realtors successfully lobbied for passage of SB 458 which forces banks to increase their losses by writing off debts in a short sale, then they lobbied the banks to perform more short sales by speeding up the process.
Irvine Home Address … 12 GOLDBLUFF Irvine, CA 92604
Resale Home Price …… $620,000
It cuts both ways, we're in too deep for sorry alibis
Can't have regrets or even question why
We can't say goodbye
Because it cuts both ways
Gloria Estefan — Cuts Both Ways
I like it when lenders pay a price for what happened in the housing bubble. They unleashed a Ponzi scheme, and if they don't experience the pain of that failure, they will repeat their mistakes. California has passed a new law that increases the pain on the banks. Kudos.
With lobbying from CAr, the State of California passed a debt forgiveness law that says a borrower is fully released from all debts related to mortgage once the short sale is agreed upon. When the realtor association does something I agree with — like preventing the debt slavery of an entire generation — I like what they lobbied for despite my past disagreements with them..jpg)
Without some kind of debt forgiveness, the people who live in our neighborhoods will owe hundreds of thousands of dollars in zombie debt collection for years. (This issue is one of the reasons for civil unrest in Spain.) This will drain the local economy of resources, and it will drain the emotions of the people facing zombie debts. As with any kind of debt forgiveness, moral hazard can be a problem if borrowers don't come to believe they made a mistake.
I like this law despite the fact it creates moral hazard because its a greater moral tragedy to sentence these people to debt servitude and being hounded by zombie debt collectors. This law could also be titled the “Death to Zombie Collection Act.” The passage of this law may prevent bankruptcies because the borrowers won't need bankruptcy in order to eliminate this one debt problem. Otherwise creditworthy borrowers will be able to obtain new debt, and the enormous loan losses get washed away. The increased disposable income will boost the local economy.
Nevada will be the test case for what widespread debt purging can do for a local economy. The $70,000 single-family detached homes I sell in Las Vegas have monthly payments of about $300 per month. Even if you are a minimum wage worker, you can afford a house payment on a single-family detached home. Once this purging is done, the average wage earner will spend a smaller percentage of their income on housing than any area of the country. I believe this excess spending power will stimulate the local economy greatly — most of it will end up in the casinos.
Californian's who sell their house through a short sale will now enjoy the increased disposable income of debt purging. I believe this will boost the California economy.
Gov. signs SB 458 into law
July 15, 2011
CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law
LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.
Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”
SB 458 contains an urgency clause making it effective upon signing.
Now that the SB 458 is law, short sales are more effective at purging debt than foreclosures. People still tend to walk away from their debts in foreclosure, but that doesn't mean the debt is fully extinguished, just much more difficult to collect. From now on, those people who go through a short sale will no longer face the harassing calls of zombie debt collectors.
Banks won't have a buyer for their extinguished short-sale zombie debt, so the write-offs will increase. The larger losses will make lenders more willing to foreclose and keep their zombie debt on life support. Passage of this law should cause banks to shift away from short sales in California and move to foreclosure roulette to select a quota of kills from the herd.
Short sale negotiations will now be much more difficult for banks because they don't have the threat of lingering debt to hold over the borrower. If the borrower doesn't agree, the bank has no leverage to force them to. The borrower can escape the debt fully in short sale or take their chances after a foreclosure — chances which usually work out in their favor.
The realtor association that applauded the short sale law is now demanding the banks close more short sales. That's a knife that cuts both ways: lenders take bigger losses and realtors make more money.
CAR chastises lenders over short sales
by LIZ ENOCHS — Thursday, August 25th, 2011, 12:26 am
The California Association of Realtors Wednesday delivered a public reprimand to the nation’s top mortgage lenders and servicers over their handling of short sales.
In letters to JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, the association charges the lenders with failing to respond to borrowers’ short-sale requests within a reasonable time frame, dragging their feet on processing files and miring incomplete files in excessive red tape, among other things.
Short sale negotiations are never going to be easy because the loan loss severities are so large that banks can't take the pain. This survival pressure is forcing banks to make unreasonable demands on borrowers which is causing most short sales to die a slow death. The whole negotiation is a big game of poker, and the foreclosure deadline is the river card — the default option when the two parties can't agree on a settlement over the house debt.
“As public attention continues to be focused on the real estate industry in hopes of signs of a housing recovery, we trust you’ll agree that change in your short-sale process is critical,” said CAR President Beth Peerce in the letter.
Actually, no. I see nothing critical about expediting short sales. The MLS can't absorb a fraction of the distressed properties in the system, so lenders could shift 100% to foreclosure and 0% short sales, and the only difference would be the process for disposal on the MLS: bank REO or CAr short sale listing.
realtors really shouldn't care either. There willl be a sale on the MLS eventually. It will either be a short sale, or it will be an REO listing or a flipper listing. No matter how it gets on the MLS, the final disposition to a stable buyer will generate a sales commission.
The association said the communiqué is a response to increasing difficulty among real estate agents in closing short sales, which it says will be a part of the California real estate landscape for years to come.
Is this issue merely realtor whining about the difficulty with short sales? Get over it, and get the job done.
The letter outlines a series of recommendations for actions lenders should undertake to allow short sales to run more smoothly and aid in the housing market recovery.
“We believe banks, investors, homeowners and real estate professionals all have a common interest in conducting these transactions expeditiously and efficiently,” said Peerce in her communication to lenders. “The housing market recovery is in everyone’s best interests, and your urgent focus on these issues will help achieve that end.”
I agree that expediting the transition from unstable owners to stable ones is key to the market recovery. I don't agree with the contention that expediting short sales is a superior method.
JP Morgan spokesman countered that the bank is now processing 5,000 short sales a month. “That is a significant amount,” the source tells HousingWire. “We know that short sales are important to the market and that is why we are doing so many.”
Citigroup also pointed out that it has had a specialized short sales group for a number of years. “In 2009 senior management increased our focus on potential short sales, recognizing that they may be the best solution for some borrowers,” said spokesman Mark Rodgers. “The unit employs short sales specialists who are able to expedite the short sales process.”
Write to Liz Enochs.
I don't think the bank is too worried about whether or not a short sale is better for the borrower. They are interested in whether or not it is better for the bank.
Basically, anyone with assets is probably better off trying to negotiate a short sale. Lenders are going to want borrowers to make an effort to pay them back by selling some of their valueable stuff. If borrowers won't do this, it's in the lender's best interest to sue them and take it as settlement for the debt. If borrowers with assets go through a foreclosure, the lender could also sue to recover, and the losses are more severe. Fortunately for most borrowers, lenders rarely attempt to collect on debt detached from the property in a foreclosure.
Does it really take 639 days for a bank to make a decision?
The owner of todays featured property bought on 4/26/2005 for $675,000. This near peak purchase was financed with a $540,000 first mortgage and a $72,101 second mortgage, and a $62,988 down payment. They didn't refinance, but falling prices have left them underwater. The stopped paying the mortage back in mid 2009, and they have been negotiatiing a short sale ever since.
Foreclosure Record
Recording Date: 07/05/2011
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 06/23/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 10/21/2009
Document Type: Notice of Default
WTF is taking the bank so long?
How does it take 639 days to make a decision?
——————————————————————————————————————————————-
This property is available for sale via the MLS.
Please contact Shevy Akason, #01836707
949.769.1599
sales@idealhomebrokers.com
Irvine House Address … 12 GOLDBLUFF Irvine, CA 92604
Resale House Price …… $620,000
Beds: 3
Baths: 2
Sq. Ft.: 1686
$368/SF
Property Type: Residential, Single Family
Style: One Level, Other
Year Built: 1975
Community: El Camino Real
County: Orange
MLS#: S597099
Source: SoCalMLS
Status: Active
On Redfin: 639 days
——————————————————————————
Beautiful one story home located conveniently in a cul-de-sac in the heart of OC. Highly upgraded with hardwood floors and remodeled kitchenn that feautres stainless steel sink and stone countertops. It is walking distance to award winning Irvine Unified School District schools. NO MELLO ROOS! Very Low HOA Dues. Newer roof, larger yard, seperate atrium area and two car roll up garage. SHORT SALE APPROVED!!!
——————————————————————————————————————————————-
Proprietary IHB commentary and analysis
Resale Home Price …… $620,000
House Purchase Price … $675,000
House Purchase Date …. 4/26/2005
Net Gain (Loss) ………. ($92,200)
Percent Change ………. -13.7%
Annual Appreciation … -1.3%
Cost of Home Ownership
————————————————-
$620,000 ………. Asking Price
$124,000 ………. 20% Down Conventional
4.19% …………… Mortgage Interest Rate
$496,000 ………. 30-Year Mortgage
$121,321 ………. Income Requirement
$2,423 ………. Monthly Mortgage Payment
$537 ………. Property Tax (@1.04%)
$0 ………. Special Taxes and Levies (Mello Roos)
$129 ………. Homeowners Insurance (@ 0.25%)
$0 ………. Private Mortgage Insurance
$45 ………. Homeowners Association Fees
============================================
$3,134 ………. Monthly Cash Outlays
-$397 ………. Tax Savings (% of Interest and Property Tax)
-$691 ………. Equity Hidden in Payment (Amortization)
$185 ………. Lost Income to Down Payment (net of taxes)
$98 ………. Maintenance and Replacement Reserves
============================================
$2,329 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,200 ………. Furnishing and Move In @1%
$6,200 ………. Closing Costs @1%
$4,960 ………… Interest Points @1% of Loan
$124,000 ………. Down Payment
============================================
$141,360 ………. Total Cash Costs
$35,700 ………… Emergency Cash Reserves
============================================
$177,060 ………. Total Savings Needed
——————————————————————————————————————————————————-
Im not sure why, but I found this site amusing: realtors in cars.
