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The “Homeowner Bill of Rights” went into effect Jan. 1, 2013. The general purpose of the law is to do away with the ability of lenders to do something called “dual tracking” (when a borrower is trying to work out some alternative to foreclosure, yet the lender continues the foreclosure process). This is NOT an across-the-board foreclosure moratorium. Lenders ARE prohibited from foreclosing, but only in certain instances, and the rules are different if it’s a loan mod or a short sale.

For a loan modification, the lender cannot file any foreclosure notices (notice of default or notice of sale) and they cannot hold a trustee’s sale if the borrower has submitted a “complete” loan modification package and it’s being reviewed. The kicker here is that it appears to be up to the lender to decide what a “complete” package means. And stories about borrowers sending in documents, only to have the lender lose them are frequent. My advice is to document whenever the lender tells you your file is “complete.” They are supposed to acknowledge that in writing, but I’ll be surprised if that happens very regularly. If they do turn you down for a loan mod, they are supposed to do so in writing, and then they STILL can’t foreclose for 30 days, which gives you the ability to appeal their decision.

The rules for short sales are quite different, and actually quite inferior, in my opinion. The hold on foreclosure activity doesn’t start at application. It only starts once the short sale is APPROVED by all lien holders AND “proof of funds or financing has been provided to the servicer.” I know what “proof of funds” means (liquid funds sufficient to close the deal) but they don’t define what “proof of financing” means? Will they accept a pre-qual letter? Or do they require an underwritten pre-approval letter? Or do they mean formal loan approval? Or loan docs in title, signed and lender has funded? BIG differences between each of these!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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One... That’s how many “regular” equity sellers there were one month a few years back. I can’t remember the exact date, but I’m guessing it was somewhere around 2007 or 2008 when we were deep in the throes of the “mortgage meltdown.” I was compiling some market data for a report and was shocked to see that that month only ONE of the closed escrows in Brentwood was a “regular” seller. All the rest were either short sale, or bank-owned, or an investor “flipping” the property. Since that point, the vast majority of sales continued to be distressed sales of some kind. Most months they hovered around 70-90% of the sales. And when you saw a home for sale that wasn’t a distressed sale, it was usually just over-priced because they were trying to get what they owed on it.

Well, we’ve had QUITE the turnaround recently. Last year, 61% of the sold homes in our area were distressed sales of some kind. And so far in 2013, only 46% were distressed sales. When you look at the active homes for sale, only 33% of them are distressed sales. And many of the actives are legitimate equity sellers, as in they aren’t just over-priced to avoid being a short sale. I don’t think we are going to see a wave of bank-owned homes like we kept fearing. I do think we’ll have significant short sales for a while, but less than in the past.

There are many contributing factors to this turnaround. It’s mostly due to the fact that there have been massive foreclosures and short sales the past 5-6 years, and they aren’t making the “crazy” loans anymore. So if you think of any assembly line in a factory, they are going out the output side, but very few are going in the input side. Most of the buyers that bought homes the last few years can actually afford their payment, and it is a 30 year fixed rate loan, or the buyer paid cash. On top of that, our market “bottomed” about the middle of last year, and prices are up 20-30% since then. This is helping those people that were just a little upside-down get back to where they have a little equity.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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When you have a foreclosure, deed-in-lieu of foreclosure, loan mod with principal reduction or a short sale, it’s possible that you will have “phantom income” in the form of forgiven debt. The Federal government extended the Mortgage Forgiveness Debt Relief Act through the end of 2013. So if your loan was used to buy, build or improve a principal residence, or you are insolvent or have filed for bankruptcy, you probably won’t owe Federal tax. You may owe California tax because California’s Mortgage Forgiveness Act expired 12/31/2013. Regardless of either the Federal or State Acts, if you are solvent and you pulled cash out of a property, you may owe phantom income tax.

