San Jose Short Sale Agent: Silicon Valley Foreclosure Prevention Specialists

Woo Hoo!  SB 458 is now the law in California!  This means the second mortgage holder must relieve a homeowner of any deficiency claim if they approve a short sale.  SB 931 made the same type of deficiency waiver mandatory for first mortgage holders, but the second mortgages were exempt.  This led the seconds to put a stranglehold on many homeowners, making unreasonable demands on distressed homeowners. NO MORE.  Short Sales mean paid in full.

As a San Jose Short Sale Agent, I believe this announcement is one of the most significant in the Short Sale process because it permits homeowners to simply walk away after the sale.  I spent many many hours negotiating with seconds to permit the homeowners to walk away without paying anything or paying as little as possible. The passage of this new law eliminates that whole unpleasant process.

Kudos to Governor Brown for having the compassion to help distressed homeowners.  Finally, some protection for the homeowners and not  just for the large banks.  We must allow short sales to process quicker and more efficiently, rather than drag on because of the seconds want to squeeze more blood out of homeowners who already suffered from negative equity and are losing their homes.  This new law makes it easier California homeowners to do a short sale now and avoid foreclosure because that little sticky issue with the deficiency claim is preserved after a foreclosure sale.   Now the reason for doing a short sale over a foreclosure becomes infinitely more clear.

CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law

LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.

Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.

“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

SB 458 contains an urgency clause making it effective upon signing.

Ask anyone who does a lot of short sales about what is becoming a troubling trend in the industry and my guess is a majority of them will bring up the fact that the junior lien holder (or the second mortgage) is refusing to cooperate and demanding unreasonable amounts of money for them to agree to a short sale; or some of them even asking for illegal kickbacks in the form of payments made without being disclosed on the HUD1.

What does all of this mean?  Well, the junior liens have been receiving pennies out of the dollar, sometimes getting paid $3,000 on a loan with a balance of $100,000.  Yes, the loss is huge, but the junior lien holder has very little alternative, as a foreclosure means their loan is wiped out.  Hence, the senior loans have been successful in pressuring the juniors to take the lesser of the two evils, pennies or nothing.

Many junior lien holders are not taking this lying down now.  They have figured out they can combat the pressure from the senior liens by refusing to agree to the short sale. They are holding out until they can negotiate better terms.  They are simply saying to the senior lien holders: “if we don’t get a better offer, we won’t let the short sale happen; you will be forced to into foreclosure and your net will be much lower in a foreclosure sale than a short sale.”  They are simply playing a game of chicken.  Remember, if there are two loans in a short sale, both of the lien holders have to agree to permit the sale to proceed.

Or the other tactic is, some junior liens are demanding that the sellers pay them a settlement fee outside of escrow so that it will not show up on the HUD1.  A HUD1 discloses to all parties who is getting paid what.  By making a payment outside of the HUD1, the junior lien holder is getting paid without the senior lien holder finding out.  This is illegal, by the way; mortgage fraud, a Federal Offense from what I am told.

We all understand what the junior lien holder is trying to accomplish, but the problem is that in their game of chicken, the majority of the parties are suffering. We have one party who wants the property; the other party who wants to sell and move on with their lives and get out from under the banks; the senior lien holder who is also taking a huge loss, but because the junior lien holder, who knows they can get nothing if they force the transaction into foreclosure is hell-bent on forcing a foreclosure because they want to get a little bit more: even by illegal means.  They pressure the sellers to such an extent, the sellers are sometimes choosing to accept foreclosure rather than to give into what is being demanded.   Remember, the collective goal right now for the country is to reduce foreclosures, not to encourage it.

Because this problem is becoming more common and have reached critical mass, Barney Frank, the Chairman of the House Financial Services Committee has sent out a petition to the largest banks to voluntarily take action to permit second lien write downs; or else.

The same banks who are junior lien holders are also senior lien holders on other loans, so in the grand scheme of things, they will benefit if they prevent foreclosures.  So what are these guys  doing?  They are hurting their own bottom line and taking everyone else down with them; it makes no sense.