Becky Buck in Virginia Beach, Virginia… Thank you, baby…
“Without some kind of debt forgiveness, the people who live in our neighborhoods will owe hundreds of thousands of dollars in zombie debt collection for years. (This issue is one of the reasons for civil unrest in Spain.)” Note: article has virtually nothing to do with housing and involves a whopping 500 “protesters.” And by ‘the people who live in our neighborhoods’ do you mean squatters? Because I was under the impression that once you lose the house you don’t own and aren’t paying the mortgage on, you move on to a rental somewhere else.
“I like this law despite the fact it creates moral hazard because its a greater moral tragedy to sentence these people to debt servitude and being hounded by zombie debt collectors.” LOL. Really? You’re joking right.
It’s early but either we’re being Punk’d or we’re reading Michele Bachmann’s latest hallucination. This one post seems to undo everything you’ve stood for for the past 5 years. I’m going back to bed to sleep it off and hope it was all just a bad dream IR.
The problems in Spain have been documented here and elsewhere:
Spain shows how to keep house prices inflated
Protests Mount in Spain; Sovereign Debt Crisis to Follow
“Organizers estimate the protest yesterday in Madrid was around 25,000.”
Spain’s Icelandic Revolt; Protests Spread to Italy
I don’t know what you believe I have stood for over the last 5 years, but keeping every borrower in lifetime debt servitude is not something I advocate. I have written many posts about how debtors would benefit from strategic default and encouraged people to do so.
These debts need to go away. Lenders need to experience some consequences, and borrowers do as well. I think it should be harder on lenders because they did the most to create this mess. If borrowers have to negotiate a financially painful deal with a lender and if their credit is hurt, then perhaps they won’t borrow so heavily next time. Some consequences are better than none. The lack of consequences is what I don’t like about most principal forgiveness programs.
I have to agree in part to what Canyousay asserts above. IR, one of the things I observed you stood for – and I’ve been following you since pretty much the beginning – was the dangers of moral hazard. I remember when one of the things you spoke against was debt forgiveness because it would create the danger of history repeating itself. Many people at the time wanted to grill the borrowers, because debt forgiveness would create a mentality that will continue to spiral toward greater ponzi schemes. Take a gamble, you fail, they bail you out, why not go for it?
I wasn’t entirely in agreement at the time with that majority, and thought some type of bail out might be better for the greater good, although borrowers still needed to “pay for it” in some way. I still believe that, so the new ruling is not something I agree with. Debts need to go away, but I don’t think pain of the process and ruination of credit will teach borrowers many lessons. Many have already begun to discount in large effect their credit rating, and heck, if all it takes is for me to sit through a sizable mounds of paperwork and bureaucracy to clear $200K in money I owe, so be it. I’m afraid that’s the mentality of most troubled borrowers these days.
So what I believe in is hitting them harder. Maybe they get away with being forgiven the debt itself, but burden them with tax on the “gains”. Make them at least pay that. So you’ve gotten scott-free from the $300K you’re underwater? Fine, pay the IRS $75K for the forgiveness. Garner the wages for this on a payment plan. Make them feel it so they’re much more reluctant to pull that trigger again. This way, lenders feel it, borrowers feel it, and realtors feel it because these borrowers will be off the RE market for a long time. And, there’s added benefit for the govt of additional tax revenue also, at least for short-term revenue.
I meant “Garnish wages”…
While it’s true that debt forgiveness leads to moral hazard, I never meant to give the impression I was against all forms of debt forgiveness. I have had debts forgiven. The point with moral hazard is the discharge must carry some consequences for borrowers to learn from their mistakes and lending to work properly.
With a problem this large, we are all forced to examine which of our values is the strongest and grope for a postion that balances conflicting values. IMO, some amount of moral hazard is preferable to the economic fallout from an entire generation being sentenced to debt servitude.
