So Cal Real Estate News

President Obama greets Arizona high school students after announcing his housing plan Wednesday

2/20/09 Details continue to emerge on the President’s newest plan directed at helping those in trouble with their mortgage. One of the better summaries I’ve seen so far was in an e-mail I received from James Liptack, President of the California Realtors’ Association: (more…)

On July 8, 2008, California Governor Schwarzenegger signed S.B. 1137, an emergency bill designed to assist homeowners in foreclosure and tenants in foreclosed property.

At first we thought it would just make lenders more reluctant to lend in California, but on a closer look we now think that, overall, it’s another positive step in the right direction.

Because it was an emergency bill, many of the changes took place immediately. The bill applies only to loans made between 1/1/03 and 12/31/07– which are the loans most likely to go into foreclosure.

60 Days Notice for Tenants in Foreclosed Homes

According to the state legislative counsel,

Until January 1, 2013, this bill would give a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days to remove himself or herself from the property. . . .

From the bill itself:

A tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given 60 days’ written notice to quit pursuant to Section 1162 before the tenant or subtenant may be removed from the property as prescribed in this chapter.

(b) This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.

The above provisions of the law expire 1/1/2013 unless extended by the legislature.

This is a new law, but it appears to give a tenant 60 days from when notice is given after the foreclosure, as long as neither the tenant nor anyone else living in the property was a signer on the loan that foreclosed.  But those 60 cays could become as many as 180 before the tenant is actually out of the property.

Here’s the details, courtesy of the best property manager in Greater Long Beach, Dave Haas:  It would probably take the lender at least a week to prepare and post the notice, often much more.  After the 60 days had elapsed the owner would then have to obtain a court order if the tenant had not vacated.  If the tenant did not vacate after the expiration of the 60 day notice, it would take and additional 30 days minimum if the tenant did not contest the Unlawful Detainer (eviction) proceeding; 60 if he contested it; and 90 if he filed bankruptcy.

About a week after the court order rules the marshall or sheriff  posts the notice to vacate within 7 additional days.   If the tenant hasn’t left by then, the owner and her locksmith meet the sheriff at the property and enforce the order with a “lockout.”

At that point, the tenant would be gone, but would have an additional 15 days to come back and claim any personal property that was left behind.  (Lockouts usually happen early in the morning and generally consist of a brief but professional “Hello, time to go,” from the sheriff followed by a lock change by the owner’s locksmith.)  60 days notice, up to 90 days to get the order to evict, another 14 to the lockout, another 15 to store the tenant’s possessions for a maximum of about 180 days, worst case.  Maybe longer over the holidays.

However, if the tenant stops paying rent during that initial 60 day notice, a 3 day notice would be posted and an eviction would start at the expiration of the 3 days, taking a maximum of another 120 days. This law does not allow for the tenant to stay rent free, nor does it apply to former owners, just renters.

Most tenants do not want a “U.D.” (Unlawful Detainer, or eviction) on their record, and will arrange continue paying rent and move within the 60 day time frame.

The 60 day notice is posted not at the beginning of the foreclosure process, but once the home is either taken back by the lender or sold to a new owner at the Trustee’s Sale on those legendary courthouse steps.   That’s a minimum of 111 days from filing the “Notice of Default” which actually begins the foreclosure process.  In most cases, the borrower has missed several monthly payments before the “N.o.D.” is filed.

The bill also has requirements concerning the lender filing that Notice of Default:

Required Notifications prior to filing a Notice of Default:

At least 30 days prior to filing a N.o.D. the lender or their representative must meet with the borrower either in person or by phone “in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.”   This notification can only be waived if the lender demonstrates “due diligence” by following a number of prescribed steps and still is unable to contact the borrower.

This provision becomes operative 9/6/08, to allow lenders time to set up procedures.  N.o.D.s filed before then apparently are exempt.

Maintenance of Property

This one we think we really like.  As usual, the devil’s in the details, but it’s indended to prevent foreclosures from ruining a neighborhood by requiring the lender or new owner to maintain vacant residential property acquired at a trustee’s sale.  Included are excessive foliage, failure to prevent trespassers and squatters, and other conditions of public nuisance, including standing water and mosquito issues.  Fines of up to $1,000 per day should ensure compliance.  This provision takes effect immediately.

Provisions to Encourage Loan Modifications

This makes it easier for the loan servicer to work out a loan modification if such a modification is expected to ultimately save the lender money.  (Remember, many loans are held in huge consolidated blocks by large investors from pension funds to insurance companies, who pay a servicing company to collect the payments and foreclose if necessary.  You may make payments to Chase, but the Cal State Employees Pension Fund might actually own the loan.  In that  example, this provision give Chase more authority to act to achieve a mutually acceptable resolution on a loan secured by California property.

