Tuesday, November 8, 2011

A New Christmas Tradition

I cannot claim originality on this, but it meant enough to me to share.

As the holidays approach, the giant Asian factories are kicking into high gear to provide Americans with monstrous piles of cheaply produced goods -- merchandise that has been produced at the expense of American labor.

This year will be different. This year Americans will give the gift of genuine concern for other Americans. There is no longer an excuse that, at gift giving time, nothing can be found that is produced by American hands. Yes there is!

It's time to think outside the box, people. Who says a gift needs to fit in a shirt box, wrapped in Chinese produced wrapping paper? Here are some ideas:

Everyone -- yes EVERYONE gets their hair cut. How about gift certificates from your local American hair salon or barber?

Gym membership. It's appropriate for all ages who are thinking about some health improvement.

Who wouldn't appreciate getting their car detailed? Small, American owned detail shops and car washes would love to sell you a gift certificate or a book of gift certificates.

Are you one of those extravagant givers who think nothing of plunking down the dollars on a Chinese made flat-screen? Perhaps that grateful gift receiver would like his driveway sealed, or lawn mowed for the summer, or driveway plowed all winter, or games at the local golf course.

There are millions of owner-run restaurants -- all offering gift certificates. And, if your intended isn't the fancy eatery sort, what about a half dozen breakfasts at the local breakfast joint. Remember, folks this isn't about big National chains -- this is about supporting your home town Americans with their financial lives on the line to keep their doors open.

How many people couldn't use an oil change for their car, truck or motorcycle, done at a shop run by the American working guy?

Thinking about a heartfelt gift for mom? Mom would LOVE the services of a local cleaning lady for a day.

My computer could use a tune-up, and I KNOW I can find some young guy who is struggling to get his repair business up and running.

OK, you were looking for something more personal. Local crafts people spin their own wool and knit them into scarves. They make jewelry, and pottery and beautiful wooden boxes.

Plan your holiday outings at local, owner operated restaurants and leave your server a nice tip. How about going out to see a play or ballet at your hometown theatre.

Musicians need love too, so find a venue showcasing local bands.

Honestly, people, do you REALLY need to buy another ten thousand Chinese lights for the house? When you buy a five dollar string of light, about fifty cents stays in the community. If you have those kinds of bucks to burn, leave the mailman, trash guy or babysitter a nice BIG tip.

You see, Christmas is no longer about draining American pockets so that China can build another glittering city. Christmas is now about caring about US, encouraging American small businesses to keep plugging away to follow their dreams. And, when we care about other Americans, we care about our communities, and the benefits come back to us in ways we couldn't imagine.

How about just taking the time to make your own, personal Christmas card with your words from your heart to show how you appreciate your friends and loved ones.

THIS needs to be the new American Christmas tradition.

Feel free to share this with anyone you want.

Monday, July 18, 2011

New California Anti-Deficiency Law

Last week, on July 11, 2011, California governor Jerry Brown signed into law a new law to combat deficiency judgments by holders of non-purchase money junior mortgages (second or third mortgages) when the lender has accepted funds during a short sale transaction. This law protects homeowners who refinanced a loan after the original purchase loans. This was Senate Bill 458, and amends the language to the California Code of Civil Procedure §580e.

Previously, a junior mortgage holder of a refinanced loan had the right to collect on any balance unpaid after the sale of the transaction. In many cases, they specifically stated in their short sale approval documents that they retained the right to seek collection of any deficiency.

In January of 2011, a similar law went into effect that eliminated the right of a first lender of a refinanced loan to seek a deficiency judgment after a short sale. However, it did not affect secondary loans after the short sale transaction. As with all laws aimed at stemming the tide of foreclosures and distressed property sales, there is bound to be some confusion in the interpretation of these laws.
The new law only affects real estate of one to four units, and will have no impact on short sale transactions with bare land or commercial property, such as apartments, office buildings or retail locations.

