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.
Showing posts with label modification. Show all posts
Showing posts with label modification. Show all posts
Monday, July 18, 2011
Saturday, October 23, 2010
Jerry Brown Turns Back on California Home Owners
Jerry Brown has, once again, used his position in government to make himself look like a champion of the people, and once he accomplished that goal, he turned his back on them.
In June, 2008, in his position as Attorney General of California, Jerry Brown filed suit against Countrywide Home Loans and its officers alleging various acts of fraud, predatory lending and deceptive lending practices. The suit alleged (and I know it to be true) that Countrywide would pay incentives to mortgage brokers when they put borrowers into risky adjustable rate mortgages with pre-payment penalties.
Eventually, Countrywide and Bank of America (BofA acquired Countrywide) entered into a Stipulated Judgment whereby Bank of America and Countrywide would voluntarily modify mortgages on specific types of loans without all of the normal mounds of documentation that the lenders required for loan modifications.
The problem with the Judgment was that it did explicitly stated that the judgment did not provide a private right of action by the homeowner if Countrywide and Bank of America did not abide by the judgment. In essence, the only right of enforcement was left to Jerry Brown and the Attorney General's office.
I tried helping many of the people to save their homes through modifications, but Bank of America never followed the terms of the Stipulated Judgment. They demanded tons of documentation, would never provide an answer, and failed to modify the very loans that were the subject of the judgment. When I mentioned the terms of the Judgment to employees of of Bank of America, they had no idea that it even existed. They had the script that they worked from, and that was the end of it. They continued to foreclose on homes, and then resold them at below market value prices, continuing to drive prices down.
Jerry Brown never took any further action to enforce the terms of the Judgment.
Jerry Brown got the publicity he needed to start his new run for Governor of California, and now he needed to appease those who could provide campaign contributions ... the banks who had fresh TARP money.
Jerry Brown states that he is a "seasoned servant of the people of California." The truth is that he is a professional politician who loves nothing better than to spend the taxpayer's money on his pet projects and supporters. California does not need another 4 years of Jerry Brown.
In June, 2008, in his position as Attorney General of California, Jerry Brown filed suit against Countrywide Home Loans and its officers alleging various acts of fraud, predatory lending and deceptive lending practices. The suit alleged (and I know it to be true) that Countrywide would pay incentives to mortgage brokers when they put borrowers into risky adjustable rate mortgages with pre-payment penalties.
Eventually, Countrywide and Bank of America (BofA acquired Countrywide) entered into a Stipulated Judgment whereby Bank of America and Countrywide would voluntarily modify mortgages on specific types of loans without all of the normal mounds of documentation that the lenders required for loan modifications.
The problem with the Judgment was that it did explicitly stated that the judgment did not provide a private right of action by the homeowner if Countrywide and Bank of America did not abide by the judgment. In essence, the only right of enforcement was left to Jerry Brown and the Attorney General's office.
I tried helping many of the people to save their homes through modifications, but Bank of America never followed the terms of the Stipulated Judgment. They demanded tons of documentation, would never provide an answer, and failed to modify the very loans that were the subject of the judgment. When I mentioned the terms of the Judgment to employees of of Bank of America, they had no idea that it even existed. They had the script that they worked from, and that was the end of it. They continued to foreclose on homes, and then resold them at below market value prices, continuing to drive prices down.
Jerry Brown never took any further action to enforce the terms of the Judgment.
Jerry Brown got the publicity he needed to start his new run for Governor of California, and now he needed to appease those who could provide campaign contributions ... the banks who had fresh TARP money.
Jerry Brown states that he is a "seasoned servant of the people of California." The truth is that he is a professional politician who loves nothing better than to spend the taxpayer's money on his pet projects and supporters. California does not need another 4 years of Jerry Brown.
Thursday, July 23, 2009
Jerry Brown Rides Away Again
Once again, the illustrious Jerry Brown has grandstanded on behalf of the little people in order to get some headlines, and then turns his back on them while running for governor.
More than a year ago, as attorney general for the state of California, Mr. Brown filed a lawsuit against Countrywide Home Loans and its subsidiaries for its unlawful predatory lending practices, which was shown in great specificity in the complaint that was filed. Countrywide and Bank of America agreed to settle the lawsuit by agreeing to spend $8 billion dollars to modify those predatory loans.
Once that agreement was put into place, Mr. Brown pounded his chest and told everyone who was listening that he brought Countrywide to its knees, and that thousands of people would have their homes saved and the crash in real estate values would end. Countrywide/Bank of America announced their home retention program through which they would address all of these loans.
Fast forward one year, and we discover that foreclosures still take place, the value of property had continued to plummet, and realistic mortgage modifications are few and far between.
I have worked with many victims of these predatory loans, and my experience has been that they either say “You don’t qualify,” or they come up with a “modification” that is meaningless and unworkable. That allows the lenders to say, “Most of the modifications that are made are defaulted on again.”
Furthermore, Countrywide is a small percentage of the problem. Why didn’t Brown sue the others, such as World Savings (now, Wachovia and Wells Fargo) and Washington Mutual (now Chase)? There are dozens of others that continue to use government bailouts, while allowing the victims of these predatory loans to wallow in despair, destitution and continued unemployment.
Oh, I forgot. He needs to concentrate on another run for governor.
More than a year ago, as attorney general for the state of California, Mr. Brown filed a lawsuit against Countrywide Home Loans and its subsidiaries for its unlawful predatory lending practices, which was shown in great specificity in the complaint that was filed. Countrywide and Bank of America agreed to settle the lawsuit by agreeing to spend $8 billion dollars to modify those predatory loans.
Once that agreement was put into place, Mr. Brown pounded his chest and told everyone who was listening that he brought Countrywide to its knees, and that thousands of people would have their homes saved and the crash in real estate values would end. Countrywide/Bank of America announced their home retention program through which they would address all of these loans.
Fast forward one year, and we discover that foreclosures still take place, the value of property had continued to plummet, and realistic mortgage modifications are few and far between.
I have worked with many victims of these predatory loans, and my experience has been that they either say “You don’t qualify,” or they come up with a “modification” that is meaningless and unworkable. That allows the lenders to say, “Most of the modifications that are made are defaulted on again.”
Furthermore, Countrywide is a small percentage of the problem. Why didn’t Brown sue the others, such as World Savings (now, Wachovia and Wells Fargo) and Washington Mutual (now Chase)? There are dozens of others that continue to use government bailouts, while allowing the victims of these predatory loans to wallow in despair, destitution and continued unemployment.
Oh, I forgot. He needs to concentrate on another run for governor.
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