Are We Experiencing Continued Irresponsible Home Lending in Southern California?

Here in Southern California we continue have some apparent irresponsible home lending practices going on.

The Orange County Register, reported on July 27, 2008, in a Marketplace article that one year ago, July 27, 2007, the house at 920 W. Camile St. in Santa Ana was bank-owned and deserted and that "the subprime lending bonanza had blighted a city block".

In October of 2007, this same house sold at auction for $304,500 (a bit more than half what the prior a buyer using 100 percent subprime financing paid in 2006).

This same house at 920 W. Camile was renovated and repainted and was resold in January, 2008, for $625,000, with a $125,000 down payment and a $500,000 mortgage from Wells Fargo Bank. (according to The OC property tax records).

Why would the price of a distressed property on a this same street in Santa Ana double between October of 2007 and January 2008?

Why did Wells Fargo Bank extend good credit to the buyers on this street where comparable homes are selling for $300,000?

In November, 2007, Wells Fargo Bank issued a $289,275 mortgage for this same home at 920 W. Camile to an investor who had purchased the home at a foreclosure auction.
In January, 2008, Wells Fargo Bank issued a $500,000 mortgage to the new owners of this same home.

Does this make good sense? Is this good for Southern California and our economy? Will this help make our communities better places to live?

This kind of lending practice isn't a good thing and will not be supported by Realtors.

Posted by Harrison K. Long, Explore Properties Group
Source: Orange County Register, Marketplace, July 27, 2008



Tags: Mortgage Financing; Home Ownership Economics; Explore Real Estate; Southern California; South OC

Challenges for Real Estate Investors In This Declining Home Value Market

Some losers in this residential real estate declining market are buyers of second homes, investors who are now involved with income tax debt challenge.

Some of these people will lose their properties through short sale or foreclosure and make it to bankruptcy under the weight of a income tax bill.

While U.S. Congress has granted some tax relief to people who lose their primary homes, there is no such aid for investors who fall behind on payments on 2nd homes.

If a person buys an investment home, and it they are unable to make payments and forced to short sale that property, or if they lose it in foreclosure, the difference between the amount they borrowed and the rental home’s sale price in short sale or foreclosure will ultimately be considered by the IRS to be taxable income as forgiven debt.

Under the U.S. Mortgage Forgiveness Debt Relief Act, which is effective from Jan. 1, 2007, through Dec. 31, 2009, a homeowner does not have to pay ioncome tax on debt forgiven by a lender, as long as the loan is backed by the property the homeowner lives in.

According to the National Association of Realtors, there are about 7.5 million vacation homes in the country, about 10 percent of the number of owner-occupied homes. From 2002 to 2007, the number of vacation homes rose 18 percent, more than three times the growth in the number of owner-occupied homes and the growth in investor-owned units.

For investment property owners with a potential income tax bill, there is one possible way to minimize the damage. Negotiating with a lender could prove to be good. The lender needs to agree that foreclosure fully satisfies all obligations under the loan. With that statement, there could possibly be no outstanding unpaid debt reported by the bank that the Internal Revenue Service could treat as income. However, it is still unknown whether that tactic will work with the IRS and the US tax courts.

Posted by Harrison K. Long, Explore Properties Group, June 6, 2008
Source: California Association of Realtors, National Assoc. of Realtors

Are We Starting to Experience Some Home Sales Stability in OC, California?

Are we starting to experience some home sales stability?

DataQuick Information Systems released its report on May 19, 2008, and said sales units in OC, California, totaled 2,166 in April, 2008, the first time they were above 2,000 homes a month since the market crisis started.

During April, 2008, buying activity was 19 percent below April, 2007, and 46 percent below the average April since 1988, and was the slowest April in DataQuick’s 21-year sales history.

However, unit of sales improvement in April, 2008, was driven partly by bargain hunters looking at the low end of the price.

The number of houses that sold for $500,000 or less increased 55 percent, and the number selling below $400,000 doubled.

Almost thirty percent of homes sold in Orange County during April, 2008, had been in foreclosure during the prior year (DataQuick).

That's amazing. Perhaps it's the start of the home sale market clearing out the foreclosures. That would be a good thing.

