THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 580e of the Code of Civil Procedure is amended to read: 580e. (a) (1) No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage, provided that both of the following have occurred: (A) Title has been voluntarily transferred to a buyer by grant deed or by other document of conveyance that has been recorded in the county where all or part of the real property is located. (B) The proceeds of the sale have been tendered to the mortgagee, beneficiary, or the agent of the mortgagee or beneficiary, in accordance with the parties' agreement. (2) In circumstances not described in paragraph (1), when a note is not secured solely by a deed of trust or mortgage for a dwelling of not more than four units, no judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage for a dwelling of not more than four units, if the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage. Following the sale, in accordance with the holder's written consent, the voluntary transfer of title to a buyer by grant deed or by other document of conveyance recorded in the county where all or part of the real property is located, and the tender to the mortgagee, beneficiary, or the agent of the mortgagee or beneficiary of the sale proceeds, as agreed, the rights, remedies, and obligations of any holder, beneficiary, mortgagee, trustor, mortgagor, obligor, obligee, or guarantor of the note, deed of trust, or mortgage, and with respect to any other property that secures the note, shall be treated and determined as if the dwelling had been sold through foreclosure under a power of sale contained in the deed of trust or mortgage for a price equal to the sale proceeds received by the holder, in the manner contemplated by Section 580d. (b) A holder of a note shall not require the trustor, mortgagor, or maker of the note to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale. (c) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the deed of trust or mortgage, this section shall not limit the ability of the holder of the deed of trust or mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste. (d) (1) This section shall not apply if the trustor or mortgagor is a corporation, limited liability company, limited partnership, or political subdivision of the state. (2) This section shall not apply to any deed of trust, mortgage, or other lien given to secure the payment of bonds or other evidence of indebtedness authorized, or permitted to be issued, by the Commissioner of Corporations, or that is made by a public utility subject to the Public Utilities Act (Part 1 (commencing with Section 201) of Division 1 of the Public Utilities Code). (e) Any purported waiver of subdivision (a) or (b) shall be void and against public policy. SEC. 2. This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the Constitution and shall go into immediate effect. The facts constituting the necessity are: In order to mitigate the impact of the ongoing foreclosure crisis and to encourage the approval of short sales as an alternative to foreclosure, it is necessary that this act take effect immediately.
The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs. The FTC has brought more than 30 cases against operations like these, and state and federal law enforcement partners have brought hundreds more.
Advance fee ban
The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.
Disclosures
The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:
they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
the lender may not agree to change the consumer’s loan; and
if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.
Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.
Prohibited claims
The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:
the likelihood of consumers getting the results they seek;
the company’s affiliation with government or private entities;
the consumer’s payment and other mortgage obligations;
the company’s refund and cancellation policies;
whether the company has performed the services it promised;
whether the company will provide legal representation to consumers;
the availability or cost of any alternative to for-profit mortgage assistance relief services;
the amount of money a consumer will save by using their services; or
the cost of the services.
In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide."
1. I know national short sale educators say that seconds are not going after the sellers after short sales. I have even spoken to the other half of one education team and told them I have clients who have been facing collection actions. Nevertheless they have continued with their assertion.
here is an email I just received via email on active rain...
HELOCs and short sales (Sent via Activerain)
This is offically no fun. Our short sale recorded (date withheld). I had reassurances for multiple people that our purchase money HELOC from Chase was non-recourse. (Not from any laywer in writing though) Now their collection company, (name withheld for privacy reasons), is calling. They say because we didn't foreclose that we are not protected. I don't see anywhere in CCP 580b that seconds are excluded. Have you seen any case law yet?
2. A national short sale negotiation company just told me two days ago that there are plaintiff's firms in CA suing Realtors for giving legal advice during short sales.
Which is why they are bringing lawyers into their system. You may have seen their email blasts.
California new short sale law CCP 580e clearly states that if a senior lender accepts a short sale it must fully discharge the remaining loan balance.
"Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage."
I bring your attention to that last sentence ... it says the lender must accept the the sale proceeds as full payment.
If the lender is getting paid in full, then there should be no loan forgiveness. Hence no 1099. I know people with cash out refis, income properties or more than one residence who may be able to take advantage of this interesting wording in the legislation. For more on short sales under the new California short sale law.
Section 580e. (a) No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage. (b) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste. (c) This section shall not apply if the trustor or mortgagor is a corporation or political subdivision of the state.
1. Many banks seem to still be merging their Hafa short sale procedures with their old procedures.
2. Short sales are getting a little faster becuase the banks are outsourcing.
3. Be careful when an "outsourced netotiatons group " all of sudden drops a file in the middle of their process. It is likely a foreclosure trick.
It has happened twice to us. We were very proactive on one and stopped the quick sale.
They got us on another... They told us the lender was getting the file fact and we could speak to their short sale department in about a week. In the mean time the trustee foreclosed based on a 6 month old notice of sale which had been "canceled". I am sure we could get the foreclosure rescinded... but I am not sure the seller cares anymore since he has relocated and a non judicial foreclosure releases the deficiency.
