So you think that only a computer whiz can hack into your web connection and spy on you?  Think again.  My husband recently forwarded me a New York Times article ("New Hacking Tools Pose Bigger Threats to Wi-Fi Users"by Kate Murphy) that gave me goose bumps.  I love my little netbook and wireless broadband access card that allows me to access the Internet just about anywhere.  After reading the article, I am starting to wonder about how secure my "secured" wireless network connection really is. 

There is a program that was released in the fall of 2010 which has made it simple to see what other users of an unsecured Wi-Fi network are doing and then log on as them at the sites they visited.  That's the perfect breeding ground for identity theft, one of my hot buttons.  

Ok,  so you think you are safe because this program only works with unsecured Wi-Fi networks.  While password protection makes it maybe a little bit more difficult to break in, thanks to widely available Wi-Fi cracking programs, recovering wireless router passwords can be achieved in a matter of seconds even by  computer illiterate folks.  The programs work by faking legitimate user activity to collect a series of so-called weak keys or clues to the password. The process is wholly automated. 

What can we do to protect ourselves.  Well, for starters, don't use unsecured Wi-Fi connections.  However, as already mentioned, even password protected Wi-Fi networks are not as safe as we would like to believe.  You only know you are shielded from prying eyes if a little lock appears in the corner of your browser or the Web address starts with "https" rather than "http."  Although many websites will encrypt the password you enter to access the site, the browser's cookie, a code  that identifies your computer, your settings on the site or other private information, is often not encrypted, which allows the programs to grab the cookie, giving unwelcome users access to your information and lets them be you on the sites nd have full access to your accounts.  Most websites lack end-to-end encryption, meaning that your cookie info and other info you enter on the site is not protected.  Website developers claim that encrypting all communication would slow down the site and would be a huge engineering expense.  Not sure how much of a speed compromise we would have to suffer, but since the engineering expense seems to be a hurdle, we should not expect a satisfactory solution to this problem any time soon. 

Unless we give up the convenience of the ubiquitous Internet access, we need to take other measures to protect ourselves.  I would highly recommend suscribing to an identity theft protection plan.  Don't wait until you have fallen victim to identity theft.  Like with any protection plan, it excludes pre-existing conditions.  To my knowledge, Prepaid Legal has the only identity theft plan that also includes identity restoration services, which means you are not left to your own demise when it comes to restoring your identity, which in most cases is a frustrating and very time consuming endeavor.  At the ridiculously low monthly cost of as little as $9.95 we can't really afford not to have it.  Like I said, identity theft is one of my hot buttons. 

I recently learned that only a total of 661 HAFA short sales closed in 2010.  Granted, part of the reason is that Freddie Mac & Fannie Mae did not implement HAFA until August 1, but 661 closed short sales is still a ridiculously low number.   Are things going to improve radically for 2011?  I think beating 661 should not be very difficult.   I have seen improvements across the board.  It appears that the servicers have become overall more cooperative, except for when they are snowed in and the phones are answered by a company that does not have access to the account ## and the people answering the phones don't know what a notice of default  or they can't decide whether my third party authorization is on file or not (happened to me this week with a new B of A short sale).

Back to the  pitfalls of the Freddie Mac sale guidelines.   First, Freddie Mac requires the borrower  to be delinquent with  mortgage payments to be eligible and then Freddie requires the home owner to make house payments equalling 31% of their gross monthly income during the term of the short sale agreement.  Second, Freddie Mac does not have an ARASS process, which means that the property can really not be marketed until the llender has finished the HAFA qualification evaluation.  If an executed purchase agreement is submitted for lender approval before the short sale agreement with the lender has been signed, they will automatically treat the short sale as a non-HAFA transaction.  While we can check whether a loan is a Freddie Mac insured/owned loan, getting the servicer to confirm that it is a Freddie Mac loan is another story.  I have a short sale right now that involves a Freddie Mac loan serviced by Wells Fargo.  I told my client to initiate the HAFA short sale process and told him that we had to get the short sale agreement before we could accept an offer.  Client calls and is told that they won't do anything until we have an offer and they said they could not tell him who the investor was.  Sounds familiar?  I was told the same thing.  What do you do when the servicer refuses to follow the Freddie Mac HAFA guidelines?  It's really annoying.  Not only does your client start thinking you don't know what you are talking about, but they are wasting your time.  If you do what they say (i.e., get the offer first) you know they'll treat it as a non-HAFA short sale.  I was ultimately able to get someone to look at this and route it the right way, but I had to stand my ground and it took the intervention of a short sale manager who escalated the file for me and luckily it ended up on the desk of someone who was willing to confirm that Freddie Mac was indeed the investor.  He apologized for the wrong information we were given before.  Maybe, my recent experience was the exception to the rule, but may be not.  We should not have to escalate a file at this juncture, especially since they want the seller to initiate the HAFA short sale process (as opposed to having the agent do it).  

