About OCPM

OC Property Management & Sales, Inc., leases and manages residential properties in Orange County, California for owners who do not want the day-to-day hassle of being a landlord. We are a professional broker-attorney owned and operated firm, ready to handle all of your property leasing and/or management needs 24 hours a day, 7 days a week. •OCPM lists properties for lease. •OCPM expertly manages properties once they are leased. •OCPM provides expert repair and maintenance services, as needed, at low cost to owners. •OCPM provides owners with detailed reports regarding their leased properties. We take pride in the fact that many of our property owners are referred to us by real estate agents who know we will provide their clients with an honest and valuable service. Steven A. Hall President DRE Lic.#01886215

CALIFORNIA REAL ESTATE PRIMER – 1031 Tax-Deferred Exchanges

036 (572 x 428)

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

What Is A 1031 Tax-Deferred Exchange?

“1031” refers to Internal Revenue Code section 1031 which details a method of transferring the equity from one real property into one or more like-kind properties without incurring the tax burden associated with the gain on the investment.

A common misconception is that a 1031 trade is tax free, but this isn’t true. 1031 exchanges are not tax exempt, they are tax deferred. Even so, if performed correctly 1031 exchanges can provide considerable benefits by allowing taxes to be paid by tomorrow’s dollars instead of today’s dollars. (Tomorrow’s dollars are usually cheaper than today’s dollars.)

A properly executed 1031 exchange can result is significant savings in terms of today’s dollars. For example, in a given exchange the potential tax burden which might be deferred is seen below: (note: the rates cited are subject to change)

15.0 % Long Term Federal Capital Gains

+ 9.2 % California State Tax

= 24.2 % Tax Deferral

Plus 25 % Federal Depreciation Recapture, and potential 26 % Federal Alternative Minimum Tax

 

Types of 1031 Exchanges

There are a number of different types of 1031 exchanges which are recognized:

(1) Simultaneous Exchange – When an exchange between the relinquished property and replacement property occurs concurrently.

(2) Delayed (“Starker”) Exchange – The delayed exchange is the most common of all exchanges. Once a the relinquished property is sold, the delayed exchange allows a property owner a set deadline to identify and close on the replacement property while maintaining the ability to continue deferring any capital gains. Just the calculation of the correct deadline can be a complex matter involving not only the deadlines stated in the code, but also a calculation based on the taxpayer’s filing date for the tax year in which the relinquished property is transferred.

(3) Build-To-Suit – This exchange allows the exchanger to construct a new replacement property or renovate an existing property. (Note: Renovations after the owner takes title are considered “goods and services” and will taxed as boot.)

(4) Reverse Exchange – The opposite of the delayed (Starker) exchange, a reverse exchange occurs when an investor identifies and closes on a replacement property prior to the sale of the relinquished property.

 

Who Can Effectuate A 1031 Exchange

A third party must act as a qualified intermediary to accommodate the exchange. (The qualified intermediary is known as an Accommodator or Facilitator.) Since the facilitator may be holding significant funds on your behalf. It behooves you to inquire about such things as errors and omissions insurance, bonding, and interest etc. Remember, you’re looking for safety, as well as, experience. It’s not unreasonable to ask for references from past clients.

 

1031 Exchange Requirements

(1) “Like-Kind” Exchange – To be considered “like-kind” the relinquished property and the replacement property must both comply with the definition of investment property. The general rule is that real estate is “like-kind” to all other real estate. Provided like-kind property is initially acquired and held for either business or investment purposes. (Held for productive use in a trade or business, or property that is held for investment.)

Examples of “like-kind” exchanges include:

Raw land for commercial property

Residential rental for tenants in common interest

Single-family rental for multi-family rental

(Note: The qualified intermediary or facilitator and/or your accountant or tax attorney must be consulted to be sure the exchange will qualify.  For example, a partnership may exchange property for other property of “like-Kind”, but IRC section 1031(a)(2)(D) specifically prohibits exchanges of partnership interests.  The reason is partnership interests are considered to by personal property which isn’t “like-kind” property with real estate. )

(2) The replacement property or properties must be of equal or greater value than the relinquished property.

(3) The Exchanger must reinvest all net equity in the replacement properties.

