With a peak in 2010 when nearly 1.2 million homes were foreclosed on, over 7.7 million families lost their homes throughout the entire foreclosure crisis.
Dr. Frank Nothaft, Chief Economist for CoreLogic, had this to say,
“The country experienced a wild ride in the mortgage market between 2008 and 2012, with the foreclosure peak occurring in 2010. As we look back over 10 years of the foreclosure crisis, we cannot ignore the connection between jobs and homeownership. A healthy economy is driven by jobs coupled with consumer confidence that usually leads to homeownership.”
Since the peak, foreclosures have been steadily on the decline by nearly 100,000 per year all the way through the end of 2016, as seen in the chart below.
If this trend continues, the country will be back to 2005 levels by the end of 2017.
As the economy continues to improve, and employment numbers increase, the number of completed foreclosures should continue to decrease.
Short sales have become a part of the normal fabric of real estate business. At a minimum, most people now understand the term “short sale” doesn’t mean the sale will be short, will take less time, or that the price the home will sell for will be much less than market value.
Surprisingly though, there is still a large segment of the population unaware of what may probably be three of the most important benefits to completing a short sale. With that being said, you too may be surprised to learn that, if you complete a short sale there may be:
1. No cost to you, the seller
That’s right. For the majority of sellers, to complete a short sale is totally free. The proceeds from the sale cover the costs associated with the sale, and your lender approves all fees. For example: title and escrow fees, state mandated items (NHD reports), broker fees for service (commissions), and most lenders even pay outstanding property tax liens!
You should never be asked to pay a fee to complete your short sale. If an agent asks you to pay a fee as a requirement to start or complete your short sale, find another agent.
2. Zero Tax Liability, Zero Deficiency Liability Tax Liability – In the past, when you completed a short sale, your lender would send you a 1099 and view the forgiven difference as taxable income for the year. This gets filed with your next tax return and, unless you have an exemption, you must pay taxes on the forgiven income. This would, of course, push most people into a new tax bracket requiring you to pay taxes on that forgiven difference.
Loan Amount Owed $300,000
-Short Sale Price $160,000 Difference $140,000
However, for owner occupied residences, the Debt Forgiveness Act allows tax liability protection on the difference up to $250,000 if you are single, and $500,000 if you are married. President Obama recently extended the act until December 31, 2013. So let’s apply this law to our example above:
Loan Amount Owed $300,000
-Short Sale Price $160,000 Difference $140,000 = FORGIVEN!!
Up to $250,000 (single); $500,000 (married)
In addition, there are numerous exemptions that apply which can enable you to avoid this tax even if it is not your primary residence.
Deficiency (In the state of California) – The California Legislature passed Senate Bill 931 adding Section 580e to the California Code of Civil Procedure and stating that the senior lien holder could not pursue a deficiency judgment after a short sale which they had previously approved. The law equally applies to purchase money, hard money and refinance – as long as there was no cash out.
They later passed Senate Bill 458, amending Section 580e and extending the protection of SB 931, by making it applicable to junior liens as well. In addition to not being able to get a deficiency judgment it provides 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.
The amended law further provides 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.
How’s that for protection? So, to recap – you get to complete a short sale at no cost to you, your debt and deficiency are also forgiven, and the lender cannot ask you to come in with any additional funds above the amount they agree to accept. What more could you ask for? How about cash back?
3. Cash Back to You
Lenders learned rather quickly the magnitude of the financial responsibilities which came with foreclosed properties; tax liens, outstanding utility bills, property damage, vandalism, etc – all at a very large price tag and not including their standard attorney fees. So not only did it make sense to pay the seller an incentive to remain in the home and keep the home in good condition until close of escrow, but it also helped the seller with moving expenses as well. This turned out to be a win-win situation for everyone. Thus, relocation assistance was born and adopted.
How much assistance you will receive and specific assistance guidelines will vary. For example, if you short sale under HAFA (Home Affordable Foreclosure Alternative), you could receive $3000. However, many lenders now have their own in-house incentive programs which offer relocation assistance anywhere from $3000 to as much as $30,000 or more.
So if you are facing foreclosure, contact Mathews & Co Realty Group with Century 21 Landmark Networ at (916) 678-1803 or me, Keisha Mathews, (team short sale specialist) via direct email at SacramentoShortSaleLady@gmail.com. I would be happy to meet with you to go over your options helping you avoid foreclosure, and explain how you could reap the many benefits as well.
The information contained above is not to be construed as legal or tax advice. Each individual’s personal situation may vary. We at Mathews & Co Realty Group are not tax professionals or attorneys. Please consult a real estate attorney or tax advisor to determine whether the information above is applicable to your individual situation.