In essence, the law states that if a junior lender accepts any money to release its lien against the property, it will be deemed to have executed a non-judicial foreclosure of the property. Since a California has what is known as a “One Action” rule, a non-judicial foreclosure bars any further attempts to collect on a deficiency. Therefore, if the lender accepts any money during the short sale transaction, it is the only “action” that they can take.

The law also prevents the lender from slipping in a piece of paper in the documents being executed by the sellers in which the sellers “waive their rights” under this law. Any such document will be void as against public policy.

What is going to be the result from this new law? I believe that there are three possible directions that lenders will take.

1. The first possibility will be that the junior lenders will take a stronger stand during the short sale transaction, and demand more money at the time of the sale. I have already seen situations where Chase, when in first position, will offer a second no more than $3,000-$5,000. However, when they are in second position, they are demanding $15,000.00! This could get even worse in the future.

2. The next possibility will be that they refuse to release their lien, and let the first go ahead with foreclosure. The first lender will be stuck with the property and no recourse for any deficiency, but the junior lender will only lose its security (which was probably already worthless) and still have the right to obtain a deficiency judgment.

3. The other possibility is that the junior lender will simply release its lien, without receiving anything of value to do so. As in the situation where they allow the first to foreclose, the junior lender will be free to pursue its deficiency remedies.

This is going to put real estate agents in a very dangerous position, and I will explain why. Whenever anyone approaches a lender requesting a short sale, what is the first thing that the lenders say? They say, “We need the last 2 years of tax returns and three months of bank statements.” I often wonder why they need these items, because in most cases they were not requested when the original loan was made. Te question is, do they really NEED this information, or do the just WANT this information?

When this information is provided to the lender or servicer, they are given all of the information that they need to decide if the seller has enough assets to warrant them pursuing the owner with a lawsuit. If a lender refuses the short sale, and instead sues the homeowner for a money judgment, would the real estate agent who gave the lender the information, or recommended to the seller that they do so be liable for a breach of fiduciary duty? It is a possibility that such could be the outcome.

In my opinion, and I have done this many times with lenders, the lender and servicer needs to know only a few things. They are, a) the Fair Market Value of the Property, b) the offer that has been obtained to purchase the property, and c) that the owner does not intend to make any more payments. The real estate industry has been caving in to the lenders demands for too long, and it is time to take control back.

Help your California clients know their rights and obligations under the law before you start on the short sale route. Check out the video at http://www.lawken.com/ss.htm . These are serious times, and everyone needs to know where they stand.

Sunday, May 1, 2011

The Rest of the Short Sale Story

I read a story about short sales in today's local newspaper. Although it was accurate, it told only half of the story. As a real estate and tax attorney, I have consulted with about 300 homeowners regarding the legal and tax ramifications of short sales and foreclosures.

What is missing from the story is 1) why we went from zero distressed properties to 45% of the properties being in that situation, 2) why the banks (in reality servicing companies) drag out the short sale procedure, sometimes without a sale being made, and 3) how they are still defrauding the government and taxpayers with the after sale or foreclosure documents they file with IRS after the transaction. I cover the first two in my book, “Greed-American Dream Becomes the Global Nightmare.” The last one is a new twist to the puzzle.

1. The reason that the number of distressed properties has increased is solely attributable to the actions of the Federal government and the lending institutions. The problem could have been nipped in the bud had different actions taken place in 2007. The banks, which created the problem with their weapons of mass destruction (easy credit, subprime loans, and mortgage-backed securities), handled the problem like they had for 100 years: foreclose and sell the property quickly at below market value, just to get it out of their portfolio. That worked fine in the past, when there were down payments and verification of income required on home loans. However, there were millions of loans that had been made in which there was no equity.

If someone then needed to sell their home in the same neighborhood, they were facing a fair market value of less than what they owed. At that time, getting a short sale through was next to impossible because the banks were not staffed with anyone to handle them, and they failed to look at the problem logically based upon the lack of equity in property, and that the manner in which they addressed the problem would simply make it worse.