Three specific requirements must be met:

1. The loan is in payment default, or payment default is reasonably foreseeable:  In other words, the borrower is in trouble.  Quite likely will require a “hardship letter” with supporting evidence.
2. It looks like the lender will lose less money with a workout than with a foreclosure.
3. The loan modification is consistent with the servicer’s contractual or other authority.

These provisions may facilitate workouts under the newly approved federal mortgage relief bill in the state of California.

On the whole, this bill appears better designed up close than we thought when we first read about it.  As with the federal bill, there was give and take and consultation with the various interests involved.

As always, we value your input in the form of comments.

Click here for the text of the bill and the Legislative Counsel’s Digest.

Friday update: The DataQuick OC median numbers discussed below came in this morning, and my predictions yesterday (see post below) came out real close to the actual numbers. Wish I could say the same for my predictions for the Duck in the playoffs. Oh well.

The interesting news is that in every category, DQs actual numbers were stronger than I predicted. What’s that mean? Read on. . . .

OK, here’s my call for tomorrow’s “DataSlow” OC house sales update, which I should be for the 4 weeks ended about 4/21. (We’re still a week away from “DataQuick’s April Median numbers, one of the “Two problems with DataQuick’s median prices.”)

Sales (closings) will be up a decent amount from the prior 4-week period but way down from the year before. Right around 1900 total, off about 40% y-t-y. Continued gradual improvement, typical for deals going into escrow in February.

BTW, April closings, when they get released around 5/15, will be up about the normal amount from the very low March closings (but way below last year). It looks like May will do even better on sales.

Price is another matter. Especially median price. Down a small tad below 20% from a year ago, and up a small tad from the last DQ reported median of $506,000. Maybe $508,000.

However, if you look the details, like in the last report, I think you’ll see the new construction pulling down the overall index with both prices and sales down more than for resales. Resale SFRs and even condos aren’t doing as badly as new construction.

What it means is subject to interpretation. I think if long term mortgage rates (not to be confused with short term fed funds rates) started coming down further, we might have passed the bottom, especially with the activity Steve Thomas and I both are seeing in new escrows.

However, rates are already moving up, and instead of passing fiscal restraint issues to push long term rates down, our beloved Congress continues to try to borrow their way out of this mess with massive bailouts from Bear Stearns to folks who lied to get loans on home they never should have bought or refinanced.

With the interest we’re seeing from buyers, I really think if Congress passed long term fiscal reform, we could put the worst behind us. Things like a line item veto for the next president, cancellation of earmarks, a gradual move to a balanced budget with mandatory across the board cuts and tax increases to force discipline on our free borrowing legislators.

That would be a real mortgage relief bill!

I’ll post links to DQs numbers when they’re available, & you can see how we did.

I’d also like to get a more detailed post up about our thoughts about real mortgage relief. Trouble is, I’ve got to get to work on my real job so I can pay my mortgage. Because I really don’t want Barney Frank forcing my grandkids to eventually pay it for me.

Friday 5/9 postscript: DQs actual numbers (click here for OC Register blogger Jon Lansner’s  DQ graphs & comments for today) indicate even greater strengthening than I expected. Still having some optimism left in my troubled soul, I’d like to hope this means we really have reached a bottom.

In fact, I’ll go so far as to say that if long-term mortgage rates dropped 1% instead of continuing to go up, and if lenders adopted more reasonable underwriting standards, I’m pretty sure we could call last winter as the bottom for both prices and sales.

But I doubt either of those will happen soon. Instead, I think rising mortgage rates (not to be confused with the fed’s overnight, short-term rate) will combine with continuing over-reaction by investors and lenders with tougher than necessary standards to cut this party short. The large pool of homes entering foreclosure is also a negative indicator.

It looks to me like we have passed the bottom in terms of sales activity, but the bottom in terms of price probably (or should I say “maybe?”) still lies ahead this coming winter or next.

DataSlow’s lagging and confusing median prices will continue to improve for another 2 - 5 months, but we’ll see price month-over-month price declines kick in later this year, even as the year-over-year percentage drops decrease.

Overall, I’m beginning to become more optimistic, and am willing to admit that the bottom may, indeed, be past. But only if mortgage rates come back down, which I really don’t see happening.

Bottom line: We’re not deviating from our November post, “How low will prices go?” Nobody can really know what’s next.

(Updated 8/8/08) (Lucky you!)  With home prices down 15- 35% in Southern California, we are increasingly encountering clients who don’t know what to do when they need to sell or refinance in today’s troubled real estate and mortgage markets.

Of course, if you’ve got enough equity in your home, selling or refinancing is not such a problem, although you’ll net less cash out than you would have a year or two ago. We’ve got lots of ways to help sellers maximize their net in today’s market, but that will have to wait for another post. (If you can’t wait, call us at 562 822 7653 or post a question in the comments below & we’ll give a brief summary)

The real crunch comes when you owe more than 90% of what your home’s worth. For refinancing, that’s because 100% refinance loans have largely disappeared.

For sellers, it’s because the total cost of selling a home today generally runs between 8 - 12% of the sales price (escrow, commission, termite, title, home warranty, & often points and incentives).

As we see it, homeowners with little, no, or negative equity have at least 7 options:

1. Live with your existing loan the way it is. If you can make the payments and plan to live there for a long time, you’ll eventually be fine. Depending on when you bought, what you put down, & when the market recovers, it may take 2 - 10 years, but inflation eventually should bail you out.

For our projections for Southern California housing, check out “An optimistic update on our projections of a home price bottom“  If you’re reading this much after 8/10, you might also want to click on  “Market Trends and Projections” under Categories a short scroll down the right sidebar.  There you can scroll through our latest projections posts starting with the most recent.

Why live with it? I’ll bet your car, clothes, appliances, and furniture are all worth less today than what you paid for them, and they’re not expected to go up over the next 2 - 10 years, either. However, if your loan is scheduled to adjust up to where the payments or interest rate is unreasonable, option # 2 is worth trying:

How to live with it? Spend less than you earn. That may be the very best-kept obvious secret to financial freedom.  It starts with a simple but realistic budget.

How to spend less? This is like flossing your teeth–everybody knows how & knows they should but nobody has the time.  If you’re behind on your mortgage, it’s time to make the time!

• Keep track of what you’re spending.  Write it all down–every penny, they say–for at least a month.  It may surprise you where your money goes.  At the same time, you can start with the next step:
• Find places to cut spending.  Some of these will be obvious as soon as you write them down or even before.  Do it immediately–even as you’re still tracking your spending.  Here are some to consider:
  • Eat out less.  Pack a lunch–even if it’s just yogurt.  Make your own coffee.
  • Drive less.  Carpool?  Ask if you can try  a 4 day 10 hour work week–or one day a week working at home.  Walk, bike, combine trips.  You know the drill.
  • Cut out or reduce luxuries.
  • Look for free or inexpensive entertainment or recreation.  The beach can be a lot more fun than Disneyland.  Friends can come over and watch the game on Tivo instead of going there.  With a delayed start and DVR you can save time & gas too!  Disc golf is easy to learn, almost free, and there’s rarely a wait for a tee time!
  • My favorite:  Go to an all cash basis.  No more plastic.  Ever.
  • My wife’s favorite:  Never buy anything that’s not on your list the first time you see it. Put it off at least 24 hours.  Even 6.  Give your brain some time to override your emotions and the professionals’ well crafted pitch.
  • These are just a few ideas to get you started–most of us spend way more than we need to.
• Make a budget:  a financial plan.  And stick to it.
  • Be sure to include categories for emergencies, savings, donations, and those two surprisingly unexpected annual budget busters, Christmas and vacation.
  • When Barb & I first did this we actually cashed my paycheck every month and divided it between evelopes, as budgeted.  When the envelope was empty, that spending stopped–or we had to cut back in another area.

How to earn more:

• Rent out a room or two.  Keep your eyes open for people that might work  Get the word out where you know people like work, church, civic organizations.  Maybe post at student housing offices at local colleges.  Use your head.  I might stay away from Craig’s list.  Shoot, here in SoCal you might even try an informal bed and breakfast arrangement.
• Add a part-time job.
• Get your spouse, co-owner, or working age child to increase their income or contribution.
• Make yourself more valuable to your employer. . . or another one.
• Ask for overtime. . . within reason.  There’s more to life than work!

This could and probably will grow to a seperate post, so for now we’ll move on to six other options:

2. If you’ve got one of those killer loans that’s already adjusted up or will shortly, try to negotiate with your lender for better terms. It’s never a good idea to just give up without at least trying to work something out. It doesn’t hurt or cost anything to ask. You might ask to have the interest rate reduced or held at the current low level until the home goes up in value enough to allow you to sell or refinance. Lenders are much more willing to negotiate if you have a legitimate hardship, but if you didn’t have a hardship you probably wouldn’t have a problem making the payments.

