San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

It’s about time something like this took away these incentives which were often not disclosed to the borrowers.  It is my humble opinion one of the major reason why we had the sub-prime and the Option ARM mess was primarily due to this practice: paying loan brokers a bonus for steering their clients into high risk loans which they knew would not benefit their clients.  This was the classic case of agency going awry: the agent was looking out for his own interest to the detriment of his client. A serious conflict of interest.

My philosophy is simple: always know how people get paid to determine their motivation.   My commission structure is written out in our listing contract; there is no room for undisclosed bonuses.   My clients know exactly how I get paid, so they know my motivation from the start.  Imagine if I got a huge bonus from the buyer’s lender if I chose their offer over another and steered my clients into accepting their offer, which was a less than favorable offer because I was influenced by said bonus.  Would this be a conflict of interest and would the client have taken my advice if they knew of this secret bonus?

How did the Realtor Associations avoid this type of conflict of interest?  By the use of the Agency Relationship Disclosure document(CAR form AD).  This document laid out exactly the contractual obligation of the agent vis a vis his client.   It states, I owe my sellers or my buyers (depending on whom I represent): “A Fiduciary duty of utmost care, integrity, honesty and loyalty in dealings with the Seller.” (or buyer, if I represent the buyer).

What does Fiduciary duty mean?  According to dictionary.com fiduciary duty is:

“the legal duty of a fiduciary to act in the best interests of the beneficiary”

Best interest of the beneficiary, or my client.  I have to put my client’s interest over my own.  Hence, even if I were to be offered a secret bonus, I could not take said bonus if it would not be in the best interest of my client.  Naturally, I could accept such a bonus if I revealed it to my client and they still thought said bonus would be in their best interest.

I am not saying all Realtors are angels, but because they had to sign these disclosures which contractually obligated them, it removed any temptations.  The same can be said of loan brokers; I am not accusing all loan brokers of this despicable practice, I’m sure most didn’t engage in such practices.   However, because there was no mandatory requirement for the use of such instrument as the Agency Relationship Disclosure, it made it tempting for those brokers who may have decided enriching themselves was more important than looking out for the best interests of their clients.

To control the practice of such steering, the Federal Reserve chose to simply remove the temptation by banning the practice of paying such bonuses all together.  One way or another, the borrower’s best interest will now be better protected and that is a good thing.

I had written a little while back about Senate Bill 1178 to extend the anti-deficiency protection to those homeowners who sought to lower their interest rates by re-financing.  Unbeknownst to them, that simple act of wanting to lower their monthly mortgage payments stripped homeowners of an important legal protection.   CAR (California Association of Realtors) sponsored the bill and issued a consumer alert and prompted consumers to contact their local representatives to voice their opinion.

It seems consumers heard and contacted their local politicians.   Now it needs to pass the State Assembly.   This bill would truly address an inequity which needed to be addressed. People should not lose their homes and still be indebted to banks just because of their desire to lower their monthly payments by re-financing their mortgages.

C.A.R. issues consumer alert on refinanced mortgages
C.A.R. issued a consumer alert yesterday warning borrowers of the liability associated with refinanced mortgages.  To help protect consumers, C.A.R. is sponsoring Senate Bill 1178 by State Sen. Ellen Corbett (D-San Leandro) to extend anti-deficiency protections to homeowners who have refinanced “purchase money” loans and now are facing foreclosure. The Senate may vote on the bill as early as next week.

Currently, if a homeowner defaults on a mortgage used to purchase their home, the homeowner’s liability on the mortgage is limited to the property itself.  While this law has helped protect borrowers since its inception in the 1930s, it does not extend the protection for purchase money mortgages to loans that refinance the original purchase debt—even in cases where the loan was refinanced to achieve a lower interest rate.

The above is an alert issued by C.A.R.  (California Association of Realtors)

Most of the clients who come to me to discuss short sales  do a lot of research online and come with the knowledge that California is a Non-Recourse State.  This means the lenders cannot come after the homeowners beyond the property itself (for any deficiency)  if the original intent  the mortgage was to purchase the property, as mentioned above.

What most borrowers  do not realize is that the moment they re-finance to take advantage of lower interest rates, the intent of the money changes to their detriment. Whether the borrower took advantage of a lower interest rate, or cashed out to pay down credit card bills, or to use as down payment on a second property, or to start a business, the nature of the money changes and the protection disappears.   Most loan brokers who were pushing re-finances during the past few years did not inform their clients of the elimination of  this important legal protection.  To be fair, most loan brokers or real estates agents probably were not even aware of such consequences.   But the fact remains,  that for many borrowers, if they were aware of such protection disappearing, perhaps they would not have been so quick to refinance.

SB 1178 is designed to extend that protection once again.   This truly is something that all of us consumers must rally behind, it is simply the right thing to do.   A homeowner should not lose this important legal protection because they want the opportunity at qualifying for lower monthly payments when times are tough.   But guess who is fighting against this measure: the Banks and their lobbyists.

Contact your local State Senator and make sure your voice is heard.   Take back your legal protection.

The debate has been whether the Federal Tax incentive was effective or not.