However, there is possible good news on two fronts. First, SB 30 (Calderon, D-Montebello) was recently introduced as a CA Senate bill, which will make California’s law like the Federal law again if it passes. I would say odds are better than 50% that it will pass

The other good news is hard to explain in the remaining space because it’s a complicated legal argument, so I can only summarize. Back in 2011 California law changed to where if a lender agrees to a short sale, in most cases, they are forbidden from pursuing the borrower for the deficiency. So the argument goes that when you do a short sale, the loan becomes equivalent to a “purchase-money loan,” which means the lender’s only option in the event of default is to pursue the property, not the borrower. That means there WAS no “forgiveness of debt” and therefore there should be NO 1099. So if this argument holds up, that COULD mean that ALL short sales in California for 1-4 unit properties are free from ANY phantom income taxes for California. So this is one more reason to consider a short sale if you are facing difficulties paying your mortgage instead of letting it foreclose because it MAY have favorable tax treatment, depending on your situation. I AM NOT A TAX OR LEGAL EXPERT. I’VE JUST DONE SOME RESEARCH ONLINE. CHECK WITH TAX AND LEGAL EXPERTS FOR YOUR SITUATION. THIS IS A CONFUSING AREA OF LAW AND THERE ARE DIFFERENCES IF PROPERTY IS A RESIDENCE, RENTAL OR LAND BEYOND WHAT I HAVE SPACE TO EXPLAIN.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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PMI stands for Private Mortgage Insurance. If you are looking to buy a home, and you are putting less than 20% down, you will likely have to pay PMI. The purpose is to insure your lender in the event that you don’t pay them back.

A few years ago lenders got creative and they would make you one loan at 80% of the appraised value of the property, thereby avoiding PMI, but then they’d make you another loan at 10% of the value, so you’d only have to come up with 10% down. The problem is that the interest rate on this second loan was often quite high, but it was still cheaper than paying PMI. But then a few years ago, the tax laws changed to where PMI was tax-deductible, so then the pendulum swung back in favor of PMI, and the 80/10/10 loans fell out of favor. But recently I learned that PMI is not tax-deductible for everyone. There are income phase-outs starting at $50K per year for single-filers and $100K per year for joint filers. So this makes the PMI look less attractive for many home buyers.

Then I just heard that the rates for PMI for FHA loans are about to go up, again. And that starting in June, the rules for when PMI come off your FHA loan are changing, again. Many years ago, when you had 20% equity in your home, the PMI would come off automatically. But then some lenders said that they wouldn’t count appreciation any longer in that calculation. You had to have paid your loan DOWN by 20% since it started, no matter how much your home appraised for. But now the new rules may be that PMI NEVER comes off your FHA loan...  So the only way to get it off is to go get a whole NEW loan and payoff the old one. So if rates go up in the future, you may be STUCK in your FHA loan with PMI.

So if you are looking to buy a home, and you have less than 20% down, be sure to ask your lender about ALL your options and weigh them all carefully. And read ALL the fine print about the PMI!

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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I’ve heard a lot of heart-breaking stories the last few years as a result of the real estate meltdown. Some of them were just “bad luck” stories of people losing their jobs, divorce, health, issues, etc. But then there is another whole category of stories I hear that were caused by someone’s actions of trying to take advantage of someone else. Some of the worst ones are when someone rents out a property, and the landlord says they’ll discount the rent substantially if the tenant will pay 2-3 months ahead of time. The tenant is ecstatic, until they move in and find out the home gets foreclosed on soon after. There is a new law in California where the landlord has to disclose if foreclosure has begun on the property. So IF the landlord complies with this new law, that will help protect tenants from the situation I describe above. However, if someone was going to lie to you in order to take your money, I don’t hold out a lot of hope that they’ll follow this disclosure law. Best to do your own research on any property you are thinking of renting and find out if the foreclosure process has been started. Another good idea is to ask your potential landlord to see a copy of their mortgage statement. See if the payments are current, and also see if their payment is significantly more than what you will be paying for rent, which would be a big red flag!