Posted by Harrison K. Long, Explore Properties Group, May 22, 2008
Source: Orange County Register, May 20, 2008

Banks & Lenders Are Taking Less Than What's Owed At Trustee Sales After Foreclosure

It's interesting that in Orange County, California, during April, 2008, buyers took foreclosure homes off the bank and lender hands at trustee sales for 21.5% less than the amount owed.

One year ago during April, 2007, the banks and lenders weren't so interested in discounting at trustee sales.

Perhaps the banks are getting smart.

It was reported that 84 percent of properties sold at the OC, California, at trustee’s sales during April, 2008, were offered at a discount.

Posted by Harrison K. Long, Explore Properties Group, May 14, 2008
Source: Orange County Register, May 14, 2008

What To Do If You Are Upside Down and Unable to Make Payment on Notes Secured by First and Second Deeds of Trust on Your Home

You Are Upside Down and Unable to Make Paymentd on Notes Secured by First and Second Deeds of Trust on Your Home. What do you do?

You might owe more money on your notes secured by a first deed of trust and on the note secured by the second on your home than what the property is worth.

What do you do?

Here in California we have the ONE ACTION RULE, the law preventing lenders from both foreclosing and suing you on the note. If the lender chooses the non-judicial foreclosure process, he is then prevented from suing you on the note itself. However, if the lender fails or declines to foreclose on the note, he retains the right to file and prosecute a civil lawsuit and get monetary judgment against you.

This could happen to you. It is more common these days.

If you are here in California and upside down on both the note secured by the first and that secured by the second on your home, always make all payments on the first if possible. Do whatever it takes to prevent the first from foreclosing. If you are unable to make payments on the second note, always force that note holder to foreclose. Once the holder of the second starts non-judicial foreclosure, he chooses that route and is prevented from filing a separate lawsuit for monetary judgment.

What is happening here in California is that some folks with note obligations secured by a first and a second on their home decline to make payments on either note. Their thought is to allow the holders to foreclose and to let the property go.

WAIT A MINUTE.

In that situation, the holder of the first can foreclosure and wipe out the deed of trust that was the security for the holder of the first. However, since that second holder did not exercise his right to foreclose, he could then file and prosecute a lawsuit against you for damages, the monetary amount of the note.

Think about this carefully. It is complicated. Seek and retain the advice of qualified counsel in your state and jurisdiction.

Posted by Harrison K. Long, Realtor and Broker, Explore Properties Group, www.ExploreRealEstate.net.
Also a lawyer licensed by the State Bar of California since 1976.

Is A Home Buyer Equity Sharing Arrangement a Good Thing in This Market? -- Part One

A man contacted us a week ago about his predicament. He and his wife had entered into an EQUITY SHARING AGREEMENT with a mortgage broker during 2006 to buy a home in South OC. This family made payments to the mortgage company as rent on the agreement. The mortgage company in turn made some payments to the lender on the note. The mortgage company went out of business six months ago and is not now making payments. This family could be facing foreclosure and evication? Was this EQUITY SHARING ARRANGEMENT a good thing?

...........

Investments in real property can take various forms, such as syndication, partnership, limited partnership, or LLC, where none of the parties live in the property and the property is rented to tenants.

An EQUITY SHARING ARRANGEMENT involves one party (the owner-occupant) occupying the property and the other (investor) putting up the bulk of the financing. Both the owner-occupant and the investor can receive tax benefits and share in the profit according to their investments as described in their equity sharing agreement. First-time homeowners are the typical owner-occupant while the investor can be a family member, a seller, or any real estate investor.

EQUITY SHARING is a form of ownership and investment that allows two or more parties to share an interest in real property. It is frequently used in situations where, because of the high cost of housing, one party, the investor, puts down the bulk of the downpayment, and the other, the owner-occupant (also caller the "occupier") puts down little or no downpayment but agrees to pay a monthly amount consisting of "rental payments," mortgage payments, taxes, and other specified charges, and lives in the dwelling. The owner-occupant may pay all of the mortage costs as "rent" or may pay two different amounts, one portion representing the rent and the other representing mortgage, which would include interest for which he or she could receive a tax deduction.