Loan modifications offered under the HAMP program are amortized which cause a great many home owners who are hoping for relief through the program to be disappointed.  Many currently have interest only loans and offering to convert the loan to an amortized loan does not help them because now they have to make monthly payments to pay off principal which means that the potential savings from a reduced interest rate are eaten up at least in part by paying towards reducing the principal.  While the lenders can forbear a portion of the principal (i.e., borrower does not pay interest on a portion of the unpaid principal) and have the borrower pay interest on only a lower principal amount, there are limits to how much they will forbear (please note, we are not talking about a principal reduction). 

I have a client who is trying to figure out whether to try for a loan modification or short sale and we went over the loan modification numbers and it's clear that he can't benefit from a loan modification because the lender would have to forbear more than what's allowed to make it work even with a 40-year loan term.  To boot, even if a borrower were to pay 40 years (or whatever is left on the new 40-year loan term when the loan modification take effect), the borrower still has a hefty balloon payment at the end (the amount of the principal on which he did not pay interest).  Loan modifications really rarely provide meaningful short-term or long-term relief under HAMP.  My client was able to get a loan modification a few years ago (pre-HAMP) and the loan modification was for a fixed interest-only loan for 5 years and he was surprised to learn that the new loan modification under the HAMP program would be at least a partially amortized loan.  After paying 432 monthly payments, he would still owe about $150,000 on a $550,000 loan. By the way, the loan would be amortized over 432 months instead of 480 because he is already 4 years into the loan and making his 30-year loan into a 40-year loan, leaves him with 36 years = 432 months. 

I am finding myself in a difficult situation.  A friend recently told me about a mutual acquaintance having signed over the deed to her house to a foreclosure prevention company.  She paid them $2,000 and was told to pay a certain sum to them every month instead of her mortgage company and not to talk to her mortgage company.  Sounds familiar?  We all know it's a scam and my friend told her so, but the acquaintance did not want to hear of it. She thought she had done well  for herself by being able to reduce her mortgage payment (the payment to the scammer is ¼ of her actual mortgage payment).  My friend just told me about this because she wanted to make she was not missing something.  I told her that no legitimate foreclosure prevention company will ask the home owner to sign over the deed to the house and to make payments to the company instead of the mortgage company.  Furthermore, it's illegal in the state of California to ask for money up front.  What she described, has all the classic signs of a foreclosure rescue scam Earmarks of a Scam.  While it is possible that the acquaintance might lose her house no matter what, she should not lose it because she was scammed.  I am not sure why the scammers asked her to sign over the deed as there is no equity in the property.

Coincidentally, the day after my friend told me the story, I took a continuing legal education class about Mortgage Servicing Abuse and Fair Housing Act and they also discussed the scams that are out there and how attorneys can help these home owners before it is too late.  Since my friend did not want the acquaintance to know that she had shared the story with me, I forwarded information for her to share with the acquaintance.  I am deeply troubled that this is happening to someone I know and that I can't really reach out to her directly to help.  I have thought about this pretty much non-stop since I found out about it and in some ways wish I did not know about it as I am upset and can't do anything about other than what I have already done (I know my friend shared the information I had forwarded to her).  This is one of the very few times when ignorance would indeed be bliss. 