(4) The exchange must result in equal or greater debt.

(5) Retain a Qualified Intermediary (Facilitator) – To effect a 1031 exchange and defer the capital gains liability due, you must not take possession of the proceeds from a sale.

(6) 45-Day Rule – The exchanger must identify the potential replacement property or properties within the first 45 days of the 180 exchange period. Once you have closed your relinquished property and placed your proceeds with your Accommodator, the 45 day clock starts ticking to identify a replacement property.

(7) 180-Day Rule – The Exchanger must acquire the replacement property or properties either within 180 days or the date when the Exchanger must file the tax return (including extensions) for the year of the transfer of the relinquished property, whichever occurs first.

You may choose among 3 types of identifications:

3 Property Rule (most common): The Exchanger may identify up to three properties of any value.

200% Rule: The Exchanger may identify more than properties if the total fair market value of what is identified does not exceed 200% of the fair market value of the relinquished property.

95% Exception: If the Exchanger identifies properties in excess of Rule 1 and Rule 2, then the Exchanger must acquire 95% of the value of all properties identified.

Important Notes:

There is no extension of deadlines for Saturdays, Sundays or Holidays.

The time limits begin to run on the day the Exchanger transfers the relinquished property to the buyer.

The “Date of Transfer” will be the date of recording or transfer of the benefits and burdens of ownership, whichever occurs first.

As you can see, sections 1031 Tax Deferred Exchanges are not for the faint hearted. Not only are the rules less than clear they are subject to change. So, remember, always consult the appropriate, legal, tax and financial advisors and retain the services of an experienced facilitator.

This article is intended as an overview only, and should not be construed as legal, financial, or tax advice. Consult your legal and/or tax professional.

 

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CALIFORNIA REAL ESTATE PRIMER – Reduce Your California Property Tax

036 (572 x 428)

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

Reduce Your California Property Taxes

If you’re a home owner in California it may have occurred to you that your home is worth less now than the day you purchased it. If so, the next thought which will occur to you is why the devil are you paying property tax based on a market value which doesn’t exist any more?

Well, if you live in California you might be able to find some relief in something called an Informal Assessment Review.

California Revenue and Taxation Code

You might want to take a look at Section 51 of the California Revenue and Taxation Code. This particular code section provides that the assessed value of any real property (located in California) shall not exceed that property’s market value on the January 1 lien date.

This means that if your property’s market value on January 1 is less than its assessed value, as it appeared on the previous annual assessment roll, then you may be entitled to an assessment review!

So if your home’s market value has fallen below what you paid for the property it may be worth your while to obtain a form called a “Request For Informal Assessment Review,” from your county assessor’s office. In Orange County the Assessor’s phone number is (714) 834-2727.

If you do not agree with the roll value resulting from the informal review, you may file an Assessment Appeal form with the Office of the Clerk of the Board of Supervisors from July 2 through September 15. Assessment appeal forms can be obtained from your local library, the internet, or at the Clerk of the Board, Hall of Administration, 333 W. Santa Ana Blvd., Room 101, Santa Ana, CA 92701, (714) 834-2331.

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“ASK MIKEY”

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voice: 949-887-1625

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OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

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OCPropertyMgmt@gmail.com

voice: 949-505-3838

fax: 866-764-6325

CALIFORNIA REAL ESTATE PRIMER – Transfer Your Property Tax Base Year To Your New Home

036 (572 x 428)

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

 

Transfer Your Property Tax Base Year Value New Home

Have you ever thought to yourself, “Gee it would be nice to sell the old house and get into a nice new one, but if I do I’ll have to pay property tax on the new purchase price.” Well, goods news. That may not necessarily be the case. If you meet the qualifications, California Propositions 13, 60 and 90 might just solve your dilemma.

 Proposition 13

Under Proposition 13 the value of a home, for property tax purposes, is reassessed to the new market level (the new purchase price) whenever a change in ownership occurs. This usually results in higher property taxes. (It is possible to get an informal assessment review and reduce your property tax basis, but that’s another story.)

 Proposition 60

Proposition 60 allows a transfer of base-year value of the principal residence sold of a senior citizen (55 and older) to a replacement dwelling of equal or lesser value within the same county.