For homeowners who are in danger of losing their home to foreclosure, it is common to feel like you are alone and that there is no one to help. This simply isn’t true. There are real people who have been in the same situation who have found solutions. Take, for example, Punipuao W. of Hawaii.
Punipuao found herself struggling to keep her home after her husband passed away. “With only my income, I was no longer able to make my monthly mortgage payment,” she said. Faced with the prospect of losing the home she and her husband had bought together, she began looking for alternatives to help her keep the home.
She pleaded with the bank for relief, “but their responses gave me little information and even less hope.”
The prospect of losing the home she and her husband had shared for over 20 years was difficult. “I was so distraught,” she said. “I did not know where to turn.
“Then, one day, my miracle came through a red envelope in the mail.”
In the envelope was a note from a local real estate agent with the Certified Distressed Property Expert designation (or CDPE). This designation meant that the agent was trained specifically to help people like Punipuao. She called the agent.
“About four hours after I made the call, he was at my door offering help. I told him my story.” In merely two days, she received a call from the bank saying that the president of the bank was reviewing her file. “That was a good sign,” she said.
A few days after that, Punipuao had been approved for a trial loan modification. “There were many tears of gratitude at the miracle that came to me in the form of my agent. I thank god for sending me that miracle.”
Punipuao’s story is just one of many. I have a report entitled “From Foreclosure to Freedom” which tells other stories of real homeowners who faced foreclosure and found relief. Download the report, read the stories, and then contact me for a free, confidential consultation.
(Legal update information from Christopher Hanson, Real Estate Broker/Attorney, Hanson Law Firm, SAR Legal forum 1/9/2013)
The Legislature has been active again in the real estate area, Several of these new laws will impact landlord-tenant matters, whether self-managed or professional property managers, We will look at them In the order in which they would be encountered in the normal landlord-tenant transaction.
Senate Bill 1191 provides that a landlord that has an outstanding Notice of Default (NOD) on the property must notify a prospective tenant of the NOD prior to entering into a lease for a property subject to the Notice. The required language of the disclosure notice to the tenant is spelled out in California Civil Code Section 2924.85(d). If the landlord fails to give the required notice in violation of this requirement the tenant may elect to terminate the lease and recover from the landlord all prepaid rent plus one month’s rent or twice the actual damages, whichever is greater. Or the tenant may elect to remain in the property and deduct one month’s rent from future rental obligations prior to the foreclosure sale. Property Managers (PM) are exempt unless the landlord has instructed them to provide notice to the tenant. If the landlord instructs the PM and the PM fails to deliver the notice the PM becomes liable for the above damages. This requirement becomes effective 1/1/2013 and shall remain In effect until 1/1/2018.
Assembly Bill 2610 modifies existing state law which was to expire 1/1/2013. Existing law requires a tenant of a property posted with a Notice of Sale (NOS) to be given a notice that the new owner after the foreclosure sale date may enter into a new lease or rental agreement or must be given a minimum 60 day notice to terminate. Effective 3/13/2013, the new owner is required to give a tenant in a foreclosed property a minimum 90 day notice after the sale to terminate. The effective date of the new law may need to be extended as it cannot be earlier than 60 days after the California Department of Consumer Affairs posts the notice requirements on their website. The 90 day notice requirement is consistent with the existing federal law which is scheduled to expire 12 /31/2014. This new law shall remain in effect until 12/31/2019.
Assembly Bill 2510 modifies existing law regarding notice to prior tenants about personal property left on the premises. Existing law specifies the notice provided allowed expedited disposal by providing a notice that in part provides “Because this property is believed to be worth less than $300 it may be kept, sold, or destroyed without further notice if you fail to reclaim it within the time indicated above.” The new law increases the value of the property subject to summary disposal to property worth less than $700. The new law allows the notice to also be delivered by email if the tenant has provided their email address. This new law becomes effective 1/1/2013.
More New Laws for 2013
Now we will look at the remaining new CA laws related to real estate.
Assembly Bill 1599 requires that, for any Notice of Default or Notice of Sale recorded after April 1, 2013 against a one-to-four unit residential property, the borrower must receive a separate notice attached to the NOD or NOS providing a summary of the provisions of the NOD or NOS. The summary must be in English and five additional languages. If the summary notice is not published by the Department of Corporations prior to January 1, 2013 then the effective date shall not be operative until 90 days after the form is released by DOC.
Senate Bill 978 establishes new requirements for brokers engaged in the sale of notes secured by real property effective January 1, 2013. These requirements include loan-to-value and appraisal requirements contained elsewhere In the law. They also require the four year retention of statements related to the purchaser’s qualifications of income or net worth. The broker must also make reasonable efforts to determine the note is a suitable investment for the purchaser.