In the past few days I read numerous stories describing different rescue scam approaches.  One lady was first scammed by a modification rescue company.  When she sought help from an attorney, she was scammed again Double Rescue Scam.  She paid $2,500 to the rescue company and then $13,000 to the attorney.  The attorney did nothing but lie to her and eventually the bank foreclosed.   The attorney actually had already been disbarred, but she did not know and she probably did not think to check his references since she was referred to him by another attorney.  Stories like this make my blood boil not only because of the damage these scammers are doing to distressed home owners financially and emotionally.  That's only the most obvious cause for my anger.  The  scammers also make it very difficult for home owners to figure out whom they can trust.  Obviously, they can go and seek help through one of the non-profit organizations, but many times they are overworked and can't help quickly enough.  There are many good professionals out there who are willing and able to help, but because of all the scam stories out there, it has become very difficult to get the attention of home owners .   Not knowing whom to trust adds to homeowners' reluctance to seek help.   It's a vicious cycle. 

Home owners seeking help with their mortgage crisis should not trust anybody who guarantees them a specific favorable outcome and they should most certainly never pay any money up front or sign over the deed to their house to a third party other than a bona fide buyer through escrow.   Don't deal with companies with only an Internet presence.  It's too easy for them to disappear without a trace.  Don't throw common sense out the window.  Don't feel stupid if you have already fallen victim of a foreclosure rescue scam.  Report the fraud to the FTC and local law enforcement  and the local district attorney's office and state Attorney General office immediately upon discovery of the fraud.  Report it to the DRE and/or State Bar Association if the scam involved a real estate broker or attorney.  How to Report a Scam

We have all heard and read it more than once or twice:  "The banks really don't want to foreclose."  I recently listened to a podcast by an attorney in the Sacramento area and he mentioned that only about 10% of loan applications result in temporary loan modifications and the great majority of the temporary loan modifications fail to become permanent.  I liked the podcast because it painted a realistic picture of what was really happening.  While I agree that the success rate is way too low, I think home owners can definitely take steps to improve their odds.

I am writing this blog post to share my conclusions based on speaking to distressed home owners over the past few years, which has helped me understand why loan modifications often fail.  I firmly believe that homeowners seek loan modifications without understanding what they can realistically expect and how to submit a package that makes it easy for the lender to see why the investor will be better off granting the loan modification than foreclosing.   

With the advent of the Internet, our society has become more and more addicted to the do-it-yourself approach.    We Google this and that and try to figure it out without hiring an expert.   While there are undoubtedly very smart home owners who are excellent researchers, the majority of lay home owners are crippled by the understandably desperate desire to save their homes.  The problem is, we all have a tendency to hear what we want to hear and to dismiss what does not fit into our dreams.   We create our own reality.  When it comes to loan modifications, it's essential to get the information from an unbiased source that's not so attached to the outcome.

What makes matters worse is that this mortgage and housing crisis serves as fertile ground for an ever increasing number of scammers promising to get that loan modified and some even pretend to be certified by the government.  To protect consumers from scrupulous fraudsters, laws were enacted prohibiting receipt of advanced compensation for providing loan modification services.  While well intentioned, the laws back-fired.  A recent article in the New York Times pointed out how the laws that were designed to protect the home owners, created another obstacle (http://www.nytimes.com/2010/12/21/business/21foreclosure.html?_r=1&scp=1&sq=homes%20at%20risk&st=cse)  because home owners can't find attorneys who are willing to help them negotiate their loan modifications.  The article points out that lawyers throughout California reject loan modification clients because of a state law that sharply restricts how they can be paid.  The law that is referenced in the article essentially prevents attorneys from getting paid until the job is done.  The law was enacted following allegations that some attorneys took the money and did not do the work.  Frankly, there was no need for the new law as taking money and not doing the work was already illegal and unethical.  No need to add another law that essentially punished all the good and law abiding attorneys and the consumers.  Oh well, leave it up to the government to mess things up more.   Now, those home owners who would like to enlist professional help face another uphill battle.  Subscribe to a prepaid legal plan and you can talk to an attorney from an AV rated law firm on an unlimited number of issues for as little as $16 per month (www.16or25.com).  They are very familiar with loan modification and short sale questions as they answer thousands of mortgage crisis related questions every month. 