4. Some banks seem to want to give to high pre approved prices.
5. We just got an oral preapproval .. which matches up with an offer in the file so.... it worked. We will open escrow on Monday as soon as their fax arrives.
Note in shor this is our first Hafa short sale which worked the way the program seems to say it should.
They got the appraisal done the first week. About 7 weeks later we got a preapproved price and we have an offer to match. Since we did not have to seed in an offer we had 7 weeks of being active and pulled in a good offer.
This is an after the short sale question. We short-saled our house last year, but did not consult a real-estate lawyer. Anyhow, the short sale went through and now the second lender is coming after us. We don't want to declare bankruptcy. At the same time, we can not pay the lender. Even if we can work out a payment plan, they will not issue a "paid in full", even after we finish paying the amount we agreed upon. The question I have are :
1). can a real estate lawyer be able to negotiate for us?
2). can we do anything to fix our credit after we negotiate with the lender?
3). Can they take us to court and garnish our wage?
Answer -
1. Dispute the Debt
2. Get all the documents in lender's and realtor's poseession
3. Consider Respa request and follow up program to gather facts and documents
Determine if any of the anti deficiency legislation could apply such as
580b - ( purchase money loan on residence)
One action rule.
Ask bank to prove anti deficiency rules do not apply.
Realtors are not going to like this one.... (and this is rough but it has worked)
Ask bank what right they had to allow a Realtor to represent your interests in such serious negotiations.
There is almost no chance your Realtor's authority to represent you extended anywhere close to deficiency negotiations. So arguably the bank and your Realtor participated in some sort of fraud on you which resulted in the bank getting the property back early and your Realtor getting paid. (I am not saying your Realtor was not a great Realtor, I am just pointing out some of your legal arguments. The law can be a stearn task master.)
There are a host of other arguments which I will keep to myself for now because they will only tick off fellow Realtors.
The problem is, that all of this may take a lot of attorney time to flesh out.
In reply to your questions -
1. Yes a good experienced lawyer can help
2. Yes, the good news is, if you spend the time disputing the debt, the same effort should be fruitful in clearing up your credit.
3. If they took you to court and won or obtained a default judgment, wage garnishment is a remedy creditors may pursue. But, it should not get that far.
Reuters says Washington is buzzing with the Rumor that Obama is going to order Fannie and Freddie to forgive some of the debt of Upside Down americans.
"Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:
GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001."
One of the highlighted threads on Active Rain discusses the issues related to third party negotiators.
On that thread attorney Richard Zaretsky from Florida made and short but powerful post. (he has made a lot of good posts on his Active Rain blog as well.)....
"Title companies do short sales to retain business (the closing). They are not negotiators and their vested interest is to get it closed - period.
Sellers need advice on what they got themselves into. Few banks give clear cut short sale approval letters, and if you have a 2nd lender involved or mortage insurance, the transaction and seller issues usually mount.
Knowlegeable brokers and the advice of an attorney should be in every short seller's team bag when undertaking a short sale / deed in lieu."
As an attorney and brokerage owner I would like to examine his post sentence by sentence. Mr. Zaretsky's post will be in quotes. My comments follow. Note.... I have not contacted him about this post... so these are my opinions... he is invited to post his own if he wishes.
"1. Title companies do short sales to retain business (the closing). They are not negotiators and their vested interest is to get it closed - period."
A consumer or non experienced Realtor would say, sounds good to me. Why would an attorney post such an unusal sentence. This sentence is similar to the NFL coach who critiqued a receiver by saying all he does is catch touchdowns. Correct?
"2. Sellers need advice on what they got themselves into. Few banks give clear cut short sale approval letters, and if you have a 2nd lender involved or mortage insurance, the transaction and seller issues usually mount."
Experienced short sale negotiators know that many banks provide vague short sale approval letters --or worse -- approval letters which reserve the lenders right to collect on the deficiency.
In my legal and licensed Broker opinion as well as the opinion of the California Association of Realtors the first order of business for a seller should be to consider other loan workout options or bankruptcy before agreeing to do a short sale. It is highly advisable that a seller speak with an experienced loan workout attorney so that they can pick a strategy which has the best chance of minimizing financial, tax and credit damage.
For many people and many lenders in CA, the seller should consider a short payoff strategy for the junior loan before beginning a short sale. Owners might also consider loan modification, bankruptcy or perhaps consider challenging the validity of the loan or the servicer before beginning a short sale.
I wonder how many Realtors worry they are not serving their clients well when they are come back with an approval letter which reserves the lenders right or the M.I. company's right to collect the deficiency. Would it not be far better to have an attorney advising the selling of thier options? Many times a short sale is the best strategy, but not always.
I do wonder about Bank of America short sales and Real Estate Brokerages.
I wonder how the larger brokerage chains can allow their Realtors to keep doing short sales on behalf of owners with assets, when they know BofA reserves the right to collect the deficiency in Realtor negotiator short sales. Attorneys can get BofA to change the language. I just do not get why larger brokers do not care about the public or their agents. Don't they have the profits and resources to protect the public and their Realtor's future?
