california civil code 580e

There Are Enough Crooks in Sacramento Short Sales

HAFA Short SalesWe have enough crooks in Sacramento short sales that we, ourselves, don’t need to add to the mix, whether we are a seller, a buyer or a real estate agent. I tell my short sale sellers that they need to keep their noses clean. Don’t do anything that the lender can later construe to be mortgage fraud. Because if a seller is dishonest, the bank can reverse the release of liability for that short sale and pursue a seller for the remaining balance, which is the whole reason to do a short sale in the first place. To get that release of liability.

I realize that sellers are upset with their banks, and they hate the fact they’ve been strung along for years paying on rotten loans that they can’t afford but that is no reason not to level with the bank during a short sale. Sellers also tend to worry that if they don’t make up some facts to color their financial situation the bank won’t approve the short sale. What they don’t realize is the banks typically prefer a short sale to a loan modification.

If you’ve been in the middle of a loan modification or attempting to obtain a loan modification and been turned down, you’re probably a prime candidate for a short sale. Especially if your bank is one of those institutions established for the sole purpose of picking up worthless mortgages. The bank might expect you to short sale.

Sometimes sellers want to say, for example, that they live in the property so they can apply for a $3,000 relocation incentive. If they don’t live in the property but instead live elsewhere, that could be mortgage fraud if they lie about it. Collecting $3,000 under false pretenses could cause a bank to withdraw the release of liability on that short sale after it closes. The bank could also demand the return of the $3,000, and then prosecute the perpetrator for a million dollars-plus. Mortgage fraud is a federal crime.

California Civil Code 580e (effective 2011) gave sellers the protection and the release of liability in a short sale, but it also takes it away if the seller commits mortgage fraud. If you’re contemplating such an act, you might want to ask yourself if the consequences are worth the risk. It’s not a harmless act of omission. The bank will track your credit card purchases, examine where your credit card statements are delivered and check to see if cable TV is still in your name. Don’t move in furniture because the BPO agent will open the refrigerator and check to see if the washer and dryer are connected.

You either live in the property or you don’t. Don’t mess around.

Ways to Spot a Sacramento Short Sale Scam

Short-Sale-Scam.300x225As a Sacramento real estate agent — and just a long-term participant / observer in the world of life on earth — I tend to notice Sacramento short sale scams, and scams in general. My radar is always on the alert. It’s pretty difficult to bamboozle this agent. While other agents laugh and scoff when I ask what if, it generally turns out that I am correct in my initial assessments.

First, I listen to my gut instincts. You know, people don’t pay enough attention to their gut instincts, and they tend to mistrust that instinct because it’s not always based on logic. It’s telling you something for a reason, is what I find. If you feel uneasy or uncertain, listen to your instincts. There could be a sign you’re just not picking up with the side of your brain that processes that kind of information but it’s still sending a signal to you, regardless.

The scam I see run in Sacramento short sales over and over is that of secret collaboration between the listing agent and the sellers. There is some kind of confidential arrangement going on. Maybe a family member or a friend wants to buy the home as a short sale and then either later live in it, rent it out or flip it. The parties involved might not even see it as a scam, but that doesn’t make it any less fraudulent.

Sacramento short sale scams are almost always mortgage fraud because the parties involved don’t fully disclose to the lender and, if the lender knew, the lender would not have approved that short sale. But there are most likely other laws and, if the agent is a REALTOR, various Code of Ethics that could be violated.

I just spotted a suspicious short sale in MLS today, because a buyer in San Jose called about it. There are 3 homes in a row on the same street owned by people with the same last name, all in various stages of foreclosure, one purchased less than a year ago. But the short sale stands out like a sore thumb.

Here are the things I see that buyers and their buyer’s agents might want to question. They result in downplaying the home and telling a buyer’s agent not to bother to write an offer. Let me say that any one or two of these alone is not a reason for suspicion but when they mostly all apply to your transaction, you could be in trouble:

  • One photo in MLS, with a car in the driveway
  • More than 30 days on the market with no history of pending status in a hot neighborhood
  • Brief and odd marketing comments such as: 4 bedroom home on a public street needs TLC. (What kind of agent writes like that?)
  • Out-of-area real estate agent
  • Out-of-area real estate company
  • Agent shares same last name as the sellers (relatives cannot sell a short sale)
  • Commission offered is less than what short sales pay (no reason for that)
  • Showing instructions state: call listing agent (who probably does not call back)

Be careful out there. There are the crooks who know they are crooks, and then you’ve got the ones who don’t know which end is up yet are still crooks. You can’t tell the difference. But you can stay clear if you smell trouble.