So many of the solutions put forward to solve this problem either provide too little consequences to the banks (bailouts) or too little consequences to the borrowers (principal forgiveness). Policy makers have been searching for some middle ground where each party pays a price. The side effect of any of policy which reduces the consequences to either the banks or the borrowers is going to create some moral hazard. I can point out that fact and still embrace a compromise as a reasonable course of action.
We do not need any new “solutions”. The problem is not a lack of ideas, and the solution is not new ideas.
Debt forgiveness exists in at least a couple forms, foreclosure and bankruptcy. In both cases, those responsible reap the consequences.
I think we can also add short sales as a form of “banktuptcy lite” for debt forgiveness. It has the loss of home consequence of a foreclosure, and a portion of the credit consequences of a bankruptcy.
I’m not sure how this differs much from just giving the keys back to the bank on a 1st mortgage. 1st mortgage debt is also not collectable by the bank after it gets the real estate back. What’s the difference between the bank taking the property back and selling at a loss or taking a short sale at a loss.
What I do have a problem with is forgivness of HELOC debt. That should require a BK to get out of.
I don’t think it reaps enough consequences, especially with the mentality of today’s society. Giving the keys back no longer holds the mystique that it used to. And maybe the problem is that the creditors are just to easy to overlook them these days… In any case, I don’t think borrowers “learn” a hard enough lesson the way these are handled today. The way it is going now, 20 years later we’ll run into the same issue with a different financial “innovation”.
I agree with IR. If our economy is going to recover, we’re going to have to forgive these debts. If we let them drown they’ll likely drag the rest of us down with them. That is a bitter pill to swallow — especially for those of us who have had to endure the “you might as well flush your money down the toilet if you rent” lectures from know-it-all home owners during the boom years.
We are going to have a similar problem to Spain’s with our student debt.
Realtor lady’s teeth are freakishly white!
I suspect we’ll have to have a similar debt-forgiveness program for student loans. Some of these kids you read about who have debts in the 6 figure range… they’re never going to get out of debt. And it just isn’t fair to punish a kid for life for a financial decision that they made when they were 18.
Does anyone know the typical “standards” required for servicers to allow you to pursue a short sale? I think you have to be “troubled” financially before they’ll even agree to entertain a short sale, no? But how troubled need you be?
What if the borrowers have no financial issues whatsoever, but just want out?
the post-Reagan/Clinton student loans are essentially unforgiveable except for:
1. Death
2. Govt service
BK does not erase it.
For the medical profession, there’s are ways to have partial forgivenesss working for a not-for-profit or govt associated hospital which is a huge percentage of the hospitals in the US.
The PTB want high national debt service. That way they can decide where your money is spent and invested.
Drip drip drip… All too little too late. If our economy hinges on debating the merits of short sales vs. foreclosures, and debtors praying they won’t get sued then you know what kind of shape we’re in. Wish I could hibernate until 2020.
I like the spirit of SB 458 but it should include a provision that allows the debtor to put a couple of slugs into the Realtor® who sold him the house at close range, flesh wounds, and taunt him or her for a few hours and remind him or her of the lies he or she spewed. CAr might have a problem with this but any reasonable human being with even a rudimentary sense of justice would understand that God would smile at every howl of agony from a wounded Realtor®.
I read somewhere because of this new law banks are not willing to forgive as much now. Junior lien holders are asking for more in short sale deals also.
Realtors are claiming that short sales are getting more difficult now to close because of this law. Any thoughts on that?
The fact that short sales are becoming more difficult is the irony behind these two stories. realtors applauded the new law, but now that it is causing them pain because lenders don’t want to do short sales, they are complaining to the lenders. realtors want to have it both ways, and lenders are saying no.
The statute lends itself to being read that if a first mortgage loan consents to take a short sale, then even if the second secured position was never asked to consent in advance, they also have to discharge their position and furthermore can’t collect any of the heloc or other loan. Good thing California doesn’t have any lawyers who twist vague statutory remedial language for the consumer’s benefit. But try reading it that way, and that may even BE the intent behind its terrible vague language. What sane lender, fannie, freddie, fha, heloc, would EVER make a loan there again?
Debt forgiveness is a moral hazard, so we should have the government make housing prices $1 million dollars per 1000 feet of living space. Tie the loan to the family name, and extract the payments from them until it is paid off.
I think Meg could use another indentured servant, this time one that is legal. Too bad you tried to “enter” the elite wealthy homeowners by purchasing a 2 bedroom condo, now get to work for Meg!