I note that Breach of Fiducary duty, is consider fraud under CA law. One lawsuit for breach and a Realtor is looking for a new non licensed career. My advice to Realtors... search for a broker who cares about you and your sellers. Get an attorney on your team.
3. Knowlegeable brokers and the advice of an attorney should be in every short seller's team bag when undertaking a short sale / deed in lieu."
Agreed. In my opinion it is the only way to properly discharge your fiduciary duty to the seller.
If your Real Estate brokerage does not have a short sale attorney on staff to help you and your sellers, find another broker.
The first 20% of the short sale is setting up loan workout strategy and the short sale package. .
The next 50% of the short sale is submitting the package and getting it to the negotiators desk.
The last 30% is negotiating the proper releases and properly counseling the sellers on the legal consequences of those releases.
the middle 50% seems like it can be done by any diligent professional.
However, I always wonder, who tells the sellers they should close on the terms presented, who is negotiating the wording of those releases?
In the last few days I have spoken with third part negotiatiors, an active agent in my office and few agents outside of my office about HAFA short sales. Banks are setting up BPO's and appraisals more rapidly but other than that the banks/servicers are not really all that concerned about following HAFA guidelines. I would say they are making it up as they go along.
Different departments for the same servicer give completely opposite pronouncements on procedures and requirements. If I do not like what I hear one day, I call another number the next day and hear opposite. For instance...One day BofA said we can't go through HAFA if there is a Notice of Sale... then the next day we were told we have to go through HAFA if there is a Notice of Sale.
Our take so far:
1. Watch out for high pre approvals. (this is likely to be a permanent problem in my opinion unless prices start to double dip.)
2. Watch out for non negotiable prices. Some lenders have said if we do not get an offer which meets their pre approved price they will not consider the short sale. Other banks do not really give a substantive response when asked the same question.
3. Watch for non compromising seconds. If the second lender is unwilling to release the deficiency, you may get stuck with a foreclosure. So watch out. Until seconds have a track record of releasing the deficiency, sellers may wish to opt out of HAFA.
4. Watch out for B.S. relocation cash. The banks have been misleading un represented homeowners about how much money they will receive to relocate and so have many Realtors. Borrowers get pissed when the cash they were promised disappears.
MYTH #1. IF IT MAKES SENSE TO THE AGENT, IT SHOULD MAKE SENSE TO THE BANK. ActiveRain members continue to question the results of Short Sales submitted to major banks, servicing entities, etc., for approval. The question is usually "why don't the banks understand the benefits of approving a Short Sale??"
MYTH #2. THE BANKS DON'T UNDERSTAND THE BENEFITS OF APPROVING A SHORT SALE. HA! Bank of America understands Short Sales far better than real estate agents and consumers understand the Bank of America.
MYTH #3. IT'S GOOD PUBLIC RELATIONS FOR THE BANK TO APPROVE SHORT SALES. They, the Bank of America, will know exactly what they are doing and have made a management decision to use Short Sales as an instrument for public relations. Public relations not necessarily to enhance their image with the "public", but to satisfy any inquiry that may originate from any regulators that would question the Bank of America's
MYTH #4. THE BANKS MUST FOLLOW THE GUIDELINES FOR SHORT SALES. HA! What guidelines??
MYTH #5. THE NET TO THE BANK MAY BE MORE THAN WITH A FORECLOSURE. That does not mean that they intend to approve a large number of Short Sales. They do not. They do not have to in order to achieve their goal. A few selected anecdotes is all they need to perpetuate the myth that the Bank of America may approve large numbers of Short Sales.
MYTH #6. THE BANK WILL APPROVE THE SHORT SALE IF THE OWNER HAS A "HARDSHIP". The only thing "short" about the Bank of America policy on Short Sales is the "short sighted" frame of reference on the part of agents and the consumers whom they advise. Too often, agents believe that the bank is going to follow the same logic used by the agent in evaluating a property for Short Sale. We focus on market value, seller hardship, benefits to the seller, the agent and the buyer. However, agents have no inside knowledge of the bank's relationship with FDIC, FannieMae, FHA, VA, investors, etc. when computing the net to the bank from a Short Sale vs. Foreclosure.
SHORT SALES ARE NOT INSTITUTIONALIZED. Don't forget. The foreclosure processes have been in place within these financial institutions for about 200 years. The relatively new and ever growing systems to process Short Sales is, for many banks only 2-3 years old. Banks have powerful lobbies that have institutionalized the foreclosure process for the benefit of the bank. There hasn't been enough time for the bank lobbies to get laws on the books to give the banks the same advantage in Short Sales that they have with foreclosures. Without the structure to protect the banks, they are in uncharted waters and not able to move swiftly or routinely when presented with a Short Sale offer.
SHORT SALE VS. FORECLOSURE. Banks have protections in foreclosure that they do not have in Short Sales, i.e., Mortgage Insurance, Loan guarantees, equity, etc.
FORECLOSURE IS EASIER FOR THE BANK. With a Short Sale, the bank usually must deal with 2 agents, a buyer and a seller. With a foreclosure sale, the bank has eliminated the seller/owner from the mix.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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