Sacramento Short Sales Mortgage Debt Relief IRS Letter

bigstock_Short_Sale_Real_Estate_Sign_An_7360545-300x207Sacramento sellers who expect to close on a short sale in 2014 have a very good reason to send flowers to Sen. Barbara Boxer and, while they’re at it, maybe C.A.R. as well. I received the best news this morning, which I can’t wait to share with everyone because it’s about mortgage debt relief. Taxation on mortgage debt relief has been on the tongue of every single short sale seller I have talked to who might have to close escrow next year.

In a nutshell, we have no worries about federal taxation on mortgage debt relief resulting from most closed short sales in California from here on out. Other states, they probably have cause for concern, but not California. What makes California so special apart from our sunny weather, smog-hidden mountains and polluted oceans, and let’s not forget Cal Worthington? We’ve got California Civil Code 580e, resulting from the passing several years ago of SB 458.

Under ordinary circumstances, the federal tax code says if a person has had debt canceled, the amount that was forgiven is subject to taxation. However, in 2007, the Mortgage Debt Forgiveness Act passed that says taxation on canceled debt does not apply to a short sale, subject to certain criteria. Every year, the mortgage debt relief protection has expired and every year the federal government has extended it. This year, it’s not yet been extended because our lovely legislators continue to wrap in the mortgage debt relief extension with other legislation that won’t get passed even if they lined up every legislator against the wall, blindfolded them and threatened to shoot them all at will.

This political game has caused short sale sellers in Sacramento extraordinary grief and stress. Many of my sellers have called to say they don’t know what they will do if we can’t close their short sale by December 31st, 2013, when the federal mortgage debt relief protection expires.

However, the argument brought forth to the I.R.S. by Sen. Barbara Boxer, with C.A.R.’s assistance, is that sellers are released from personal liability in a short sale under California Civil Code 580e, and that makes short sales non-recourse, so why should a seller be subject to federal taxation on top of it? The I.R.S. agreed and issued a letter that said California short sales protected by our California Civil Code 580e are not subject to federal taxation for mortgage debt relief. This is huge!

C.A.R. and Sen. Barbara Boxer are working on a similar letter from the state of California, which is expected to follow suit.


A Bank of America FHA Short Sale Disaster

This Bank of America short sale doesn’t compare to the Bank of America HAFA that had 25 HUDs. But we’ve had at least half that many HUDs requested already on this Bank of America FHA Short Sale. The negotiator can’t decide what he wants or needs. First it’s THIS, then it’s THAT, then it’s THIS OTHER THING and then he’s back to THIS again. I call it the HUD game. The Bank of America negotiators call it doing business in a normal fashion. It’s enough to make a Sacramento short sale agent watch FOX News. No, not really, nothing would make me that insane.

But I try to have empathy. It’s not easy being a Bank of America negotiator and being despised by so many. The clients can’t stand them and the agents aren’t faring much better. One of them accused my mild-mannered and extremely polite assistant of “bullying” when she asked why he refuses to do what he says he will do. It’s like the guy has suffered a total memory lapse, but I suspect his inability to perform is due to keeping incomplete notes. He will say one thing, and when we call him back he has no recollection of the conversation and says something else.

Unlike Alzheimer victims, the negotiators seem like they are coherent. However, on top of the poor record keeping and inconsistent behavior, is the sudden loss of files on those Bank of America FHA short sales. We have a Sacramento short sale that we started in February. By the end of March, we had approval from Citimortgage, the second lender, which changed its name a while back to One Main Financial. By the end of June, we finally received the Approval to Participate from HUD on this FHA short sale. I guess Bank of America fired the negotiator or maybe she died, hard to say, but she vanished one day. Poof. We got a new negotiator in the middle of September who informed us he had absolutely no paperwork whatsoever.