Bad loans had a lot to do with the current real estate mess (see “How We Got Into This Mess“). If your loan was misrepresented by your lender, you might mention it in a matter-of-fact, non accusatory way.

3. You could also try to negotiate for a reduced principle balance to allow you to refinance or to at least make the payments on the current loan. This is sometimes known as a “cram down.” If there’s no equity, they really don’t want your home back, & they could lose a lot more if they had to foreclose. As an added incentive, you might propose some sort of equity sharing arrangement as partial compensation, although I wouldn’t start off with that, & I’d try to keep it modest.

4. Negotiate a “short sale” with your lender. The lender reduces the payoff amount to allow you to close escrow with little or no out of pocket expense. Most lenders prefer this to a foreclosure, but they can be tough and sometimes unreasonable. Still, we’ve been able to negotiate payoff discounts well over $100,000 for a number of our sellers over the last year, just as we did during the 1991 - 1996 downturn. In fact, lenders seem to be more reasonable and more eager to deal this time around. If you’re going this route, you need an excellent, experienced negotiator on your side; the bank’s got plenty of them on theirs. Most real estate agents will tell you they can do that, but if they don’t have at least 15 years experience, I’d avoid them.

In fact, before talking to any agents, check out our post on “Top 5 Ways NOT to Pick an Agent.” You might also want to take a look at our experience & advice on “How to Sell Your So Cal Home for Top Dollar in 30 Days.”

5. Bring cash to escrow to enable a sale or refinance. During the last recession, we saw many sellers write checks to escrow for thousands of dollars to enable them to sell. This keeps their credit & their conscience clean, while allowing them to move on. For those with significant assets, it’s worth considering.

6. “Give the home back to the bank.” This is generally referred to as a “deed in lieu” of foreclosure, and it still saves the bank time and money over foreclosing. However, if there are other encumbrances (2nd T.D., equity line, judgements, tax liens, etc.) they may prefer to foreclose, to wipe out those junior liens.

7. Let the lender foreclose. In California, that give you a minimum of about 120 days you can live in the house without making payments from when the lender files their Notice of Default (you’ll get a copy!). That “N.o.D.” usually isn’t filed until you’ve missed at least two payments, sometimes a lot more.

Possible Steps to Determine which Option to Start With:

1. Pray, if you’re so inclined. In this case, it wouldn’t be a bad idea even if you’re not so inclined! We could all use some divine wisdom & intervention to get through the current mortgage mess! Like I said above, it never hurts to ask!

2. Get the facts on your loan. Review your last statement to find out exactly what you owe. Check your loan documents or call customer “service” to find out when your payment will adjust & by how much. (If you call, & you’ve got a big bump coming, you might want to try this when they tell you: Inhale sharply, then say “Oh no! I don’t know how we can handle that!” Then shut up & wait to see if they offer anything. Silence is one of the most powerful of negotiating tools, & whoever speaks first to break the silence usually loses.)

3. Get the facts on what your home’s worth. I suggest calling an experienced, honest, full time, diligent Realtor. We’d be happy to refer one, or possibly even help you out ourselves. 562 822 SOLD. Or e-mail RealtorDaveE at msn dot com. (Use the symbol @ for “at” and a period for “dot–” we have to be careful to avoid spamming web crawlers, sorry.) The agent can also give you a more accurate idea of your costs of sale and what preparation & staging would be best. We don’t recommend selling by owner or using a part-time or inexperienced agent in today’s market.

4. Consider the tax, credit, & ethical consequences of the various options. Tax wise, the recently passed federal Mortgage Forgiveness Debt Relief Act of 2007 can save thousands in tax for most borrowers exercising options 3, 4, 6, or 7 above in 2007, 2008, or 2009. Don’t ignore the ethical implications–I can’t think of anyone who’s ever regretted doing the right thing, but lots of people who’ve regretted unethical behavior. Credit wise, options 1 & 5 shouldn’t hurt your credit at all, neither should option 2 in most cases. Options 3 & 4 are generally considered less harmful than 6 or 7, especially if you continue making payments, but you’ll want to ask your lender if & how it will be reported to the credit bureaus.

Obviously, this post is general in nature & you should consult the appropriate legal, tax, real estate and other professionals for your specific situation & state. Our point is, you do have options, and doing nothing is generally considered the worst option of all. Good luck, & let us know how things work out!

As always, your thoughts & comments are welcome.