Here is the verbiage that is mandated by this new law: "The foreclosure process has begun on this property, and this property may be sold at foreclosure. If you rent this property, and a foreclosure sale occurs, the sale may affect your right to continue to live in this property in the future. Your tenancy may continue after the sale. The new owner must honor the lease unless the new owner will occupy the property as a primary residence, or in other limited circumstances. Also, in some cases and in some cities with a ‘just cause for eviction’ law, you may not have to move at all. In order for the new owner to evict you, the new owner must provide you with at least 90 days’ written eviction notice in most cases."

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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So a lot of people took a big collective sigh of relief when we heard that the US Congress agreed to extend the Mortgage Forgiveness Debt Relief Act for another year. Just to clarify, this Act means that forgiven debt on your mortgage is generally not taxable, but only to the extent that the loan was used to buy, build or improve the property. So if you took cash out, you could still face a tax liability. There are other exemptions, notably bankruptcy or if you are insolvent (your debts exceed your assets). But there is more to the story, unfortunately...

Don’t you pay both federal AND state income taxes? That’s right. California has their OWN rules in regards to taxing mortgage forgiveness. For a while several years ago, the federal government was not taxing most mortgage forgiveness, but California (and some other states) were. After a sufficient hue and cry, California agreed to match the federal rules on this topic. But their rules also expired on 12/31/2012 just like the federal program.

I checked in with the Franchise Tax Board in Sacramento and asked if they had extended theirs to match the federal rules again. The answer was a disappointing, “No.” That means that some people may be in a situation where you don’t pay federal income taxes on your forgiven mortgage debt, but you may owe California income tax. I then asked if there are any bills pending to match up the rules to the federal rules again, and they didn’t think so. I would imagine someone will submit a bill shortly. The question is whether California will extend theirs again. If they do, it’s also likely that they will back-date it to 1/1/2013. And as a reminder, if you will owe tax on the forgiven debt, letting it go to foreclosure will probably NOT solve your tax problem! PLEASE CHECK WITH A TAX EXPERT FOR SPECIFICS TO YOUR SITUATION.

If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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When is it too late to start a short sale? I get this call from people who know they have a short sale in their future, but they want to stay in the house as long as possible before the foreclosure. It’s not always just to live rent-free. Sometimes it’s to keep kids in school, or they haven’t located a rental yet, or whatever.

Over the past few years, lenders were VERY slow to foreclose. Sometimes it would take them 2-3 years before they pulled the trigger on the foreclosure, and even then they would postpone the foreclosure time and time again very easily. But I’m seeing signs that that will NOT be the case going forward. Most of the foreclosure moratoriums have been lifted, there have been a number of national foreclosure settlements, and I’m seeing some lenders start to move to foreclose MUCH quicker nowadays. The wild card is the new Homeowner’s Bill of Rights in California that may slow down foreclosures again, depending on how it’s implemented.

Once the lender does foreclose, it’s impossible to do a short sale then, because you no longer own it. The week before the sale is also quite difficult to start a short sale and have it be successful (although I’ve done it a few times). The month before the foreclosure sale is difficult, but certainly doable. What a lot of my clients do is wait for the Notice of Default to be filed, and then hurry up and do the short sale application at that point, and that usually leaves enough time to get the short sale approved, or at least far enough to where they’ll hold off on the foreclosure. However, I need to warn you that I had several clients in 2012 where we started the process soon after the Notice of Default, and the lender still foreclosed. So even though we had a good, market-value offer on the table, they said it was too late and they foreclosed. So if you really want to avoid the foreclosure, you can’t count on getting automatic foreclosure extensions anymore.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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So last year I told you about the big national mortgage settlement that was for $25 billion but only covered 5 banks. There was a smaller one back in 2011 that covered more banks and that one has recently been revamped and expanded. It only covered loans made on your principal residence if it was in some stage of foreclosure in 2009 or 2010. The lenders participating in this one are Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, MetLife Bank, PNC, Sovereign, Sun Trust, U.S. Bank and Aurora. Other lenders may join in later. You don’t need to do anything to find out if you qualify, your lender will contact you.