Proposition 90

Proposition 90, enacted in California in November of 1988, provides an avenue for property tax relief to owners 55, and older, who sell their principal residence and purchase a replacement home of equal or lesser value in another county.

The County Assessors will require a copy of the tax bill from the other county and a copy of the applicant’s birth certificate to be included with the application. Also include a copy of the grant deed for the new purchase and a copy of the closing statements of both sale and purchase.

SUMMARY OF ELIGIBILITY REQUIREMENTS

The seller of the original residence, or a spouse residing with the seller, must be at least 55 years of age, as of the date that the original property is transferred.

The replacement property must be of equal or lesser “current market value” than the original.

The tax base year of the original property cannot be transferred to the replacement dwelling until the original property is sold.

The replacement property must be purchased or newly constructed within two years (before or after) of the sale of the original property.

The owner must file an application within three years following the purchase date or new construction completion date of the replacement property.

This is a one-time only filing. Proposition 60/90 relief cannot be granted if the claimant, or spouse, was granted relief in the past.

Proposition 60/90 relief includes, but is not limited to: single family residences, condominiums, units in planned unit developments, cooperative housing, corporation units or lots, community apartment units, mobile homes subject to local real property tax, and owner’s living premises which are a portion of a larger structure.

The taxpayer is not eligible for the tax relief until they actually own AND occupy and the replacement dwelling as their principle residence.

It is essential that you call the co-operating County in question, to verify that they are currently accepting the value transfer under Proposition 90, and what their requirements are. If you have any questions, the property tax office in Sacramento for all counties in California may be reached at (916) 445-4982.

Alameda (415) 272-3755 Ventura (805) 654-2181 Santa Clara (408) 299-4347 Kern (805) 861-2311 Modoc (916) 233-3939 San Diego (619) 531-5507 Los Angeles (213) 974-3101 Orange (714) 834-2746 San Mateo (415) 363-4500

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“ASK MIKEY”

http://www.AskMikeyHall.com

AskMikeyHall@gmail.com

voice: 949-887-1625

fax: 866-764-6325

DRE #00792478

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OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

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DRE Lic# 01886215

www.OCPropMgmt.com

OCPropertyMgmt@gmail.com

voice: 949-505-3838

fax: 866-764-6325

CALIFORNIA REAL ESTATE PRIMER – Preserve Your Prop 13 Base Year Value For Your Children

 

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

Preserve Your California Prop 13 Base Year Value For Your Children And Grandchildren

In June of 1978, Proposition 13 passed in California and established base years for all real estate properties in the state. For people who owned property before March 1, 1975 the base year was established as of that date. Thereafter, as properties changed ownership the value at the time of the transfer was adopted as the new base year.

On average, property values have increased over time and each new buyer who acquires real estate in California understands they may have to pay more for property taxes than the previous owner.

So far, so good, except children and grandchildren who inherited real property were treated as new owners because by law the inheritance was considered a change in ownership causing the parents/grandparents lower base year value to disappear. As a result, the property tax could jump to 2 or 3 times its previous level.  This type of uannounced tax increase could be quite a surprise to the new owners.

The unintended result was a dampening effect on the continuing family ownership of real estate in California.  Children and/or Grandchildren inheriting the property many times found themselves unable to pay the new property taxes and as a result were forced to sell the property.

To counter this effect, Propositions 58 and 193 were passed in November of 1986 and March of 1996, respectively. The details of these laws can be found in Section 63.1 of the Revenue & Taxation Code.

In general, transfers of real property between parents and children and vice versa, as well as transfers from grandparents to grandchildren are excluded from reassessment. Note that transfers from grandchildren to grandparents are not excluded, and in the case of transfers from grandparents to grandchild, the parents of the grandchild must be deceased as of the date of purchase or transfer.

“Children” are considered to be the natural children, stepchildren, sons-in-law and daughters-in-law, and children adopted before the age of 18. The same requirements apply to grandchildren, step-grandchildren, and grandchildren-in-law.

Principal residences are excluded from reassessment, as well as, an additional $1,000,000 of the seller’s or decedent’s other real property. An exception to the principal residence exclusion exists for grandchildren who have previously received a principal resident (possibly from their parents). In such a case the grandparent’s principal residence will be treated at “other real property” and will be subject to the $1,000,000 limitation.

The $1,000,000 limitation is determined by the assessed value of the property immediately before transfer. The sales price or actual “current market value” does not affect the $1,000,000 limit. This limit is cummulative and once exceeded all later transfers will be reassessed except for the principal residence.

Happily, the $1,000,000 exclusion is a separate limit for each parent giving the community property of married parents a $2,000,000 limit. For grandchildren, the limit would be $1,000,000 from the father’s side (including grandparents) and $1,000,000 from the mother’s side (including grandparents).

The value of professional estate planning becomes obvious when it is realized that transfers by sale, gift, devise or inheritance all may qualify for the exclusion. Moreover, transfers to individuals and from trusts to individuals and from individuals to trusts may also qualify for the exclusion.

It falls to the person receiving the property to file a claim with the appropriate Assessor’s office within three years of the date of transfer and before any transfer to a third party or within six months after the date of mailing of a Notice of Assessed Value Change resulting from the transfer of the property, whichever is later. There are some exceptions to these deadlines. Once the claim is filed, the Assessor will determine if the transaction qualifies.

Any transfers you are planning should also be carefully considered in light of the relevant federal estate and gift tax laws, as well as the relevant state property tax laws.  Consult your tax advisor.

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“ASK MIKEY”

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voice: 949-887-1625

fax: 866-764-6325

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OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

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CALIFORNIA REAL ESTATE PRIMER – Loan Workout Before The Sale

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

SOME GENERAL NOTES

A. Disregard The Confusion – Even The Banks Are Confused

You don’t have to be an expert to know that the lending industry is in disarray. Confusion really is the order of the day (it’s not just you). But take heart, there are a number of loan workout methods or plans which might give you some relief. Some of these plans are available to certain lenders, others are not, and all of them are (of course) confusing. To our knowledge, none of the plans are mandatory. Meaning the lender is not “required” to rewrite your loan just because you seem to qualify for a given program.

Still, your lender may have a number of plans available depending on the specifics of your loan and your finances. Some of these plans will undoubtedly be custom plans developed by your lender, and some may not apply to your situation at all.

B. Establish Your Objective?

Assuming you are employed, and can make reasonable payments, you will need to decide what your ultimate objective is before you do anything. In other words, what is most important to you?

For example, if are you more interested in keeping the family home than you are in getting appreciation from it, you might be willing to trade mortgage relief now for a share in the future appreciation. On the other hand, if appreciation is your prime objective, you may want to focus on a different type of loan workout, or even consider a short sale to shed yourself of the property.

In all events, if your objective is to save the family home you owe it to yourself to contact your lender’s Loss Mitigation Department and give them a chance to adjust your loan (workout your loan) so that it becomes economically feasible for you.

C. Be Proactive

The worse thing you can do is nothing. If you do nothing and you go into default on your home, you will eventually lose the property. There can be no other result. In today’s confusion it may take longer than normal, but the inevitable result of inaction is foreclosure. And under certain circumstances a deficiency judgment or collection action against may even be possible.

Educate yourself, consult the appropriate experts, and above all take positive steps to correct the problem. This may sound obvious, but inaction remains the homeowner’s greatest threat and the most common mistake.

 

SOME GENERIC PLANS

To get you thinking along the lines of possible solutions we’ve listed two generic loan workout plans. Remember neither of these is mandatory, they may no longer be in effect and they may not match the plans available from your lender.

A. Mortgages Owned Or Guaranteed By Fannie Mae or Freddie Mac

On October 10, 2007 a program for mortgages owned or guaranteed by Fannie Mae and/or Freddie Mac was announced by the federal government.

Known as the “Hope Now” initiative, the plan targets homeowners who live in the home and have missed at least three payments and can qualify for a workout designed to reduce the monthly payments to 38% of the borrower’s gross income. This target is achieved by one of the following three different methods:

(1) The payments are reduced by extending the term of the loan up to 40 years;

(2) The payments are reduced by lowering the interest rate temporarily or permanently; or,

(3) “Principal Forebearance” which is achieved by excluding part of the loan balance when calculating monthly payments.

