Tag Archives: real-estate

The truth about Short Sale Leasebacks

Elk Grove Short Sale Agent - Lease Back image
Elk Grove Short Sale Agent – Lease Back image
The current industry trend of short sales has caused a large amount of hopeful home owners to place a hold on their dream of homeownership. So it’s no surprise that this new trend of short sale leaseback programs, popping up all over the country, seems like an answer to prayer. The exposure is overwhelming. What could be better than a distressed homeowner being able to get out of a financial hardship and keep their home?

Short sale leasebacks became a hot topic when the HAFA Supplemental Directive 12-03, was released on April 17, 2012 allowing for leasebacks. It states:

“A servicer may in its discretion approve a transaction under HAFA that provides an opportunity for the property to be sold to a non-profit organization with the stated purpose that the property will be rented or resold to the borrower so long as all other HAFA program requirements are met.”

So let’s take a look at how this new short sale leaseback program is supposed to work. The short sale is purchased by an investor (a non-profit organization). Instead of the owner moving out, the property is leased back to the homeowner so that the homeowner can stay for a period of time. At the end of the lease agreement, the homeowner buys the property back from the investor.

The challenge is, prior to the supplemental directive, leasebacks were considered a violation of the Arms Length Affidavit provision of most short sales due to:

  • Fraud committed by sellers who are not supposed to benefit from the forgiveness of their debts
  • Investors taking advantage of sellers who had hopes of purchasing their homes back

The chief issues with the short sale leaseback program are increased potential for fraud to the homeowner and other parties to the transaction which in turn causes the program to garner almost no support from the major servicers, U.S. Treasury, and GSE’s.

So what are the major lenders saying about short sale lease backs? Only one major lender has agreed to allow them, and to date (as of the date of this article), “They have only closed one” states Certified Distressed Property Expert CEO Alex Charfin. He said the major banks do not see leasebacks as viable option because they attempted pilot programs and the pilot programs were not successful.

Bank of America, one of the nation’s top mortgage holders of distressed properties, won’t allow short sale lease backs. Per a recently released memo, B of A now requires all short sale listings must be marketed in the local MLS and remain there throughout the short sale listing process until closing. Short sale lease back are not marketed in the MLS because they are sold directly to the investor.

If only a few have closed, then why does this sound like the next big answer for distressed property owners? Unfortunately, the marketing of the program, by certain companies, is very good. But their closing ratio is not. Short Sale leasebacks do not protect the homeowner or the real estate agent.

That brings us to the risk of fraud to the homeowner. The increased risk for fraud occurs when the investor purchases from homeowner, and when it’s time to buy back, the investor does not sell back to homeowner. HUD approved charities (non-profit organizations), have only closed a few, nationwide.

However, as with any big opportunity, we will see a surge of companies professing to be able to train you how to successfully close a short sale leaseback. They have done some good marketing and PR as are touting it as if it is a great and highly successful program. But the reality is they’ve literally only done a few and the flood gates of fraud will open wide.

If you are a homeowner or an agent interested in doing short sale leasebacks:

  • Make sure that the company you use is a non-profit organization (http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check)
  • Review all leaseback information
  • Have all documents reviewed by an attorney
  • Never allow a third party to have any negotiation control over the transaction – you and your broker (or your agent if you are a homeowner) are ultimately responsible for the results
  • Exercise extreme caution

Know that there are many short sale leaseback training programs. The good programs will require agents to take training and to give up 1% of their commission so that they can negotiate the sale and the leaseback. But agents, before signing up for training be cautious and consider the challenge you may present to a homeowner. This is a new strategy that is completely unproven and most servicers do not have an appetite for. The property is never really in the MLS, so it’s not properly marketed and you are relying on this non-profit to negotiate the deal and provide an approval (which most lenders have already said they won’t do it), all of which may take more than the average six months because of the involvement of additional parties. Then, if there is no approval, you will have to go back to the homeowner and explain that you were unable to make that happen for them and you lose 1% of your commission in the process because you signed an agreement.

On a final note, before you sign up for any training or place any homeowner into this type of pipeline, qualify the organization. Can they show you evidence of completing transactions, can they show you the paperwork, can they show you the properties which were successfully leased back, and can they let you talk to a homeowner who is actually living in a property today and has successfully completed a short sale and has now leased their property back? Verify that before you put yourself and your client into a challenging situation. And remember; don’t get tangled up in fraud.

Watchout Landlords & Property Managers: Legal Updates for 2013

(Legal update information from Christopher Hanson, Real Estate Broker/Attorney, Hanson Law Firm, SAR Legal forum 1/9/2013)

New Real Estate Laws take effect January 1, 2013 and July 1, 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.

See all 2013 Real Estate Law (as of January 1, 2013) here.

The California Homeowner Bill of Rights Takes Effect January 1, 2013

State of California Home Owner's Bill of Rights Image
Homeowner Bll of Rights becomes law January 1, 2013.

(Article from the State of CA Dept of Justice Office of the Attorney General, http://oag.ca.gov/hbor)

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.
(AB 2314)

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.