Hi Steve: I have no idea if MD or VA will follow in CA footsteps, but we often do lead the nation. I've already received a phone call this morning from a potential investor client from this blog asking about SB 931. News certainly travels fast around AR and the world of Google. Go Google SB 931 and you'll see what I mean. Yikes. Out of the top 10 hits, this blog ranks 7th for SB 931 and I have 2 more positions above that. SEO is powerful.
Elizabeth, Happy new year to you and your family and may it be filled with love, joy and laughter and of course, much success.
Elizabeth - Great find and great information for sellers. I am happy for the sellers in Calif. that you and I support. B of A, we'll this is one good thing about them.
Happy New Year to you and yours and it has been nice following you this year.
Without a doubt SB 931 will save a considerable number of troubled short-sale sellers a barrel of financial grief. I hope you are continuing to enjoy your vacation!
Hi Elizabeth... what a great law for short sellers and I suspect that it will facilitate an easier Short Sale process (since the deficiency becomes practically a non-issue for the seller) for Californians!
Good work looking out for your sellers. I haven't had the issue to deal with this month, but wondered how the details would play out in terms of how the roll out of the law will apply to transactions in the works. I think what you did is prudent. I think short sales are going to get A LOT better in California, although I'm sure the banks will make me regret ever writing that. But still, I'm glad that California is at the forefront of this consumer friendly law that will aid in recovery. Goodness knows we as a state need a recovery.
Elizabeth,
I did not go back and read the statute but merely your summary. Do sellers in California run the risk of not getting approved for a short sale as often as before because the bank can not go after the seller for a deficiency?
As I read your summation, the bank could not go after a deficiency in the first position but that is only on approved short sales; is it possible that banks will no longer approve many short sales?
It will be interesting to see how this plays out. Thanks for the information.
A little too much fanfare for this one. . I find that the most likely entity to go after a homeowner with a deficiency is the second position. . they lose the most. .
But I'm happy that California took this bold step forward.
Elizabeth, I had the same question has Jason (#8) whether it will slow down the short sale approval rate. Keep us posted. Thanks.
California tends to start a fair number of trends and changes in the industry. I hope this one sticks.
Wow...interesting information and will be even more interesting to see how it affects timing in the short sale process. Keep us posted and let us know how this changes many of the dynamics.
Hey Myrl: I am back from vacation, bright eyed and bushy tailed.
Hi Steve: I hope SB 931 does speed up the process but it might also slow it down as banks say, "What the heck? How did California pass such a law?"
Hi Tni: Requesting and receiving extensions from Bank of America to push the short sale status into 2011 seemed like the answer. Even if it's not, we had nothing to lose by trying. Because it's possible that once the bank realizes it must release the sellers, it might deny the short sale.
Jason and Michael: It's hard to predict. We haven't dealt with something like this before. If it's possible to get a release of liability, I generally get it. Out of the other 4 short sales I closed in December, 3 of those carried a full release of liability -- no deficiency judgment. The 4th Sacramento short sale had a hard-money first, which released the seller, but it also had a second with a credit union. That particular credit union told us upfront it would negotiate only after the short sale, and the seller was comfortable, so we closed. Because SB 931 would not have helped that seller with the second. It applies only to first mortgages.
Hi Susan: I'm thinking the first couple of months of short sales in 2011 will result in an automatic release of liability. As the year goes on, I imagine the banks will find a way to get around SB 931 or they will challenge it in court. So California sellers who are contemplating a short sale should probably begin that process right away and not wait for summer.
Elizabeth, that is great advice about doing the short sale now in case the law is challenged in the future.
Elizabeth - Let's us hope that this law will not eventually be overturned. It will certainly provide relief to short sale clients and allow them to "close the door" upon the sale of their residence without the worry of repercussions on the deficiency. Happy New Year. ~ Doug
Another very good one!!! Thanks for the reminder and keeping us all sharp! Happy New Year~!
Elizabeth, you are so on target with this post...and with your last comment that you expect the banks will find a way to work around SB 931. I too think it's a limited window of opportunity.
Hi Elizabeth. It seems a prudent move to postpone the closings to 2011. I hope your client’s appreciate what you’ve done for them.
A good law for consumers, but still has that one pesky sticking point ... "if the bank approves the short sale." At least it's a step in the right direction.
Thanks for keeping us up to date on these things. Who knows if it will come this way
Thanks for the info Elizabeth! Lenders will still be able to issue a 1099 on the deficiency, correct?
Elizabeth - This is an important item for short sale agents and the sellers to be aware of. It won't cover all issues, but it will help.