Most people who qualify won’t actually have to prove that they were harmed, which is one of the big changes to the settlement. They found it was taking too long and taking up too much money to review every loan and try to establish who was harmed and by how much. If you qualify for one of the larger amounts of up to $125,000, the lender may need to verify some things with you, but few people will qualify for that much money. Most people who qualify will get far, far less. 

They are continuing discussions with HSBC, Ally (formerly GMAC), EverBank and IndyMac, part of OneWest Bank. If they sign on to this revised settlement, then their clients may start to see some money sooner. But until then, those loans will continue to be reviewed to see any money is due their clients. 

The point is to CHECK YOUR MAIL! You may get a notice that you qualify, and it may even have a check in it. So don’t just toss your mail from your lender/old lender.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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So we’ve been holding our breath the last few months to see if our politicians would let us fall us the Fiscal Cliff on Jan. 1. Well, they did! But it was only for a short time. They hammered out some compromises to get a deal put together before the stock markets opened, which was the true deadline. It kicks a lot of cans down the road, but at least the emergency is over (for now) 

The good news is that the Mortgage Forgiveness Debt Relief Act has been extended for another year. So this is good news for those that would have paid taxes on their loan mod with principal reduction, or a short sale or a foreclosure but can now meet the requirements covered by this Act. However, this Act does NOT make all forgiven debt tax-free. So this is not a blanket that covers ALL short sales and foreclosures. The biggest gotcha is that if you took cash out of your property, you may still owe on the forgiven debt, unless you are insolvent or file bankruptcy. In basic terms, if you didn’t take cash out of your property, and/or you are insolvent, you probably won’t pay forgiven debt tax.

When I talk to clients about a loan mod vs. short sale vs. foreclosure, this is the one topic that tends to come up the most. But what most people don’t understand is that if you are going to owe on the forgiven debt tax after a short sale, then foregoing the short sale and letting it go to foreclosure instead does not solve your tax problem! You’ll still owe it after the foreclosure because that still represents forgiven debt! The only way to get around it is to keep the payments current and keep the property until the loan is paid off (unless you file bankruptcy).

PLEASE CHECK WITH LEGAL/TAX EXPERTS ABOUT YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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Two weeks ago I mentioned that inventory of homes for sale in Brentwood is as low as I’ve ever seen it, and I’ve been tracking this number for nearly 14 years now. What’s behind this decrease?

The biggest reason is that lenders are STILL trying to exhaust all their other options prior to foreclosing. Granted, there are some cases where they are foreclosing as quickly as possible, but in general they are still pretty slow to foreclose. They’d rather try a loan mod or short sale. Yes, I know a short sale is still a sale, but they are MUCH slower than a foreclosure to hit the market.

Another big reason is the huge increase in investor buyers that are buying up most everything under $300,000 they can to turn it into a rental to get the cash flow.

Yet another reason is that we are seeing buyers returning to market after having gone through a foreclosure or short sale over the past few years. Many of them are now able to qualify to buy a home again, and they are eager to get in to take advantage of these low prices and low interest rates.

This very well may continue into 2013 as the above 3 trends appear to be pretty strong and sustainable. But know that they could all three change quickly. Lenders may increase the pace of foreclosure (not likely). Investor buyers could dry up as house prices rise to the point where the cash flow isn’t as attractive (possible if prices rise too quickly and/or if rents decrease due to too many rentals or if interest rates rise where investors are getting a higher return on their cash). Lastly, rising prices and/or rising interest rates could also squelch a lot of the demand from returning buyers who can’t qualify.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search theMLSfor free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty