California’s new short sale law CCP 580 (California Code of Civil Procedure section 580e) has been a blessing and a curse. You may need to consider a two step short sale. A California Two Step Short Sale (Tm)
Blessing:
1. Short Sale are taking less time because we no longer have to spend and extra month negotiation for our client’s release from the deficiency or remaining loan balance.
2. When the seconds are on board with a short sale, it is nice because they no they are not supposed to ask for a financial “contribution” from the seller. Although many still do.
3. Some of the banks have adjusted their approval letters to match up with the California’s new short sale law, so even our most conservative clients with non recourse loans are opting for short sales over foreclosures.
Curse:
From a recent webinar put on by California Association of Realtors, many Realtors are reporting that some seconds are holding out for 20 percent of the remaining loan balance or more. This is not surprising since experienced short sale agents who cared about their clients future knew that some of the major lenders had two short sale prices. One lower price was for the release of lien only and there was a higher price for the release of lien and the release of the remaining loan balance. (Even Bank of America had two prices on at least some of their short sales.)
The problem is that now more than home owners with recourse loans need a plan B more than ever. (asset and income protection in case the short sale does not workout). The bonus about having a plan B is that you can sometimes leverage that Plan B for a better result. When we tell seconds that our clients are going to put a renter in the property and never pay the second a dime and then we explain the law to them… we find our short sales accepted within 24 hours.
For some clients with assets it makes sense to keep the senior current while negotiating a short payoff with the second.
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Questions about short payoffs or CA Two Step Short Sale.
Question / Comments: Rented out San Diego home 12/09, moved out of state state, bought home there.
San Diego home worth 700-750K.
Owe 518K on refi-1st and 228K on HELOC (ETrade) and have stopped paying.
I have a skilled selling agent and short sale negotiator working for me. The SS negotiator says I am a hardship case and ETrade is very likely to accept getting about 50%. However, I am still worried about protecting my assets just in case. I am retired now and any more losses could leave me homeless. I even need to downsize from here and am considering paying 195K cash for a small home to get my expenses down to match income.
I really need to know if this is a wise thing to do. My SS negotiator cannot really tell me.
1. Etrade is well known for requesting a large percent of the loan balance for a deficiency release in California.
Prior to July 15th 2011 Etrade might do a short sale for a small amount of money, but they would not release the deficiency for a small amount
If you wished to negotiate a deficiency release they would typically negotiate for 20% and 50% of the remaining loan balance.
2. CCP 580 changed the whole short sale landscape in California. It has 2 main parts –
a. Lenders must released deficiency if short sale is approved and closes; and
b. The law says sellers may not contribute their money to the short sale.
In order to present options to you, we would need to know if your HELOC or home equity line of credit is a recourse or non recourse loan.
If it is non recourse, you may not be exposed to an approximately $250,000 deficiency after a foreclosure.
If it is a recourse loan you may be.
3. Many, if not most, senior lenders will never let you pay a big chunk of money on the HUD to the second.
If you attempt to pay a chunk of the money outside of the HUD you, your Realtor, your negotiator and/or escrow may be
violating RESPA… which is a very serious Federal law.
Even if your Realtor was willing to risk his license, it is unlikely the title company will go for such an arrangement.
4. Therefore for most sellers with two loans, it is now absolutely imperative that you
set up you plan strategy prior to commencing the short sale.
You can not walk into negotiations with a second when you have recourse loans without a backup plan.
We know that seconds are holding out for more than the first is willing to pay in at least half our files.
You must know your options. There are ways around these problems.
But these are serious concerns. We have no idea how Realtors can be advising people with two loans about their options.
For instance one option you should consider is a short payoff.
You negotiate with the second prior to starting the short sale.
With and experienced attorney it can work especially well when you have renters and you can continue to stay current with the first.
However, it may take time with some banks.
There are a host of other options.
May we suggest you consider attending one of our webinars.
Since you already started you short sale, you may wish to reinstate your senior loan if negotiations are not going well.
If you have a recourse second, you must set up a plan b.
If your short sale does not close, you may be looking at a 250,000 dollar personal liability.
you would be a good candidate for two step short sale in which you negotiate a short payoff with a second and then do a short sale.