So, what is a home owner unable to keep up with mortgage payments to do?  First and foremost, take action early.   While some home owners experience a sudden unexpected loss of income or other financial hardship, the great majority of home owners have early warning signs that they ignore.  Typically, paying the mortgage on time becomes more and more difficult and this goes on for several months and sometimes even years.  Don't ignore the writing on the wall.  Don't wait until you have missed several mortgage payments.  The longer you wait, the more time becomes your enemy.  Seek help from non-profit counselors (http://makinghomeaffordable.gov/counselor.html ).    The sooner you go, the more likely they can help.  They are overworked and many times will not be able to help you soon enough if you waited too long.  The number one complaint you will hear from those willing and able to help is that home owners don't come early enough.  Don't become a victim of denial.

Don't just rely on what the counselor tells you.  Find out whether your loan is owned or backed by Fannie Mae or Freddie Mac  (http://www.fanniemae.com/loanlookup/  or  https://ww3.freddiemac.com/corporate/).   Familiarize yourself with the Home Affordable Modification Program's eligibility requirements  http://makinghomeaffordable.gov/modification_eligibility.html .

While there is no way to predict with certainty whether the lender will grant you a loan modification, you can determine the best possible outcome.  The eligibility requirements make it clear that your house payment (i.e., principal, interest, taxes, insurance and HOA fees if applicable) must exceed 31% of the combined gross monthly income of all borrowers on the loan.   This requirement makes sense because the lender will not reduce the monthly mortgage payment for the first loan below the 31% mark.  Thus, if your house payment is close to the 31% benchmark, chances are that a loan modification down to 31% will not help you.  Don't hope that the lender will reduce the principal to keep you in your home.  Principal reductions are extremely rare.  Anybody who tells you differently is either lying to you or does not know what he/she is talking about.  When you read the servicing guidelines for Fannie Mae and Freddie Mac loans (the majority of loans these days), you will see that there is no mention of principal reduction.  They only talk about forbearance, which is not the same as principal reduction.  Some isolated small banks that have their own loan modification guidelines (e.g., a small local bank or a credit union) may have a way to include a principal reduction, but unless your loan is one of those loans, forget about it and don't listen to what your neighbor says. 

Be very careful when you fill out the loan modification application.  Make sure your tax return and other supporting financial documentation backs up what you put in the financial worksheet.  If you put that your gross monthly income is $5,000, but your paystubs show $6,000, a red flag goes up.   If necessary, explain discrepancies.  Don't just hope the lender won't notice.  Believe me, they know how to use a calculator.  Have a friend double check your math before you submit the application to the lender.   The servicers have thousands of applications and the cleaner your application is, the more likely it will be processed in a timely fashion as opposed to getting put back at the bottom of the stack.

Put together a realistic budget proposal that shows that you will be able to have enough money to meet all your obligations.  Don't leave it up to the servicer to figure out whether you have enough money to pay all your bills if your loan payment is reduced so that your total house payment is no more than 31% of your gross monthly income.   The burden is on you to demonstrate how you will be able to make ends meet.  The lender has no incentive to grant a loan modification if you are still in the red even with the modification.  Keep in mind that the lender wants to see a little bit of a surplus every month (somewhere $100 - $200).  You may have to make some sacrifices to make the numbers work.  For instance, you may have to eliminate cable TV and reduce eating out.  Be realistic and don't set yourself up for failure.  The lender won't believe that you will never spend money again on eating out or that you'll ride your bicycle to work 40 miles round trip every day.   I would also recommend that you take a credit counseling class.  If you take a class that has been approved for pre-bankruptcy filing, you may kill 2 birds with 1 stone if you know what I mean.  Although you want to approach the loan modification with a positive attitude, it does not hurt to prepare for the possibility of having to file for bankruptcy.  You can find a list of approved providers on the Department of Justice website  http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm .

If you seek professional help, ask if they can run a net present value calculation.  While each servicer may have a slightly different version of the NPV calculator, there is a base model available that can be downloaded and used as part of the loan modification evaluation process http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html    Please note that the base calculator is not meant for you to run by yourself as it is important to input the information correctly and you have to know which fields need to be modified to make it work for you.  Like I said, each servicers uses their own version and this base calculator is intended to only give you an idea of what kind of information the lender will consider in making a decision.  Knowing what factors the lender considers can help you in putting a solid loan modification application package together.   If your loan modification expert does not know what a NPV calculator is, run the other way.

Once you have submitted the best possible loan modification application package to the lender, check in with them weekly and keep a record of your communications with the lender.  If you are already behind, you will start receiving calls from the lender.   Open all the mail you receive from your lender and read it carefully.  Don't stick your head in the sand.   What you don't know can hurt you.  Put all the letters in a file.  Lenders have to provide you with certain notification before they can foreclose and if they don't comply you may have a case against them that could stop their foreclosure in its tracks, but if you throw out their letters or don't read them,  you won't be able to prove your case and you are shooting yourself in the foot.   

While you are waiting for your lender to make a decision, it's a good time to work on putting together a plan B (that could be a short sale or filing for bankruptcy).  Just because you are exploring your options, does not mean you will have to resort to your plan B.  Being prepared for a negative response, makes it easier and less stressful to deal with it when it happens. 

Effective July 1, 2010, participating servicers are required to consider eligible borrowers for the Home Affordable Unemployment Program (UP), which grants borrowers a forbearance plan during which regular monthly mortgage payments are reduced or suspended. Borrowers will be evaluated for HAMP at the earlier of re-employment or 30 days prior to the expiration of the UP forbearance plan.

UP Forbearance Plan Eligibility

Servicers are required to offer an UP forbearance plan to a borrower who meets the following HAMP minimum eligibility criteria:

The mortgage loan is secured by a one- to four-unit property, one unit of which is the borrower's principal residence.

The mortgage loan is a first lien mortgage loan originated on or before January 1, 2009.

The current unpaid principal balance of the mortgage loan is equal to or less than $729,750.1

The mortgage loan is delinquent or default is reasonably foreseeable.

The mortgage loan has not been previously modified under HAMP and the borrower has not previously received an UP forbearance period.

Additional UP forbearance plan eligibility requirements include that the borrower:

Makes a request before the first mortgage lien is seriously delinquent (before three monthly payments are due and unpaid). A request for UP may be made by phone, mail or email. Servicers must document the date of the UP request in the servicing file and, within 10 business days, confirm the receipt of the request with the borrower via mail or return email.

Is unemployed at the date of the request for UP and is able to document that he or she will receive unemployment benefits in the month of the Forbearance Period Effective Date (defined below) even if his or her unemployment benefit eligibility is scheduled to expire before the end of the UP forbearance period.

For details of the program see info

Home Affordable Unemployment Program

 

 

I am in the process of reviewing the new Freddie Mac HAFA guidelines that were just released June 1, 2010.  Here is what I found concerning allowable transaction costs.  Section D65.5 (a)(ii) of the Freddie Mac Single-Family Seller/Servicer Guide provides: 
 
"Freddie Mac will pay up to a total of 9% of the final sales price towards (1) reasonable closing costs customarily paid by a seller in the jurisdiction where the Mortgaged Premises are located of up to 3% of the final sales price, and (2) real estate brokerage commissions of up to 6% of the final sales price. Any closing costs or commissions that exceed these percentages will not be paid by Freddie Mac."

The guide provides the following example:

"For example, if the valuation of the Mortgaged Premises are $100,000, then the minimum acceptable net proceeds will be $82,000:"

$100,000		(gross sales price)
- $9,000		(maximum Allowable Transaction Costs)
- $6,000		(maximum aggregate payment to subordinate lien holders)
- $3,000 $82,000		(Borrower relocation incentive) (minimum acceptable net proceeds)

It looks like potentially the end of the 3% seller concession that so many buyers have asked for in the recent past.  If we want 6% commission, there is only a total of 3% for title and escrow, past due taxes and buyer credits and whatever else may have to be paid at the close of escrow.  In my opinion, sellers will have to make sure that the buyer can still close if there is not enough money for the buyer credit that they are asking for.  I have seen many that want a 3% closing credit and they want the seller/lender to pay all of the title and escrow fees and I have seen many short sales that went through like that, but with the numbers that are shown in the example, I doubt that we'll see a lot of 3% buyer credits in the future.

Let's face it, listing a tenant occupied property can pose challenges as many tenants are not particularly happy about the prospect of having to move.  When I look at the MLS showing instructions for tenant occupied properties, I wonder what arrangements the listing agents have with the tenant.  Many listings only show that the property is tenant occupied, a telephone number for the tenant and instructions to call the tenant directly to arrange for an appointment.  We all have left messages for tenants and never received a call back.  We quickly blame the tenant for not being cooperative.  The reality is, the tenants don't have an obligation to respond to telephone calls from other agents wanting to show the property to prospective buyers. 

A landlord's right to enter a residential (or non-residential) property during the period of the tenant's right to occupy the premises is severely limited.  The landlord's right of entry Entry is governed by California Civil Code section 1954:

"(a) A landlord may enter the dwelling unit only in the
following cases:
   (1) In case of emergency.
   (2) To make necessary or agreed repairs, decorations, alterations
or improvements, supply necessary or agreed services, or exhibit the
dwelling unit to prospective or actual purchasers, mortgagees,
tenants, workers, or contractors or to make an inspection pursuant to
subdivision (f) of Section 1950.5.
   (3) When the tenant has abandoned or surrendered the premises.
   (4) Pursuant to court order.
   (b) Except in cases of emergency or when the tenant has abandoned
or surrendered the premises, entry may not be made during other than
normal business hours unless the tenant consents to an entry during
other than normal business hours at the time of entry.
   (c) The landlord may not abuse the right of access or use it to
harass the tenant.
   (d) (1) Except as provided in subdivision (e), or as provided in
paragraph (2) or (3), the landlord shall give the tenant reasonable
notice in writing of his or her intent to enter and enter only during
normal business hours.  The notice shall include the date,
approximate time, and purpose of the entry.  The notice may be
personally delivered to the tenant, left with someone of a suitable
age and discretion at the premises, or, left on, near, or under the
usual entry door of the premises in a manner in which a reasonable
person would discover the notice.  Twenty-four hours shall be
presumed to be reasonable notice in absence of evidence to the
contrary.  The notice may be mailed to the tenant.  Mailing of the
notice at least six days prior to an intended entry is presumed
reasonable notice in the absence of evidence to the contrary.
   (2) If the purpose of the entry is to exhibit the dwelling unit to
prospective or actual purchasers, the notice may be given orally, in
person or by telephone, if the landlord or his or her agent has
notified the tenant in writing within 120 days of the oral notice
that the property is for sale and that the landlord or agent may
contact the tenant orally for the purpose described above.
Twenty-four hours is presumed reasonable notice in the absence of
evidence to the contrary.  The notice shall include the date,
approximate time, and purpose of the entry.  At the time of entry,
the landlord or agent shall leave written evidence of the entry
inside the unit.
   (3) The tenant and the landlord may agree orally to an entry to
make agreed repairs or supply agreed services.  The agreement shall
include the date and approximate time of the entry, which shall be
within one week of the agreement.  In this case, the landlord is not
required to provide the tenant a written notice.
   (e) No notice of entry is required under this section:
   (1) To respond to an emergency.
   (2) If the tenant is present and consents to the entry at the time
of entry.
   (3) After the tenant has abandoned or surrendered the unit."

For purposes of showing property to prospective buyers, there are essentially two authorized methods [section 1954(d)(1) & (2)].  The landlord can give reasonable advance written notice for each intended entry or provide the tenant with a 120-day "For Sale" notice.  It's the landlord's choice which method should be used.  24-hour advance notice is considered reasonable absent evidence to the contrary.  Having to give 24-hour advance written notice for each entry to show does not appear very practical as each of the notices has to be served by the seller/landlord or his manager either personally on the tenant or on an occupant of the unit of suitable age and the ability to inform the tenant of the notice or by posting the notice on or near the entrance to the unit or leaving it under the door.  It can also be mailed by regular mail or certified mail, but if mailed, six days must pass before the time for entry can occur.  You can see that having to go through this procedure for every entry may not be practical. 