Let’s look at some numbers.   First Time Home Buyers who were eligible for the tax credit purchased 44% of all homes in March 2010, pushing up total home sales by 6.8%. 44% of all purchases.  I think that is a very strong argument that the program was effective.   I’m sure we will learn more as we get the numbers for April, when the program ends.

http://www.dsnews.com/articles/existing-home-sales-jump-68-in-march-2010-04-22

The buzz in the recent weeks around here for me has been about the newly resurrected California Tax Credit.  It is certainly causing the fence sitters, who thought they did not have enough time to qualify for the Federal Tax Credit,  to dive head first into the purchase market now they have more time to qualify for another program that is possibly worth more.  HOWEVER, THERE IS A SMALL WINDOW OF OPPORTUNITY where a buyer may BE ABLE TO QUALIFY FOR A TOTAL OF $18,000 combined credit.

To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same timeframes to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.   Please check with your tax professional for specific details.

The issue for the California Tax Credit is that it is limited to $200 Million in total, hence it the fund runs out before the deadlines, you will be left holding the bag like last year.  First come First Served basis again.

Here is a quick side by side comparison to help clarify matters of concern.

This is the question that is put forth to me frequently.  Unfortunately, I don’t have a crystal ball, nor the mathematical mind-set to be able to compute the data available to reach a reasonable conclusion.  Fortunately, there are those who do have the mathematical wherewithal to be able to draw such conclusions and they are of the opinion that positive equity will return for most somewhere between 2015 or 2016.

Remember, this is just opinion from one organization, so they could be completely off; but it does give us some statistical analysis based data to ponder.

Just got a letter from CAR President announcing that Gov. Schwartzenegger signed into law AB 183 which will provide up to $200 Million tax credit to home buyers of both new and existing homes that are purchased between May 1, 2010 – December 31, 2010.

Highlights:

* principal residence

* credit equal to $10,000 or 5% of purchase price, whichever is lesser amount

* credit to be taken in equal amounts over 3 years

* must live in home for at least 2 years

With the Federal First Time Home Buyer Tax Credit set to expire if the buyer is not in contract by April 30,2010, this is the perfect complementary plan to continue to encourage California Home owners to purchase throughout the remaining year  so that we can continue to deplete the excess inventory of distressed properties that are out there  and will continue to hit the market place in the months to come.

Fantastic Job Governator!

http://www.mercurynews.com/breaking-news/ci_14524392

Unfortunately we set a 30 year record in January 2010: more people are out of jobs than they have in 30 years up  from 12.3% in December 2009, but there seems to be an upswing  as 32,500 people gained employment in the same month.  A mixed message.

Regardless of how we interpret the data, one thing is very clear: there is a direct correlation to reduction in home buying behavior and unemployment. Regardless of what people may say about homes being more affordable now than ever before, if there is no sense of security in employment front, there will be no home purchases!

So what does this mean?  All this effort in providing tax credit incentives is great, but unless and until there is a concerted effort by the State and  Federal Governments to tackle the issue of unemployment and more importantly, to improve this number, there will be no increase in home purchasing activity.

In fact, as long as more people are losing jobs, they will start or continue to fall behind in making their mortgage payments, which will increase  the activities in the distressed properties market, which will result in home prices falling, which then will continue this drag on the economy as industries related to real estate continue to suffer and lay off more employees.  Truly a vicious circle.  Right now, 1 out of 6 home owners is behind in their mortgage payments.

So we all should pressure our politicians in D.C. to stop playing politics and get at the job for which they were elected: improve the economy by creating more jobs.  Everything else is secondary.

I get testimonials from my clients here and there.  But this one touched me, because we did have to go through a lot with Bank of America and for a very long time, but in the end it came out all right.  I was very happy that she and her family could go on without having to look over their shoulders and just go on with their lives since they had moved.  Truly, this is what I mean by trying to help the foreclosure crisis, one family at a time.  Helping people like Becky makes me feel like I am contributing in my own way.

As everyone knows, the volume of FHA loans funding first time home purchases has increased dramatically in the past two years.  It went from 3% to about 50% of the mortgage market today.  It is a great product for first time home buyers who want to capitalize on the current first time homeowner tax credit offered by the government.

However, because the down payment requirment is 3.5% of the purchase price, many buyers who use this product often have limited access to additional cash that may be required to address some of those unforeseen situations that sometimes arise when purchasing a home.  This is especially true when they are trying to compete on multiple offer situations and they need additional funds to later for repair work.    From my own experience, most FHA buyers walk away from certain homes they like because they simply do not have funds for repair work.

However, this does not necessarily have to happen.  What their agents are failing to inform them is, there is something called a FHA 203(k) loan which was designed specifically with this type of need in mind.   The 203(k) is a repair program which can be rolled into one single loan.  It is the lifesaver for those who want to buy a home that may require repair work.

I am a real estate expert, so I will not get into the specifics of this loan product, but a good loan agent should be able to explain thing in detail about this wonderful product which escapes the radar of many home buyers.  If you are in Silicon Valley and don’t know a good loan agent who can explain this useful product to  you, then contact me and I can set up introductions.