Commencing January 1, 2013, California will have a new law that helps protect property owners facing foreclosure, commonly known as the “Homeowner Bill of Rights”. It will require that servicers read foreclosure documents before recording; prohibit “dual tracking” of both a loan modification and a foreclosure by the lender at the same time, require a single point of contact for the borrower, and give homeowners an action for injunctive relief, money damages, punitives, attorney’s fees and costs for violation. However, it is important to note that any party to the multistate Attorney General Settlement in United States of America et al. v. Bank of America Corporation
is excluded from liability under any the provisions described above
while the consent judgment is in effect, so long as the servicer is in
compliance with the consent judgment with respect to the borrower who
brought the action.
On April 5, 2012, most states, including California, participated in the National Mortgage Settlement, a 25 billion dollar settlement with the top 5 mortgage lenders in which California homeowners have been allocated at least 12 billion dollars. Here are the top things you should know:
1. The settlement is with Ally/GMAC, Bank of America, Citi, JP Morgan chase and Wells Fargo and only applies to non Freddie Mac and non Fannie Mae Loans, about 20% of loans in the nation.
2. This settlement is aimed at all aspects of underwater homeownership, including foreclosures, short sales, loan modifications and refinances.
3. Although the settlement is currently in effect, it will be implemented over the next 3 years, with the lenders contacting those homeowners that they feel may qualify, and requiring that each homeowner meet the eligibility requirements.
4. If you read between the lines, it seems most likely that these funds will primarily (if not solely) be used to approve short sales. Lenders seem to prefer this method of resolving underwater home issues with homeowners at the current time.
The default way that people build credit, as determined by an individual’s FICO score, is by keeping charges low relative to credit limits and paying bills on time every month. However, it seems that charging and paying off more than one card each month is better than using only one. The average person with a FICO score above 780 has three credit cards that report a balance and a total of four to five cards. It appears that spreading the charges among several credit cards avoids a high utilization ratio on one card and helps improve FICO scores. Utilization is the percentage of how much of your available credit you use. It is calculated for each credit card individually and combined. A lower percentage, generally below 10 percent, lifts your credit score. Of course, if your credit limits are high on each card and your monthly spending is very low, you could maintain a low utilization rate even if all the charges are on one card. If that's the case, you may consider rotating which card you use every month to maintain activity on each account but make bill-paying less cumbersome. Ironically, another way to keep your utilization rate low is to pay off your credit cards before the statement's closing date rather than the payment due date. The issuer will report a zero balance to the credit bureaus because they typically report the balance as of the last statement. Overall though, the best way to have a good credit score is to have good financial habits! Live within your means and try to pay things off on time.
Effective January 1, 2012, a new law has passed that restricts credit reports for employment purposes. An
employer is not allowed to obtain a credit report for
an employee unless the position is, among other things, a managerial position, a
position that involves regular access to personal information, a
position that involves access to confidential information, a position
that involves access to cash of $10,000 or more, a position where the
person is authorized to transfer money or enter into contracts for the
employer, or is a named signatory on the employer’s bank or credit card
account. Cal. Labor Code § 1024.5.
There are a number of individuals and organizations offering loan modification services these days. Here are some tips if you are looking for help: 1. Consult with an attorney who can properly advise you regarding what sorts of loan modifications banks are offering today and see if it is worth the risk or something that would even work for you. 2. Don't pay up-front fees. Foreclosure consultants and even attorneys are prohibited by law from collecting money for loan modifications before services are performed. 3. Don't ignore letters from your lender or loan servicer. Responding to those letters may be your best bet for saving your house. 4. Don't transfer title or sell your house to a "foreclosure rescuer” or sign any documents without reading them first. A scammer can take the home and evict the victim. 5. Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
One of the main disclosure documents a seller provides to buyers upon
sale, the Transfer Disclosure Statement or "TDS", has been revised to
disclose whether the property has water-conserving plumbing
fixtures (low-flow toilets, shower heads, and faucets). By January 1,
2017, all single family residences
built on or before January 1, 1994 must be equipped with
water-conserving plumbing fixtures. According to the California
Association of Realtors, if the single-family
residence is altered or improved on or after January 1, 2014, the
water-conserving plumbing fixtures must be a condition of final permit
As of July 15, 2011 due to a change in law to the code of civil procedure §580(e) lien holders who approve a short sale must waive any kind of
deficiency and also forego any kind of seller required contribution.
For the first time I reviewed a number of documents from Bank of America that were actually reasonable. I found the documents for the first lien, the second lien and a move-out agreement after a foreclosure to all be fair, reasonable and in compliance with current law. Whether this is a short term blip or a trend we will have to wait and see, but for those few homeowners it was at least a little light at the end of a very dark period.
Per my last blog,
as of July 1 many homes will be required to install a carbon monoxide (CO)
detector. Proper placement of a CO
detector is important. If you are installing only one CO detector, the Consumer
Product Safety Commission (CPSC) recommends it be located near the sleeping
area where it can wake you if you are asleep. Additional detectors on every
level and in, or near, every bedroom of a home provide extra protection against
carbon monoxide poisoning. The CPSC
tells us to avoid locations that are near heating vents or that can be covered
by furniture or draperies and does not recommend installing CO alarms in
kitchens or above fuel-burning appliances.
A detector should not be placed near very humid areas such as bathrooms. CO detectors may be installed into a plug-in
receptacle or high on the wall. Hard wired or plug-in CO alarms should have a battery
Effective July 1, 2011, some homes will be required to install carbon monoxide detectors. This applies to single family California homes that utilize fossil burning fuels (like gas stoves, water heaters, furnaces or dryers), or have a fireplace or an attached garage. Other categories of properties (such as apartments or hotels) must be equipped, if applicable, with carbon monoxide detectors by January 1, 2013. (CA Health & Safety Code §13260-13263).
The best way for a seller to protect him or herself in the sale of real estate is to be as thorough as possible when disclosing information to the buyer. A seller has a duty to disclose any facts materially affecting
the value or desirability of the property that are known to the seller. This of course does not mitigate a buyer’s
responsibility to diligently inspect and investigate the condition of a
prospective property. But the
seller is not liable for latent defects in a property which he or she did not
know about and had no reason to believe existed.
The newly created federally funded Principal Reduction Program (PRP) may help low to moderate income homeowner’s keep their homes. Over a three year period, the program matches up to $50,000 in capital, on a dollar for dollar basis, with participating first mortgage lenders. The goal is to help pay down principal on homeowner’s with negative equity. A few of the requirements are that the property must be the borrower’s primary residence, the loan must be less than $729,750 and the borrower cannot own any other property.
California Civil Code §896 and SB 800 which is
codified at §895 provides that, by law, developers, contractors and
subcontractors (“Builder”) in California are bound to provide a 10-year warranty for residential home
defects for homes built on or after January 1, 2003. Further, §901
provides that a Builder may not limit the time application or lower its
protection through the express contract with the homeowner and thus cannot
contract out of the 10-year warranty. Further,
the Builder has the right to attempt to fix the issue before the buyer can hire
a third party to repair the defect and present the Builder with the bill. Pursuant to §944 a homeowner is entitled to recover the cost of repairing any violation or removing and replacing any improper repair by
the Builder, relocation and storage expenses, lost business income if the home is
used as a place of business, reasonable investigative costs for each
established violation, and all other costs and fees recoverable by contract or
With the passage of Senate Bill 931, commencing January 1, 2011, any homeowner who receives an approval by the first lender for a short sale will not have an obligation to the first lender (only) to pay for any deficiency amount (the difference between the amount owed to the lender by the homeowner and the amount received from the buyer for the sale). For those homeowners with just one loan, this is great news, but historically the difficulties have arisen with the second lender and this law offers no protection for that. One thing to note is that this will not prevent lenders from working around this law by requiring the homeowner to sign a promissory note or bring in cash to close the sale.
In California lenders are taking an average 8 – 12 months longer to foreclose on a property than they have in the past (an average of 14 months). Lenders have been ill-equipped to handle the large volume of foreclosures and their directives can quickly change. A lender may decide to process foreclosures quickly and then put the brakes on as it realizes that it cannot handle all of the inventory of unsold real estate on its books. Additionally, lenders aren’t excited about taking on the legal and financial responsibilities of owning a home. That said, until the lenders decide to truly start working with struggling homeowners, this trend will continue.