Depending on the specific terms of the contract, there are tax and ownership advantages to EQUITY SHARING.

Be very careful. There are potential tax and financial pitfalls in an equity sharing agreement that is loosely worded. Since the owner-occupant does not own 100 percent of the property, he or she must pay a "fair market rental" to the investor for living in the dwelling. The rent paid by the owner-occupant should be proportional to the percentage interest that the owner-occupant has, and should be based on the fair market rental value determined in good faith. Ideally, they have both signed the note and trust deed and are also on title. The rental paid to the investor is taxable income, and the interest paid on the mortgage is tax deductible. On the other hand, the investor also pays the remaining fraction of the mortgage each month based on his or her proportional share of ownership and can deduct the interest as an expense of the property, subject to passive loss and other restrictions.

Be careful with EQUITY SHARING AGREEMENTS. Consult a qualified Realtor and also with an experienced real estate lawyer in your area and jurisdiction.

Posted by Harrison K. Long, Explore Properties Group, May 3, 2008
Source: California Association of Realtors, March, 2008

Reinstatement of Your Home Loan or Mortgage After Default?

You don't have to be a bum or a deadbeat to get into a foreclosure position with your home. It can be as simple as missing some days of work or having a mortgage payment late. You are in over your head with your lender. Now your lender's threatening you with foreclosure. The last thing you need is the stigma of foreclosure and are seeking a way out.

If it's possible, the best way to get out of this mess is to come up with cash and go for reinstatement of the loan.

This could be difficult. The lender requires you to catch up with payments and late fees in a lump sum. If you can work this out, get it in writing. The only chance you have of making it happen is if you satisfy the lender that conditions that led to this situation will not be repeated.

Be careful with this. Hire a qualified and professional Realtor, someone to trust who will look out for you during tough times. Get sound advice from an objective advocate who will be in your corner.

Then decide for yourself whether reinstatement of your defaulted mortgage is a possibility and/or the best course of action.

Posted by Harrison K. Long, Explore Properties Group, May 2, 2008

Homeowners Who Are Upside Down on Loans Should Be Careful When Considering to List a Short Sale

Upside Down Homeowners Should Be Careful When Considering to List a Short Sale

With home loan foreclosure or deed-in-lieu of foreclosure, sellers will take a hit of 200 to 300 points on their FICO scores. The exact penalty on FICO will depend on overall condition of credit.

The effect of a short sale on a seller's credit FICO score is the same as a foreclosure. The penalty on a credit report will appear as a pre-foreclosure in redemption status and result in a loss of 200 to 300 points on FICO.

With a foreclosure or deed-in-lieu of foreclosure situation, a seller who wants to buy another home later will end up waiting about 36 months before a lender will offer a reasonable opportunity.

With a short sale, the notation on a seller's credit profile of 'settled for less than owed' (short sale) prevents the consumer from obtaining an institutional loan for about 24 months, depending on the lender program (Fannie Mae guidelines).

More bad news is that the short sale seller could be subject to lawsuit and deficiency court judgment for the difference between the loan amount and the amount paid.

In California, purchase money loans are not subject to lawsuit and deficiency judgments. However, hard money loans, equity loans and refinances are subject to lawsuit and deficiency judgments. Other states have laws regarding personal guarantees on loans, which could also result in lawsuit and deficiency judgment against the owner.

This is complicated. Homeowners considering to list for a short sale should be careful and consult a qualified real estate or tax attorney in their state and jurisdiction.

Posted by Harrison K. Long, Explore Properties Group, April 30, 2008

Bush Administration & Lending Industry Correctly Oppose Giving Bankruptcy Judges More Power

The U.S. Senate passed legislation April 10, 2008, that would provide billions in tax cuts for home builders, banks and other businesses. However, the U.S. House of Representatives is considering other legislation that would provide more help for individuals, but no breaks for businesses. The Senate's bill is compromise that didn't include a provision to allow bankruptcy judges to reduce the principal on in trouble borrowers' mortgages. The Bush administration and the lending industry correctly opposed giving bankruptcy judges power to force "cram downs" of loan principal on lenders.
Posted by Harrison K. Long, Explore Group, April 10, 2008