The landlord's alternative to the reasonable advance written notice is a 120-day "For Sale" written notice [section 1954(d)(2)].  The "For Sale" notice (C.A.R. form NSE) may be given to the tenant personally or by regular mail at any time after the seller enters into a listing to sell the property.  The "For Sale" notice commences a 120-day period during which the seller or the seller's agent may, on 24-hour notice by phone to the tenant, enter the unit during normal business hours with a prospective or actual buyer to conduct an inspection of the unit.  I think it is important to uunderstand that only the landlord and the landlord's agent is authorized to enter to show the property to buyers and only the landlord and his/her agent may call the tenant to notify the tenant of a showing.  If an agent other than the listing agent wants to show the property to a prospective buyer, the buyer's agent must arrange for the listing agent to give 24-hour advance telephonic notice to the tenant.  An argument could be made that an agent from the same brokerage as the listing agent would be considered the landlord's agent for purposes of section 1954(d)(2). 

Please, also note that the right of entry is limited to reasonable business hours.  Unfortunately. it is not clear what constitutes reasonable business hours.  Are reasonable business hours Monday - Friday from 9 a.m. to 5:00 p.m. only or can you show on weekends?   It's best to have a written agreement with the tenant.

Last, but not least, don't forget that the actual entry is conditioned on the landlord or agent leaving a written note in the unit regarding the entry.  "At the time of entry, the landlord or agent shall leave written evidence of the entry inside the unit" (last sentence of section 1954(d)(2)).   Leaving a business card will most likely suffice. 

So, what does all this mean in the real world?  I think it is imperative to understand how important it is to follow proper procedures to avoid being subject to claims by the tenant that his/her tenant rights were violated.  For buyer's agents it is important to know that the telephonic notice to the tenant has to be done by the listing agent unless the tenant agreed in writing that buyers' agent can call him/her directly.  Many MLS systems allow for documents to be uploaded and I would recommend the listing agent upload the tenant's written authorization to be contacted by buyer's agents directly.  I have encountered listing agents who told me to just call the tenant directly and when I asked if the tenant authorized it in writing, they thought I was crazy for even asking.  If a listing agent wants to deviate from the procedure set forth in section 1954, get it in writing.  If you don't have it in writing, be prepared to follow the procedure to the T, which means that the landlord or his/her agent not only need to give the oral notice him/herself, but the landlord or agent must also be present at the time of the showing.  Do yourself and your fellow agents a favor by following the proper procedures.  Entering a tenant occupied unit without proper notice and tenant consent could have very unpleasant consequences.

Don't forget to leave your business card.  It's not just professional courtesy.  It serves as written note of entry required by section 1954. 

Ok, so Governor Arnold Schwarzenegger signed the "Buyer's Choice Act" (AB 957) into law on 10/13/2009.  Essentially the passing of AB 957 is intended to stop the widespread practice of dictating which title and escrow company is going to be involved in the sale of a bank owned property (1-4 unit residential).  It is quite annoying that a separate bill was deemed necessary to tell the banks that it was not acceptable for them to choose the title and escrow companies.  Let's face it, RESPA already prohibited the practice as far as the choice of title insurance is concerned and while there was some academic dispute over whether RESPA also prohibited requiring the use of a certain escrow company, we all know that lenders routinely violated RESPA, but buyers could not really put up a fight because they wanted the property and most lenders agreed to pay 100% of the title and escrow fees which eliminated any immediate monetary damage to the buyer.  As far as I know, the only penalty for violating the choice of title insurance RESPA rule is triple damages and if they pay all of the fees, there is really no damage and the law has no  teeth in reality.  Yes, I know RESPA is a federal law and applies only to federally related transactions, which is the great majority of transactions.  While the new CA law adopted the RESPA triple damages clause, it also provides that "any person who violates this section shall be deemed to have violated his or her license law and shall be subject to discipline by his or her licensing entity."  Does that mean that REO listing agents who continue to play along with the bank's practice will be facing potential disciplinary actions?   

Of, of course, the buyers can agree to choose the seller/lender's preferred escrow and title companies as long as they received a disclosure that they "theoretically" had the right to choose their own.  Did we just add another mandated disclosure form to the pile? 

I don't mean to put a damper on the excitement of the passing of the Buyer's Choice Act, but the more cynical part of me can't help but wonder if buyers will really benefit.  No question, the law could help level the playing field for escrow and title companies, but the bill is called the "Buyer's Choice Act" and one would think that the primary reason for enacting had something to do with helping buyers.  So, let's take a look at what's happening in the field.