In an effort designed to encourage principal write-downs for responsible borrowers, the FHA recently started offering a “Short Refinance Option”. Non-FHA borrowers who are current on their existing mortgage but owe more on their mortgage than their primary residence is worth, and have a credit score equal to or greater than 500, may qualify for a new FHA-insured mortgage through 2012. Lenders must voluntarily agree to participate in the program.
There are approximately 8.5 million houses and condos in California and we saw fewer foreclosure proceedings started on these homes last quarter and also as compared to this time last year. It is unclear how much of the drop can be attributed to shifts in market conditions, the tremendous backlog for lenders of homes in default, and how much is because of changing policies, but the worst may be over for the hard-hit entry-level markets, while we are seeing problems slowly spreading to more expensive neighborhoods. We’re also seeing some lenders become more accommodating to work-outs or short sales, while others appear to be getting stricter about delinquencies.
Top 10 Tips when hiring a contractor. 1. Hire only state-licensed contractors. 2. Never pay more than 10% down or $1,000, whichever is less. 3. Don’t pay in cash. 4. Get at least three bids. 5. Get three references from each bidder and review past work in person. 6. Make sure all project expectations are in writing and only sign the contract if you completely understand the terms. 7. Keep a job file of all papers relating to your project, including all payments. 8. Confirm that the contractor has workers’ compensation insurance for employees. 9. Don’t let payments get ahead of the work. 10. Check a contractor’s license number online at cslb.ca.gov or by calling (800) 321-CSLB (2752).
Many homeowners today are facing financial issues that involve a short sale, deed in lieu of foreclosure (“DIL”) or foreclosure of their home. According to California law a short sale, DIL or foreclosure will remain on your credit report for up to 7 years and affect your credit by up to 300 points but borrowers have historically rebounded much more quickly after completing a short sale.
Many homeowner’s are finding that their homes are worth less than they owe on them. For folks that no longer wish to, or cannot afford to, keep their homes, they are often trying to decide between a short-sale, a deed in lieu or a foreclosure. People in this situation must make sure that they understand their legal and tax obligations and options before going down any of these roads. A homeowner should speak with a real estate attorney to find out if their loans are recourse or non-recourse loans and how this impacts their options. A homeowner is also well advised to speak with a tax advisor to understand how the state and federal government will handle any cancellation of debt. Given the answers to these questions, a homeowner may also need to consult with a bankruptcy attorney.
Although financial distress is still a reality with many borrowers, foreclosures seem to have slowed down in our neighboring Richmond and Oakland areas. We all have a sense that lenders are holding back, and that there’s at least one more round of foreclosures, but some lenders have increasingly pursued short sales and loan modifications as an alternative to the costly foreclosure process. However, with less government stimulus planned for 2010, we’ll have to see how that affects our area. According to DataQuick, last month absentee buyers purchased 15.7 percent of all Bay Area homes sold, while buyers who paid all cash accounted for 22.4 percent of sales.
Did you know that the city of Richmond recently passed an ordinance so that it is much more difficult for new landlords to evict tenants from their residences if the property is acquired through a deed of trust or foreclosure? Due to a number of tenant evictions caused by foreclosures, many buildings in Richmond are abandoned and not adequately maintained by lenders. This has also created a hardship for tenants to find suitable replacement rental property. I wouldn’t be surprised to see this type of ordinance in other cities that have a high rate of foreclosures, but it seems unlikely that we will see this type of ordinance in El Cerrito, as long as we continue to have relatively few foreclosures. If you are interested in obtaining more information on this new ordinance please feel free to contact me.
Did you know that you can take the funds from your IRA and use them to buy a property through a self-directed IRA? The property can be land, commercial or even a single family home and you can partner with another IRA holder or even a non-IRA holder. However, you cannot live in the property, all proceeds must go back into the IRA and the IRA must have enough money to handle all costs, such as mortgage deficiencies, repairs, etc. Be aware that you have to comply with all IRS requirements, none of the expenses are deductible and you pay ordinary income on any gain once you take the money out of the IRA. If you are considering a self-directed IRA, be sure to use a qualified firm and understand all of the benefits and limitations.
Did you know that under the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer is no longer required to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence? This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence and includes up to $2 million for refinances.