California used to lead the nation in exempting mortgage-debt relief from taxation. But the latest extension of that law was defeated, leaving short-sellers and those being foreclosed in a prickly position – do they hang in there now?
The reason the bill died is because Jerry Brown and other state politicians want to reap the additional tax – but these beleaguered folks can’t or won’t pay it and will have to hang on to their over-encumbered properties.
Senate Bill 907, which had won unanimous approval of the state Senate, died in just a few seconds last week, and that angers Peggy Spatz.
She and her husband, George, took out a $150,000 second mortgage on their modest suburban Sacramento home 11 years ago, only to see home values and their retirement investments crash in the Great Recession that struck shortly thereafter.
They, like millions of other Californians with underwater homes, eventually negotiated a settlement with their lender to write down the loan, only to learn that the canceled debt was what’s called “a taxable event.”
Congress had declared that loan write-downs, short sales and other forms of mortgage relief would be free of federal income taxes. The California Legislature and then-Gov. Arnold Schwarzenegger followed suit for several years, extending relief through 2013.
However, when Jerry Brown returned to the governorship, facing an immense budget deficit, he refused to continue the tax exemption for any relief actions since 2013, last year vetoing a bill that would have added two years to the window. It created, a Senate staff analysis said, “a fine mess.”
Brown said the state budget “has remained precariously balanced (and) I cannot support providing additional credits that will make balancing the state’s budget even more difficult.”
SB 907, carried by Sen. Cathleen Galgiani, D-Manteca, would have extended the tax break through 2016. She represents a region hardest hit by the housing meltdown and during one hearing cited her own underwater mortgage.
“Many years later, it still isn’t worth what I paid for it,” said Galgiani, adding that many Californians are in the same situation and “for us to hit them a second time is unconscionable.”
The Spatzes hoped that with the Senate’s passage and a heavyweight list of supporters, including Attorney General Kamala Harris and real estate and banking lobbies, it would at least get to Brown’s desk.
In anticipation, they wrote a letter to Brown, laying out their experience and concluding, “This letter is written by two people, but there are hundreds of thousands of us. Please don’t turn your back on us.”
SB 907 never made it to Brown. Although it also won unanimous support in the Assembly Revenue and Taxation Committee, it was placed on the Assembly Appropriation Committee’s “suspense file” because of its cost – an estimated $95 million in lost revenue during its first year and $57 million in the next two years.
Last week, the appropriations chairwoman, Lorena Gonzalez, announced the fate of dozens of Senate bills, spending just a few seconds on each. SB 907, she said, would not be sent to the Assembly floor.
As is the custom, no reason for its demise was offered. But it probably had something to do with its heavy cost, more than 10 percent of the total for bills on the suspense file, and the strong likelihood that Brown would have vetoed it, as he had done in 2015.
“The thing that breaks my heart is that people aren’t marching in the street,” Peggy Spatz said after learning of Gonzalez’s decree. “I’m a bitter person at this point.”
Just one more rerun before Kayla introduces our new listing tomorrow night.
This is the 7th most-watched video on Bubbleinfo TV, and is a greatest-hits tour through the REO-listing days. In April, 2008, the Bank of America had dumped twenty of their REOs in my lap, and over the next 12 months the JtR foreclosure extravaganza ensued.
A month after this video premiered here on the blog (March, 2009), I was on the front page of the L.A. Times, which led to the spot on ABC News Nightline:
During the bust that followed last decade’s housing boom, hundreds of thousands of Californians lost their homes to foreclosure. It was a process later found to be rife with problems, such as overwhelmed bank employees who sometimes didn’t even read the foreclosure documents in front of them.
But challenging foreclosures on the basis of paperwork problems proved to be mostly futile, given California courts had ruled that borrowers who weren’t paying their mortgages didn’t suffer financial harm.
Now, a recent decision by the California Supreme Court will allow some of those former homeowners to pursue lawsuits and possibly win damages for wrongful foreclosure even if they were in default.
“They opened the courthouse doors,” said Katherine Porter, a law professor at UC Irvine and a former monitor for a national settlement over foreclosure abuses.
A statute of limitations of four years might mean that the decision won’t help most of the nearly 1 million California homeowners who were foreclosed upon from 2007 to 2012, according to real estate data provider CoreLogic.
Still, Porter estimated there may be tens of thousands of Californians who could conceivably argue for damages given inconsistencies in documents that transferred their loans.
Others are more skeptical.
George Lefcoe, a professor at the USC Gould School of Law, said it will be very difficult for borrowers to prove that the ownership of their loans was so muddled that the foreclosure process was fatally flawed.
And even if borrowers do win the argument, it’s unclear what damages they may receive, if any.
