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SB 1079

Hat tip to Susie who sent in this article about a law recently passed in California:

The new rules apply to one- to four-unit properties sold at foreclosure auctions. If an investor wins one of those homes at auction, then people who want to live in it, as well as nonprofit organizations and government entities, get 45 days to submit competing offers.

If the home is a rental, the tenants living there could win by matching the investor’s offer. Other would-be buyers must offer more than the investor.

Known as SB 1079, the law takes effect Jan. 1, 2021.

State Sen. Nancy Skinner (D-Berkeley), the bill’s author, said her goal was to make it easier for individuals and affordable-housing groups to compete with investors.

“Homeownership is the primary way people have to build up generational wealth,” she said. “When we have rules that give advantage to a corporation, then that dream is just not available.”

The manager of the foreclosure auction is required to maintain a website that details the highest bid at the auction and how to submit competing offers.

Link to LAT article

I don’t know how many amateurs will be paying more than investors for homes sight unseen, and without proper title searches for additional liens.  But there will be a few!

It was the last paragraph that was the most intriguing.

The State of California has institutionalized transparency!

Making the highest bid known to the public could revolutionize our business. Can you imagine if Zillow ran a website that openly tracked the offers on their homes for sale – buyers would love the transparency!  Then every brokerage would be pressured into doing the same, and boom – no more agent shenanigans!

Are you thinking of selling?

Transparency can help ignite a bidding war, and get buyers to bid up the price because it becomes more about winning, then getting a deal.  It’s how I handle my listings – let’s talk about how I can help you!

Here’s the classic courthouse-steps example of how auctions help to drive up the price:

An Old Favorite REO

Wells Fargo foreclosed on this house in 2009 when the former owner owed about $1,066,000.

They sold it for $705,000 in July, 2009, which was $61,500 over list price! The same buyers still own it.

The latest sale of one of these models was in 2016 when the house two doors down sold for $961,000:

This video has had 18,000+ views!

Global Financial Meltdown

A viewer’s comment on YouTube led me to this terrific inside view of the 2008 financial crisis, and the resulting impact on the world. It rightly blames the entire fiasco on the Tan Man, who pitched his mortgages to Wall Street based on the yields generated if borrowers made their full-interest payments, when in reality, only a much smaller minimum monthly payment was all that was due.

It’s eerie to watch today as our financial markets are in question again:

I make a quick comment in at the 2:38-minute mark, standing in front of the most-expensive REO listing we received in the era – a 2,900sf house in downtown Carlsbad that sold for $603,000 in December, 2009.  It’s still owned by those buyers! The realtor.com estimate today is $973,900.

REO Fraudster Goes to Jail

These are the crimes and attitude required to actually go to jail for real estate fraud:

A former Fannie Mae employee will spend more than the next six years in prison after being found guilty of accepting more than a million dollars in bribes and kickbacks in exchange for selling Fannie Mae-owned foreclosures for less than market value.

Back in January 2018, Shirene Hernandez was charged with accepting bribes for steering foreclosures to certain brokers and even allegedly buying some foreclosures herself at below market value.  And nearly a year ago, Hernandez was found guilty of two wire fraud counts that involved the deprivation of honest services as a result of the scheme.

Hernandez formerly worked at Fannie Mae in California as an REO foreclosure specialist and was tasked with the sale of properties foreclosed on by Fannie Mae.

As a sales representative, a position she held from 2010 through 2015, Hernandez would assign Fannie Mae-owned properties to certain real estate brokers and approve sales of the properties based on offers the brokers submitted.

But, court documents showed that Hernandez demanded and received bribes – mostly in the form of cash – in exchange for brokers getting the listings and commissions those brokers earned on real estate sales in question.

Hernandez also approved sales of Fannie Mae REOs at discounted prices to both herself and to brokers who paid her kickbacks.

As part of the scheme, Hernandez also received bribes for approving below-market sale prices of Fannie Mae properties to the brokers, all of which were violations of Fannie Mae rules and federal law.

Hernandez also helped several family members become Fannie Mae-approved brokers, and then steered nearly $80 million in Fannie Mae listings to them, resulting in nearly $2 million in commissions in less than three years.

According to court documents, Hernandez received more than $1 million in benefits from the scheme, including cash kickbacks and equity in a Fannie Mae property she bought using said kickbacks.

And, according to court documents, Hernandez paid for that property using a duffle bag filled with $286,450 in cash, which she gave to her sister-in-law to bring to the closing.

“The crime that [Hernandez] committed was egregious,” the prosecutors wrote in their sentencing memorandum. “Rather than act in the public’s best interests…she used her position to line her own pockets. [She] is unremorseful and unrepentant, and would seemingly do it all again if she could avoid being caught.”

In addition to the 76-month prison sentence, Hernandez was also ordered her to pay $982,516 in restitution to Fannie Mae.

Link to Article

Carmel Valley REO Closed

We featured this bank-owned property earlier as an online auction (which didn’t work out).

They did find a cash buyer – I hope they got in the house to take a look around!

This is a typical example of an REO sale these days.  The former owners paid $1,650,000 in 2007, and used a 31% down payment.  The original $1,137,500 mortgage was funded by World Savings, and undoubtedly it was a neg-am loan.

It looks like the buyers stopped paying in 2010, but instead of foreclosing and losing a truckload, the bank (Wells Fargo, who bought World Savings) just waited until they knew market value was high enough that they wouldn’t lose money:

The price at the trustee’s sale in November was $1,365,016, and they sold it traditionally for $1,350,000.  It means that after paying closing costs, the bank received 100% of the principal back, plus around $150,000 of the neg-am interest that accrued.

These days, banks are only foreclosing once they can make money on them!

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