@Steve, most likely your State won't follow in the steps of CA on this one, unless your State has a similar "one action rule". This was basically a clarifying law that was written to make it so that banks could no longer have their cake and eat it too. You see, if a bank does a Trustee Sale in CA as the first lien position, they have taken their one action and have elected not to pursue a judicial foreclosure and sue the borrower for the deficiency balance. BUT, with short sales, they were getting a net return that is higher than foreclosure, PLUS they were maintaining the right to collect (if a naive agent advised the borrower to sign a short sale approval that opened them up to more liability than had they let it foreclose).
Bank of America, along with most every other lender, hasn't been too hard to get a full release of lien/liability in the first position (speaking of CA) for the past year. Usually they only hold out on giving a release of liability in the second lien position, here in California.
I did a short sale recently which had two BAC loans (both were cash-out refinanced loans... i.e. considered recourse loans in CA) and the first loan approval letter gave a full release of liability, but the second loan approval was only for a relase of lien. I advised my seller that there wasn't much benefit for her over just letting the home foreclose and that in fact, in her case, a foreclosure would be better for her based on 1992 CA case law Simon vs Superior Court, unless Bank of America agreed to release liability for both liens, since they were not proceeding with a judicial foreclosure and all her assets were in protected accounts anyway.
It took almost 3 extra weeks to get the wording changed, but in the end, BAC legal saw that they had to release liability in order to close this short sale and to net $38K more than their estimated foreclosure net return.
SB 931 helps with first liens, but does nothing with regards to second liens, which as I mentioned, have been the problem. Getting a full release of liability on a first lien in CA has been a cake walk due to CA CC 580d (one action rule). Unless they are pursuing a judicial foreclosure, CA short sales should have always been easy to get a full release in the first lien position (it's important to know your specific State laws or have a good attorney to help you so you know when to push back on the bank and when you've done your best for your client).
Happy New Year everyone!
Trent
Hey Trent: You can quote C.C.P. 580d all you want to the banks, but especially Bank of America has been stubborn lately. Maybe you aren't dealing with very many hard-money cash-out refinance first mortgages -- because I've had no problem with liability releases on BAC or B of A purchase money firsts, but the hard-money first-position loans have been a different story. It's been a real struggle. And if you throw MI on top of it, watch out.
The BAC deal that I mentioned, that took 3 weeks to remove the verbiage, was a cash out refi. Through Equator, I was denied 3 times the request to remove the verbiage as the employees don't understand legal stuff and just ignore it. So, I went to Crystal D at BAC and after 2-3 weeks of going back and forth, she finally changed it... 24 hours after my 4th 'denial' came through Equator when she got her approval from legal. My point isn't that it will happen on your first request, but that it is an easy argument as long as you get your message to the right person... not through Equator.
Trent
I ask them to take it to legal in the first place, so that's dramatically decreased my waiting time. I've also been lucky, I suppose, that most of the negotiators I've dealt with at Bank of America have been pretty bright.
Hi Elizabth. I realize this may no longer be an issue for you now that we are in 2011, but regarding your comment ...
"Bank of America issued an amendment to the original short sale letter releasing the seller from liability by removing the deficiency language from its approval letter"
Please be very careful. When deficiency language is removed form one letter to the next, this does not necessarily mean a bank is giving up their original rights. All they may be doing is removing language reiterating their rights to pursue a deficiency. You probably need NEW proactive language on the part of the bank stating there will be no deficiency. And then you should probably recommend the Seller run the language by an attorney to be confident in moving forward.
@Ken, you make a good point. Always have the client run it by their attorney. However, I would not be so concerned about it if I have both the original approval stored in my file with the final approval with the language removed. This serves as an argumental point if they ever do go to court: "Your honor, I refused to do the short sale unless the bank agreed to release me of liability and then they came back with this updated approval letter with the language removed. Here you can see the original approval and the final approval."
Sure, it's not as strong as getting wording that states they will release the seller of all future liability, but a judge will most likely side with the consumer on this one as it was the intent of the contract.
Trent
Hi Elizabeth,
I had no idea that California was passing the SB931 Law. That is great news for the sellers. I loved reading your 2011 Predictions and surprisingly 100% agree with ALL of them. I can tell you have been in the business for a while and are very intuitive. Fortunately, I am concentrating on the First Time Home Buyer because I see the writing on the wall (As you do) that they will be what takes most of the supply off the market. By the way, do you know where I can find if MD or VA has a law or will be soon passing a law if short sellers are still responsible for the debt. Thanks again for a intriguing blog! Happy New Year.