As a new year begins, there has to be people wondering how much longer the market can stay buoyant. Even with rates staying low, home buying is out of reach for many, if not most San Diego residents, and wages don’t seem to be going up much.
Is the bubble going to pop again?
This guy has been our perpetual doomer, and is one of the only four ‘experts’ out of 108 who said that prices could go down in the next five years. He has summarized all the reasons of possible doom here:
The thing he ignores is that the government is totally supportive of housing. They bailed us out last time, and it left an indelible mark.
The turning point for The Big Bailout was in 2011 when Bernanke literally told the banking industry to ‘not do anything to harm the economy’, which was code for ‘Stop Foreclosing’:
Since then, the number of foreclosures have dropped like a rock, and after Kamala passed the California Homeowners’ Bill of Rights, lenders are required to coddle defaulting homeowners for as long as possible.
The result is a very soft landing for any borrower who doesn’t feel like making their payments. The banks can stretch out any necessary foreclosure activity for months or years, and spread them around evenly so they don’t ‘harm the economy’.
If you are a potential home buyer who is concerned about future foreclosures causing home prices to drop, I hope that relieves any fears. Buy a house you can comfortably afford, and stay forever.
For those who want to check for foreclosures, see below:
“99 Homes,” a gripping, intelligent thriller set amid the bursting of the nation’s housing bubble, zeroes in on the ruination of the American dream and the morally bankrupt characters who profited from the carnage. Like “The Grapes of Wrath,” it’s a classic example of how to take a social issue and turn it into riveting cinema.
The story opens in an Orlando, Fla., bathroom, where a family man has just killed himself to avoid the specter of being thrown out of his foreclosed home. Not long after the yellow police tape has been set up, real estate broker Rick Carver (the incomparable Michael Shannon) is prowling the premises, with an e-cigarette in his mouth, a cell phone in his ear and a gun attached to his ankle. Carver needs to make sure that the dead man’s grieving wife and kids are shooed off the grounds, so he can keep his banker clients happy.
Then it’s off to another residence, where Carver’s next victim awaits: down-on-his-luck construction worker Dennis Nash (Andrew Garfield, back in top form after his “Spider-Man” foray), his mother (the always reliable Laura Dern) and his son. It’s the first of many evictions in this movie, and director Ramin Bahraini imbues all of them with a palpable sense of terror, anguish and heartbreak.
As it turns out, Carver sees a lot of leadership potential in the handyman Nash, who ends up striking a Faustian deal in which he helps the ruthless broker with evictions in exchange for financial help. Because of Garfield’s skill, and the strength of the script, we sympathize with the desperate Nash and his love for his home, even as he forecloses on his moral values.
Likewise, Shannon provides interesting shadings to Carver. On the surface, he’s Gordon Gekko with a “Miami Vice” outfit, but it’s clear that Carver doesn’t enjoy what he’s doing or view it simply as a way to get rich. Instead, he sees himself as a player trying to survive in a game that’s been rigged against 99 percent of the population. Shannon manages to convey an inner loneliness, a quiet desperation that he’s gone too far but can’t turn back.
A big shout out to the commenters on Thursday’s 10th Anniversary Show – your involvement is appreciated! Rob Dawg suggested that the next ten years will be more interesting – indeed!
What about the next ten years?
Let’s start with identifying where buyers are today – they have arrived.
The inventory of homes for sale is online, and available to everyone 24/7. The gadgets and gizmos help buyers explore each house thoroughly, and in the future those gimmicks should expand to include full 360-degree video tours, heat-imagery scans, mortgage history, inspection reports, history of insurance claims, title reports , etc. Most of these are available now, but not for widespread consumer use.
But are buyers interested in more stuff?
The analytical buyers will love digging around for more data, but most people will be happy reviewing a few photos or video before ordering a personal tour. Once there, gut instinct and emotions take over, and an offer is made. The listing agent will then dictate how much you will pay, and if acceptable, then the deal is made. Hopefully you like the price, because for the most part, it isn’t very negotiable.
Wouldn’t that change if we transition back to a buyer’s market?
It might soften up a bit, but note this fact:
Everyone in the real-estate-selling business is on the sellers’ side. Why? Because nobody gets paid unless sellers say so – and they only agree when they are mostly happy about getting their price.
It is different now – there aren’t distress sales in popular areas, and we know that if people get in trouble, foreclosures are unlikely – they will get bailed out instead by the Homeowners’ Bill of Rights and government support. Hence, we are stuck with elective sellers – especially in popular areas.
Besides, nobody will side with buyers, unless a fee-only or hourly pay structure is implemented. But buyers are very reluctant to commit to an open-ended pay package when all they want to do is look at a few houses for sale.
