frame.
Lenders and servicers are giving homeowners more time to get either a short sale or loan modification done.
The fact is, foreclosing costs more money than keeping a homeowner in the home or allowing them to sell it short. Selling short is just a better financial decision for everyone involved.
1) It costs the investor who holds the mortgage less.
2) It costs the homeowner nothing to sell short.
3) Homes don’t sit in neighborhoods vacant for vandals to abuse. An occupied home isn’t a target.
4) Homes in better condition sell for more money. Short sales are better taken care of than bank owned homes. This helps to maintain values in neighborhoods.
5) Time frames have shortened and the lenders/servicers are making it easier to get a short sale closed.
The acceptance of short sales is the pathway back to a normal market in the Sacramento region. While this housing crisis is not even close to being over we can see the light at the end of the tunnel from here.
Need short sale information? Please feel free to contact us or fill out the form below and we’ll contact you.
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The First Step To Getting Your Short Sale Approved
Having to sell your home short is hard. You’re in a tough spot, you may have lost your job, getting divorced, been injured or just have too much debt and can no longer afford the mortgage payment. This is happening all over the Sacramento region as well as all over our nation.
If you must sell your home short of what you owe, you’ve got to make sure that you get the right agent who knows the process of short sales to help guide you through what it will take to negotiate with your lender to approve the sale and get you on your way as quickly as possible.
The Short Sale Package
The first thing to understand is that there isn’t anything quick about a short sale. They can take up to 90 to 120 to get approval once offers have come in. Often times the buyer’s get tired of waiting and proceed on to another home and the possibility of foreclosure is looming.
If you get your package together in advance, it can make a world of difference in the time it takes for your lender to approve you to sell short. Here’s a sample list of what could be required by your lender:
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