In my experience, buyers rarely have a preference as far as the choice of title and escrow companies is concerned and they rely for the most part on a recommendation from their agent if the issue is discussed at all.  Lenders seemed to have enjoyed special lower REO rates and from what I have seen, the total title and escrow fees for REO properties was many times lower than what the buyer's customary 1/2 of the fees would have been.  Presumably, the lower rates were offered in exchange for getting the lion's share of the lender's business.  Not sure if there was perhaps another RESPA or insurance code violation somewhere in there, but that's really neither here nor there as far as the cost savings aspect for the buyer is concerned.  The real question is, will the lenders continue to pay all of the title and escrow fees or will they now require the buyer's to pay for all of it?  Depending on the price of the  home, loan amount and so forth, that could easily add up to over $1,000 more in closing cost for the buyers.  Only time will tell what the impact of the "new" law will have in real life and I hope it's not just another piece of legistation that will end up costing the consumer.

Furthermore, what about the practice of  short sale listing agents requiring the use of their favorite escrow officer?  Since AB 957 seems to apply only to bank owned properties, it appears that we have to look at RESPA again.  As a short sale listing agent, I can see the benefits of having an established relationship with an escrow officer who is experienced in short sales as a good escrow officer can make a huge difference.  On the other hand, it can also be annoying to have to go with the listing agent's escrow officer when you are representing the buyer's agent.  In my market the majority of listings are short sales, not REO listings and the passing of AB 957 may very well not do anything for the majority of home buyers in the current market.  I am not sure why AB 957 was limited to foreclosure properties (1-4 unit residential to be exact), but I suspect that somebody did not ask the right questions and did not understand what's really going on in most parts of California. 

Oh, one more thing.  It should be noted that the bill was declared an emergency bill:  "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 enact provisions designed to ensure that a seller does not require a residential homebuyer to purchase title insurance or escrow services from a particular company, as soon as possible, it is necessary that this act take effect immediately [emphasis added]."

Ok, excellent proof that there is a legislative way where there is a will or something like that.  I have to admit that I did not read the definition of public peace, health and safety of Article IV of the Constitution.  Surely must be a rather broad definition since I was not aware of any imminent threat to public peace, health and safety. 

I hope the sarcastic tone of this post will not offend anyone.  I just had to let off some steam and vent.  I feel better now.

Ute Ferdig
Broker-Attorney
DRE # 1326917
Ferdig Real Estate Solutions

I recently  closed a short sale that involved private mortgage insurance that was taken out by the lender without the borrower's (my client) knowledge.  The problem was that we did not know how the existence of PMI would affect the negotiations and we did not know what the terms of the PMI policy were since my client was not the insured and the PMI company would not give us any information.  The lender gave us conflicting information telling us one day that there was no policy limit and that the PMI would pay for any deficiency and then later telling us  that there was a policy limit after all and the lender would still suffer a loss.  Why did all this matter? Well, it's difficult to negotiate meaningfully when you have a constantly moving target and a third party (PMI) that does not release information, but is one of the major decision makers (i.e., the lender would not even start its evaluation until PMI approved the short sale).  I talked to a lot of other short sale agents and none of them ever experienced a short sale with PMI.  In the end, we were able to negotiate with the PMI company and get a satisfactory solution followed by an approval of the short sale by the lender.  However, because of all the delays, we lost our first buyer who got tired of waiting for a decision from the lender.  The second offer was $20,000 lower than the first offer and the seller had to come up with $15,000 to close escrow (her mother gave her a loan).  Even after all of this, the lender could not tell us whether there would still be a 1099 issued because they said they would not know until they received their money from the PMI and of course the lender could not submit a claim to PMI until they received the proceeds from the sale. 

We closed escrow on Friday, June 13th!  I received a phone message from the negotiator this past Friday (a week after closing) asking me to call him at my earliest convenience.  I did not get the message until Saturday (for some reason it did not come through on my cell phone until over a day later).    I'll be curious to hear what he needs from me a week after closing.  I am trying to think positive, but based on my experience with him, I can't help but feel a knot in my stomach.  I have never had a negotiator contact me after the closing.  Will it ever end?

What did I learn from this?  Always ask right away whether there is PMI.  Each short sale has it's own challenges and you have to be prepared of anything.