So we have a lop-sided playing field, with agents and vendors (escrow, title insurance, banks, appraisers, portals, etc.) on the sellers’ side, hoping to coax buyers into paying the right price. If the buyers aren’t willing to pay the happy price, they are told to go back to the sidelines – because confronting the seller about going down in price is almost unheard of these days (it’s easier and more dramatic to act offended).
The one thing that could bring a wholesale change to this equation is the auction format. But that would just level the playing field, and give buyers a more-equitable shot at paying a fair price – though it could be more!
In the meantime, these could happen:
A big disruptor could come in and break the mold. But it would only be a platform of sorts, and somebody’s staff will still need to do the work of sales.
Realtors love to spoon their new listings to their buddies at under-market prices and get both sides of the commission. Could we see a district attorney take down a few of the worst offenders over the next ten years, and teach the industry a lesson? Yes.
A national MLS will likely develop, which will create a uniform presentation of the listings across the country. But don’t we already have that with Zillow? There might be jostling between portals, but the eyeballs will follow the best.
Zillow could develop a brokerage side, and would be able to sell it easily.
Any discount brokerage could rise to prominence, if they are willing to advertise like crazy. The brokerage that advertises the most, will win the game – Zillow has shown how good advertising trumps all.
Better and more efficient transportation (battery cars) combined with working at home could allow for housing developments to be built further out.
Zestimates become accepted as close enough. Buyers don’t care about pricing precision, they just want a house.
First-time buyers dominate the market – primarily foreigners. Those who already have a house here aren’t as desperate, and won’t pay as much.
Multi-generational buyers will increase – they would rather combine finances to afford better housing, than to live where they can afford separately.
Reality TV fluff continues to be popular, and helps to form opinions.
Real estate smarts keep you on the sidelines – the less-informed are making the market.
Prices keep going up.
After the big downturn, the San Diego Case-Shiller Index is lower than it was ten years ago. Where do you think it will be in 2025?
P.S. Speaking of disruptors, remember what Henry Ford said, “If I had asked people what they wanted, they would have said faster horses”. (h/t Jorge)
Eric Mains is fulfilling a dream many Americans have had since the onset of the financial crisis seven years ago: He’s attacking fraud in the banking industry as aggressively as he can, using every possible tool under the law to achieve justice —and win some money back for himself.
Mains, a former team leader with the Federal Deposit Insurance Corporation (FDIC), has become so bitterly embroiled in a six-year dispute with his mortgage lender that he left the regulatory agency, fearing that he might have to eventually name it as a defendant in a federal lawsuit. He’s one of a small yet determined band of people still fighting foreclosure (the seizure of property) cases with obscure and sometimes arcane arguments, built on a simple yet mind-blowing premise: The true ownership of millions of mortgages issued during the housing bubble was fatally corrupted, and now it’s impossible to prove who actually legally controls those mortgages.
Recent Supreme Court precedent suggests that by rescinding his mortgage—canceling it, basically—Mains and people like him can put the onus on banks to prove they have the right to assets like his house in the first place. If Mains or his allies succeed, they would rip open a wound that virtually everyone in power has tried to stitch up and forget. But such a long-awaited victory wouldn’t make up for the years of stress and personal hardship Mains has suffered, including a failed marriage and now the end of his career in public service.
“I had to ask myself a question: Will I do this no matter if it hurts?” Mains told me. “I said yes. If I can afford to fight these suckers and bring this illegality to light, that’s why I went to law school.”
Mains has gotten divorced, lost custody of his kid, and wound up in the hospital – read the full article here:
The foreclosure rate of loans originated over the last few years has been LOW!
If the strict underwriting continues, we will only see an occasional foreclosure from now on. We’ll be telling our grandkids about how back in the day there was this guy who ran a video-cam through hundreds of them!
A certain foreclosure-subscription company is always rattling their sabre about any uptick in notices. The headline for this article is: Early Stage Foreclosure Filings up Nationwide and in Most States:
But with the banks engrossed with loan-modding anyone who can fog a mirror, the only thing that matters is how many actual foreclosures are being completed. Buried deep in the article:
The dip in total filings was due to a 10 percent reduction in bank repossessions or completed foreclosures compared to October. A total of 25,249 properties were taken into bank inventories or REO, down 17 percent from November 2013.
It was the 24th consecutive month in which completed foreclosures were lower on a year-over-year basis.
The national count of completed foreclosures has been dropping for two years straight! Bill showed how delinquencies have been tapering off too:
Regardless of how it happened, it looks like a soft landing that will last – at least as long as rates are ultra-low.
Here is how the local San Diego County numbers look:
