A month into the era of no-recourse-for-all-short-sale-lenders, how is it going?
The U-T carried this comment:
Since the law has passed, agents have seen banks revise their release of lien amounts in letters to larger figures. In one case, the number was bumped from $12,000 to $30,000. “Right now, it’s hurting more than it’s helping,” said Jacalyn Blank, a San Diego short-sale negotiator.
John commented on the previous SB 458 post:
Was about to close on a short sale with $10,000 to the 2nd lien holder. Now thanks to 458, the 2nd wants $45,000 which no one in this transaction has.
JimG is a realtor who does his share of short sales, here’s his report:
Our short sale girl is reporting deals are being held hostage by 2nd lien holders who want MUCH more $$$$. California law is backfiring at this time as the 2nd lenders have no incentive to play.
We have two short-sales in process that have been caught up in the same mire:
SS #1 – The second lender, whose original balance was $250,000 and will get nothing if the 1st lender forecloses, is holding out for $100,000. At least the lender in third position is willing to take $3,000 on their $300,000 note.
SS #2 – Bank of America, who had agreed to take $25,000 on the second mortgage balance that was around $160,000, proceeded to sell the note to a no-name lender, who now wants $100,000. They too will get nothing if the first forecloses.
Of the 2,757 detached and attached sales in San Diego County last month, 515 of them, or 19% were marked as short sales. We can probably expect that short-sale closings are going to drop off over the next few months, and maybe forever – because what every short-sale negotiator is now trying to do is convince the first lender to settle for less. Hopefully the first mortgage holders get fed up and just foreclose instead.
If government had just stayed out of the market long ago, we would be in much better shape in my opinion. The kicking of the can has just made everything too complicated. I mean, what has changed since the summer of 2008, other then more money printing, government self funding themselves and the private sector laying off workers?
Personally, I think this is good news. On the other hand, I am not out there on the street trying to clear inventory in this weak market so I am probably biased.
I struggled with the title, and ended up with ‘Not Working’ because the bill’s intent was #1, to protect the outgoing homeowner, and #2, make short sales easier.
Instead it’ll slow down the action further.
P.S. The Chevy won’t be at the Encinitas Classic Car meet today, though I’m going to try and stop by in the regular sled. It is Parents night at school.
Can a lender (1st, 2nd, whatever…) require the SS to take out a loan for the extra money that the lender wants in return for forgiving the deficiency? For example, require the SS to take out a $25k loan from the lender before forgiving the $250k second.
The new loan could potentially get wiped out if the SS later tried to pursue bankruptcy, but at least it is something.
My parents had to take out a loan for the full deficiency amount of their SS in the early 90s, and paid it all back with interest over five years. Not sure why this couldn’t happen today if a seller wants to SS.
Sorry if I’m going to the well too much here, but are non-original mortgages still non-recourse if the house goes into foreclosure under SB 459 (or any other new law in California)?
Yes, they should ask for the sellers to execute a note for some or all of the difference owed, but they must figure that they’ll be too prone to BK later. I did have a case where the divorcing sellers split a note for $25,000 with the Navy FCU, in lieu of paying the full amount, but that was a couple of years ago.
I think the non-original seconds are going to have the one-action rule available to them, so they’ll be pushing for foreclosure, rather than short sales.
puh-lease….
Sales remained 13.1% above levels measured one year ago, and the median price dropped 4.6%, the smallest yearly decline in six months.
Prices actually increased in four of the last five months, allowing Margaret Kelly, the CEO of RE/MAX to stay optimistic, while others are not.
“The fact that July home sales were higher than a year ago, and by such a significant amount, gives us reason for great optimism,” Kelly said. “And now that prices have risen for four of the past five months, the housing market is beginning to show definite signs of recovery.”
Lenders don’t seem to know how to respond to urgency laws passed by the California legislature. The language of the statute goes beyond just prohibiting deficiencies.
Here is pertinent language from the SB 458 bill itself:
“(b) A holder of a note shall not require the trustor, mortgagor,
or maker of the note to pay any additional compensation, aside from
the proceeds of the sale, in exchange for the written consent to the
sale.
(e) Any purported waiver of subdivision … (b) shall be void and against public policy.”
If there are situations where the lender is requiring the seller to contribute funds over and above the proceeds of sale in order to approve a short sale (remember, the statute does not prohibit the lender from making the demand on buyers, agents, or others), there will be lawsuits by sellers who make the payments seeking to get them back. Should be interesting, as the language of the statute would seem to support a claim for reimbursement paid by the seller.
Has anyone seen any specific cases where the 2nd demanded more $$, blew the SS deal and the first just foreclosed instead (and thus wiped the 2nd out)?
I’m with Jim; I suspect we’ll see more and more foreclosures if the 2nds keep making the SSs too hard. It just seems so counterintuitive for the 2nds to do this. So, I’m guessing they must be getting results with this hard sell tactic? Or has the compensation for bank negotiators changed to a percentage of the take?
Purchase money seconds are the ones that are counterintuitive. Any refinance or recourse type second gets a better deal selling the second to a collection agency/law firm. With the non-recourse seconds maybe there’s some backdoor government program that pays the banks more if they get nothing through foreclosure rather than taking 5% of the loan amount. Maybe you can account for a total loss differently than a partial payment. There’s a reason we just don’t know what it is.
Maybe I’m missing something but what is counter intuitive about what the 2nds are doing?
With SB458 2nd accepts offer, gets $x from sale and nothing more EVER.
or
2nd rejects offer waits for a period of time after foreclosure then goes after/sues the borrower for the full amount of loan + interest. Unless the borrower declares bankruptcy the borrower has a chance to collect $Y.
From what I have heard a short sale for a borrower is a pain in the backside compared to just letting the house go to foreclosure so most short sales are probably being done by people who don’t want a bankruptcy on there credit.
Therefore the banks are betting that the amount they will get down the road ($Y) is greater then the small percentage they get from settling ($X)
If they use this method only on those who are strategically defaulting then this may very well pay off for them.
The actual bill:
http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.html