2. In the vast majority of short sale transactions, the banks are not the lenders. The scheme that they put together was to make loans, package them into trusts, turn them into securities which they would get rated as AAA by Standard & Poor’s or Moody’s, then sell them to unsuspecting investors throughout the world. They made money creating the loans, selling the loans, and after the sale had maintained the right to service the loans, which provided them with ongoing income.
When a mortgage goes into default, the fee charged to the investor by the servicer is higher than when not in default. The longer the property is in default, the more money the servicing bank makes. If there is a modification of the loan, the banks do not get paid in a lump sum, but must wait for their payment, just like the investor. When there is a short sale or a foreclosure, the servicing bank gets paid immediately from the funds at the sale of the property, with the balance going to the investor. They have built in their own profit structure.

3. The latest fraud is that they are issuing fraudulent 1099’s to the previous owner, in such a manner that benefits the lender or the servicing bank at the expense of the taxpayers or the homeowners. I am in the process of preparing a lawsuit against Chase Mortgage based upon a fraudulent 1099-A. Chase foreclosed on a property and reported to San Luis Obispo County that the fair market value was $143,000.00. This reduces the property taxes that would be required to be paid to the County. When they issued the 1099-A, it showed a fair market value as $345,000.00! They then sold the property for $120,000.00. By doing this, they created a fraudulent $225,000.00 capital loss to offset other capital gains that they might have had, all at the expense of the taxpayers and the property owner, who was actually entitled to that capital loss, because it was investment property.

Although demand has been made to correct the 1099-A, and it has been reported by me to both IRS and the County Assessor’s office, nothing has been done.

I think it is important that people start demanding an investigation these issues by our elected representatives, Democrats and Republicans, why they are allowing our country and its people continue to suffer for the benefit of the stock market, which in no way truly reflects the health of the nation.

Saturday, February 26, 2011

The Latest Bankster Tricks

I thought the banks had gone as far as possible to take money from the taxpayers and the government through their TARP funds and the manner in which they paid it back, enabling them to pay bonuses to their executives without government interference. They did not make the money by doing what banks are supposed to do, which is lend money. Instead, they invested it in the stock market, driving it up, and then selling and reaping the profits.

Of course, that results in capital gains that is taxable income with no offsetting deductions other than capital losses. God forbid the banksters should pay tax to the government (and the taxpayers) who bailed them out. They had to come up with a way to create more capital losses.

Of course, for these brilliant people, this was an easy task. Here is what they did, and I have the proof, which I am forwarding to the Internal Revenue Service this week. This was a JP Morgan Chase Bank transaction.

1. When they foreclose on a property, they report the "transfer value" to the county recorder. I am not sure how this affects the property taxes in other states, but in California the property taxes are assessed based upon the transfer value, as are the transfer taxes. The property for which I have the proof was reported to the county as having a transfer value of $143,000.

2. Chase then issued to the previous owner a 1099-A, as required by Federal law, to report the amount of the obligation and the fair market value of the property. In this case the outstanding principle was $283,000.00. In spite of the fact that they had shown a transfer value of $143,000 to the county, Chase reported that the Fair Market Value of the property was $345,000, more than $200,000 higher!

3. Chase then put the property on the market for $147,000, even though they had already turned down a short sale offer of $150,000 cash. They ultimately sold the property for $130,000.

What this means is that they now showed a capital loss of the difference between what they reported as the Fair Market Value ($345,000) and the final selling price ($130,000). Using those numbers, their capital loss was $215,000 which they could now offset against the capital gains from their stock dealings, saving them $32,250 in Federal taxes, and who knows how much in state taxes.

Doesn't seem like all that much for a big corporation such as Chase, but multiply that by 100,000 foreclosures and you come up with something like $3 billion dollars in fraudulent tax evasion.

In the mean time, our government leaders ignore these facts and have allowed the big banks and the rest of the financial markets to run our country because they have all of the wealth. They continue to drive down the prices of homes through the foreclosure process, while the government sits on the side lines making meaningless gestures regarding helping homeowners, while allowing the banksters free reign in destroying the fabric of America.

For more, read my book ... The American Dream Becomes the Global Nightmare