Assembly Bill 2150 establishes new requirements for notices to be given to personal property mobile home owners effective January 1, 2013. The notice must advise of the mobile home owner’s right to a 90 day notice of rent increase, the right to just cause termination, the right to sell the home in place, the right not to sell to the park, the right not to pay any transfer or selling fee, the right to use a broker of the owner’s choosing and the right not to waive any rights on a rental or sales agreement.
Assembly Bill 2570 becomes effective January 1, 2013 and provides that a licensee registered with the Department of Consumer Affairs cannot include” or permit the inclusion of any provision in a civil settlement agreement that would prohibit a party from filing a complaint with the DCA or require the withdrawal of a complaint already filed. It would also prohibit a provision that would preclude the party from cooperating with DCA in any investigation. A licensee violating any of these provisions would be subject to disciplinary action. Real estate licensees shall be regulated by DCA as of July 1, 2013.
Assembly Bill 1838 requires that as of January 1, 2013 the cover sheet itemizing homeowner association documents must be in at least 10 point font. CAR form HOA complies with this requirement. This Bill also prohibits HOAs from charging a cancellation fee if the request for documents is cancelled in writing before the work is performed.
Senate Bill 1964 and Assembly Bill 2386 modifies the California Fair Employment and Housing Act effective January 1, 2013 to require employers to make reasonable accommodations for an employee’s religious grooming or dress. FEHA has also been expanded by declaration to require employers to make reasonable accommodations for breastfeeding.
Senate Bill 1394 modifies smoke detector requirements in buildings for human occupancy. An owner is responsible for maintaining and testing smoke detectors in multi-family units as of January 1, 2013 and in single family residences as of January 1, 2014. As of January 1, 2016 owners will be responsible for installing additional smoke detectors to bring them up to current building standards.
Assembly Bill 805 makes significant revisions to the Davis-Stirling Common Interest Development Act as of January 1, 2014. It is primarily a reorganization of the Act but does add a few new provisions. The most significant is probably the requirement that the HOA release a lien recorded in error within 21 days.
The California Homeowner Bill of Rights takes effect on January 1, 2013 to ensure fair lending and borrowing practices for California homeowners.
The laws are designed to guarantee basic fairness and transparency for homeowners in the foreclosure process. Key provisions include:
Restriction on dual track foreclosure: Mortgage servicers are restricted from advancing the foreclosure process if the homeowner is working on securing a loan modification. When a homeowner completes an application for a loan modification, the foreclosure process is essentially paused until the complete application has been fully reviewed.
Guaranteed single point of contact: Homeowners are guaranteed a single point of contact as they navigate the system and try to keep their homes – a person or team at the bank who knows the facts of their case, has their paperwork and can get them a decision about their application for a loan modification.
Verification of documents: Lenders that record and file multiple unverified documents will be subject to a civil penalty of up to $7,500 per loan in an action brought by a civil prosecutor. Lenders who are in violation are also subject to enforcement by licensing agencies, including the Department of Corporations, the Department of Real Estate and the Department of Financial Institutions.
Enforceability: Borrowers will have authority to seek redress of “material” violations of the new foreclosure process protections. Injunctive relief will be available prior to a foreclosure sale and recovery of damages will be available following a sale. (AB 278, SB 900)
Tenant rights: Purchasers of foreclosed homes are required to give tenants at least 90 days before starting eviction proceedings. If the tenant has a fixed-term lease entered into before transfer of title at the foreclosure sale, the owner must honor the lease unless the owner can prove that exceptions intended to prevent fraudulent leases apply. (AB 2610)
Tools to prosecute mortgage fraud: The statute of limitations to prosecute mortgage-related crimes is extended from one to three years, allowing the Attorney General’s office to investigate and prosecute complex mortgage fraud crimes. In addition, the Attorney General’s office can use a statewide grand jury to investigate and indict the perpetrators of financial crimes involving victims in multiple counties.
(AB 1950, SB 1474)
Tools to curb blight: Local governments and receivers have additional tools to fight blight caused by multiple vacant homes in their neighborhoods, from more time to allow homeowners to remedy code violations to a means to compel the owners of foreclosed property to pay for upkeep.
The California Homeowner Bill of Rights marked the third step in Attorney General Harris’ response to the state’s foreclosure and mortgage crisis. The Mortgage Fraud Strike Force was created in May 2011 to investigate and prosecute misconduct at all stages of the mortgage process. In February 2012, Attorney General Harris secured a commitment from the nation’s five largest banks for up to $18 billion for California borrowers.