Arms Length Transaction - What Does it Really Mean?

In today's video I explain what an arms length transaction means when you are short selling your home. Does it mean you have to sign contracts at least one arms length apart? Does it mean the buyer and seller can't be related? Or does it mean you can't know each other at all?

Watch this video now to find out!

Debt Forgiveness Act - What Does it Mean to You?

Does it Matter?????

Everywhere I look today on Facebook, emails and texts, there are myriad agents and government entities shouting with glee over the one year extension of the Debt Forgiveness Act.  I agree this is a good thing, however, more for mindset and lessening the fear factor than for actual help.

Keep in mind that the law, passed in 2008 as Bush was leaving office, protects a homeowner who either allows a home to go to foreclosure or closes on a short sale with debt- forgiveness  from being taxed on the loss (to the lender), which is considered a gain like ordinary income to the homeowner. In either case the homeowner will likely receive a 1099c stating they have a gain in income…just as if the homeowner were self-employed and received a 1099 declaring how much income they had made that year.  Even if they do not receive a 1099c they are obliged to declare the income anyway to the IRS.

The bill states that there can be NO taxation IF (and this is a huge IF): 1) The home is their personal primary residence under IRS code (owner-occupied 2 of the last 5 years), and 2) The loan on which the debt was forgiven is PURCHASE MONEY (meaning the original loan taken out when the property was first purchased by said owner) period. 

Do You Know How Few People this Law Actually Protects?...

In California, less than 20%. If you refinanced your original loan to send your kid to college, to buy another home, to throw to the winds of the sea…this law does not protect you…never did. And , no, if you just refied to get a lower interest rate and took no cash out it is still questionable as to whether this act actually kicks in even for you.

Do you know the other ways to protect yourself against taxation after a foreclosure or short sale or loan mod with a principle reduction? There are several and one of them is available to almost anyone who finds themselves in this situation of losing or short selling a home.

Listen to my radio show this Saturday, 10 am, 1360 AM KFIV to get the answers.  IHeart radio, too. HOUSE CALLS with Christine Papworth, the Real Estate Dr.  Anyone out there disagree with me? Let’s talk.

Now Is Not The Time To Rent Your Underwater Home

In the central Valley of California including San Joaquin and Stanislaus and Merced counties I have found an interesting trend amoung the expired and withdrawn listings I am calling. What is it, you ask? Probably one third of those I spoke with have decided to rent their underwater properties.
That concerns me for a couple of reason:
1. They owe more than the property is worth....for how long? 10-15 years?! A little scarry..a lot scarry!!
2. The rent may or may not make all of the payment now. What about vacancy?
3.And here's the most important:
   a. the HOMEOWNER RECOVERY ACT which protects sellers freom a tax problem under certain circumstances on the personal residence runs out Oct of 2012. While sellers may still be considered owner occupants by the IRS after a year of being out of the home...what happens if the seller is forced to short sale AFTER Oct 2012...no protection.
   b. Also, SB581 in California cureently says no deficiency on any loan doing a short sale right now. What if that law and the protection under it changes during the next few years?
I am not trying to be a doomssayer, but I do want to be sure people understand what ramifications could be if they wait too long to take care of their situations.

Please do not assume anything right now. Find out what your real options are and what your real issues could be. I will be happy to give a free consult to anyone so we can look at it all together. The financial health of your family and your future could be at stake. Do the right thing. Do your homework.
Be well.

LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED

LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED

In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder.  Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale.  This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units.  Any purported waiver of this rule shall be void and against public policy.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale.  A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov.

FTC WILL NOT ENFORCE MARS AGAINST REALTORS®

As another major victory for REALTORS®, the Federal Trade Commission (FTC) announced today that it will generally not enforce the Mortgage Assistance Relief Services (MARS) Rule against real estate brokers and agents engaged in short sales.  Real estate professionals must nevertheless comply with MARS prohibitions against misrepresentations and other laws prohibiting unfair and deceptive acts.  Also, FTC’s forbearance of enforcement is limited to real estate licensees in good standing and acting in compliance with state laws, who assist consumers in negotiating, obtaining, or arranging short sales in the course of securing the sale of the consumer’s home.

In its announcement today, the FTC acknowledged “it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers” with short sales.  The FTC will, however, continue to enforce the MARS Rule as to all other providers of mortgage assistance relief services, and also as against real estate professionals doing loan modifications or other types of mortgage assistance relief services.

Next week, on July 21, 2011, the FTC’s rulemaking authority for MARS will be transferred to the new Consumer Financial Protection Bureau (CFPB), but the FTC will continue to enforce the Rule.  The CFPB will have the authority to determine whether to change the MARS Rule as it applies to real estate professionals conducting short sales.

The FTC’s News Release is available at http://www.ftc.gov/opa/2011/07/mars.shtm.

Senate Bill 458, passed by California's legislature as an urgency statute with an immediate effective date, limits lenders' demands in connection with short sales.   It effectively treats a short sale to which a lender consents as if it is a non-judicial foreclosure sale.  This is significant because, under California law, a lender may not obtain a deficiency following a non-judicial foreclosure sale. 

SB 458 follows Senate Bill 931, which was passed in 2010.  SB 931 added Section 580e to California's Code of Civil Procedure.  SB 931 provided that "[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."  SB 458 expands on SB 931 by prohibiting the holder of a residential mortgage loan from requiring the borrower to pay any additional compensation, aside from the proceeds of the sale, in exchange for the lender's written consent to the sale.  In short, it appears a lender who agrees to a short sale may not require the borrower to either (a) pay additional sums beyond the proceeds of the short sale, or (b) sign a short sale note.   

SB 458 also amends Section 580e to exclude many commercial transactions, such as where the trustor is a corporation, limited liability company or limited partnership. 

JJ - K&L Gates