Maybe he picked up the file, glanced at it, and said: What is this garbage — and threw it into the recycling? Or, maybe the previous negotiator stuffed it in the shredder on her way out the door? I suppose it’s possible a Bank of America employee suffering from a combination of pica and low wages, driven by desperation and starvation, ate it?

This negotiator has asked us to add a dead person to the purchase contract and to all of the paperwork. The deceased person was never part of the contract. Her name was not recorded on the deed; it’s also not on the promissory note and not on the deed of trust. Somewhere along the line, in some ancient paperwork, a clerk at Bank of America typed the deceased person’s name on a file, on a piece of paper. In this negotiator’s infinite wisdom, that means putting a person who does not belong on title on all of the paperwork and on the HUD, which violates federal law (RESPA) as well as several local laws. Negotiators don’t have a real estate background. They don’t understand title insurance. They certainly don’t understand law, although I bet they dream of a career in law enforcement.

This is a $75,000 home in Sacramento. The person I feel tremendous empathy for is the seller. Next to that is the buyer who is sitting idle in escrow twiddling his thumbs. He is ready to close. His lender is ready to fund. The second lender forced the seller to pay $150 to get an extension that is good to next week. We told the second lender they cannot make the seller pay for anything in a short sale as a condition of short sale approval, according to California Civil Code 580e. One Main Financial did not care. It thumbed its nose at the seller and said: pay up or we won’t issue the extension.

Now, the negotiator at Bank of America is asking us to send him a letter from One Main Financial (the second lender) explaining how and why One Main Financial is servicing loans for Citimortgage. See, you can’t make up this stuff. As a Sacramento short sale agent, I see the most incredible crap go down at Bank of America. All one can do is send it to the Executive Office, write about it, and hope the the bank can eventually fix some of its problems.

Overall, Bank of America does a fairly good job with its short sales. But these FHA short sales leave this Sacramento short sale agent slack-jawed, shaking her head. I imagine this will close but not before we step over a few dead bodies. Forget the coffee, Bank of America could probably use some Viagra.

Avoid a Short Sale Charge Off

The first thing you need to know about a short sale charge off is the bank is not your friend. But that is true for just about every aspect of a short sale. Sometimes, I want to grab people by their shoulders and shake them into understanding that the banks are not on their side. If you’re reading this right now, listen to me, your bank doesn’t care about you. The only thing the bank wants from you is the money you promised to pay.

If you’re about to embark on a short sale with your bank and you have accounts open at that bank, close them. Put your money elsewhere. Because the likelihood is your bank will close those accounts for you. A short sale makes you a bad credit risk. A charge off on the short sale is an even worse credit risk.

Banks charge off loans because they can deem them uncollectable. The time period varies but a charge off typically takes place after 4 to 6 months of missed payments. A charge off affects your credit report is an adverse manner. You might hear a short sale lender such as Green Tree or Citimortgage (One Main Financial) say you must make a payment on your second mortgage, for example, or it will go to charge off. If you can keep the loan from charge off, it is better for your credit report. Not to mention, once the loan goes to charge off, if it leaves the institution, it will most likely be sold to a collection agency.

I know it’s odd that there is a financial market for uncollectable debts. There are profit-making ventures that have figured out a way to monetize charge offs. Like a vulture swooping down to gobble up a decaying carcass.

However, there are drawbacks to a charge off. A collection agency could nix your short sale by demanding a much higher payment than any of the parties in the short sale can pay. If you’re applying for a HAFA short sale, it is possible the new collection agency does not participate in HAFA, and a charge off could disqualify you from HAFA. Not to mention, if a collection agency determines it can make more money by personally pursuing the borrower, it might reject the short sale all together.

I advise my clients to get legal advice because I cannot give them legal advice about a charge off. Logic says one should avoid a charge off, if one can. I’ve closed quite a few short sales in Sacramento in which a second loan has gone to charge off. As long as it stays with the same bank but moves only to another department, the delay in the short sale is generally not astronomical. Fortunately, thanks to California Civil Code 580e, a charge off is no longer considered recourse after a short sale in California, like it used to be. But it still doesn’t look good on your credit report. And it can mess up your short sale.

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