Unfortunately, Freddie Mac and Fannie Mae loans account for only about 20% of the delinquent mortgages and it isn’t obvious which loans are owned or guaranteed by these entities. The only way to know for sure is to call your lender.  For more information on the Hope Now Initiative contact one of their free counselors in your area.

B. Federal Housing Administration Refinancing Program

The FHA, H4H (Hope for Homeowners) program was designed to help individuals with FHA loans avoid default and foreclosure by letting them refinance into a new 30 year fixed rate loan with lower payments. The program became effective on October 1, 2008 and will continue until September 30, 2011.  On June 10, 2011, HUD issued Mortgage Letter 11-20 providing instructions on how to process cases during the phase out of the program.  The H4H program is still effective for endorsements on or before September 30, 2011.

To qualify, the existing loan had to be an FHA loan originated on or before January 1, 2008. The payments on the existing mortgage, as of March 1, 2008, exceed 31 percent of the borrowers gross monthly income. Any defaults were not intentional. The borrower does not own any other real estate, has not been convicted of a fraud within the last ten years and provided no false information to obtain the original mortgage.

There were four steps or stages to the H4H process:

(1) Cost Benefit Analysis

Based on their portfolio the lender will decide whether or not it will make sense for it to take a loss on the difference between the new loan (which will be set to 90 percent of the current appraised value) and the existing loan (which was based on an appraised value determined sometime before January 1, 2008). The lender may choose to do a loan modification rather than take the loss (write down) associated with declining property values.

In this first stage the borrower’s eligibility will also be determined and the costs of the program will be disclosed. These costs will include a 3 percent up front mortgage insurance premium (UMIP) and a 1.5 percent annual premium, and equity and appreciation sharing with the Federal government. There will also be a prohibition against new junior liens unless related to property maintenance.

(2) Negotiations With Lien Holders

The lender refinancing the loan will need to obtain agreements with existing lien holders to waive prepayment penalites and fees and to accept the H4H loan as payment in full. All subordinate liens on the property must be extinguished. To accomplish this the FHA can give the holder of the junior lien a share in its future appreciation entitlement.

(3) Originating the H4H Mortgage

During underwriting the lender will determine the future appreciation and the share for each holder of a subordinate lien according to FHA guidelines. At closing, the lender will record, in addition to the traditional security instrument and note on the first mortgage, an additional shared equity note and mortgage (SEM) and a shared appreciation note and mortgage (SAM). The lender also submits the new mortgage for FHA insurance and certifies that it has been originated and underwritten and closed pursuant to H4H requirements.

(4) Complying With H4H Obligations

When the property is sold, the proceeds are used to pay off the H4H mortgage and the shared equity and shared appreciation mortgages. The FHA will provide instructions to the settlement agents regarding lien holders entitled to a portion of the appreciation.

 

Traditionally lenders have declined to discuss loan modifications until the borrower is 60 to 90 days late on his payments. This placed the borrower in a default position before a discussion could even begin. Under those conditions if the loan modification discussion broke down the amount of time remaining in which a short sale could be effected was drastically reduced.

In late 2008, Fannie Mae (with an estimated 18 million home loans) announced that if the borrower becomes “reasonably certain” that changes (impending or otherwise) in their income will cause them to miss payments they will be considered for a loan modification before they fall behind.

Borrowers who qualify for a modification will be given a trial payment period and if they successfully make their payments, the loan modification under consideration could be finalized.

This movement by Fannie Mae was consistent with the trend toward early intervention  being followed by giants such as Bank of America and JP Morgan Chase. So if you are reasonably certain you are going to fall behind in your payments pick up the phone and see if you qualify for an early workout.

C.  Home Affordable Refinance Program

If you aren’t behind in your payments the HARP program may provide a loan modification even if the value of your home has declined.  The Making Home Affordable video (uploaded in 2009) is one of 29 videos which might be helpful in giving you a general explanation of the HARP program.

Remember, the most important thing you can do is contact your lender and determine which programs it is using.

DISCLAIMER

This article is intended to be a general discussion only, and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, loan, accounting or tax advice, is not to be acted on as such, it was outdated the moment it was written, and is subject to change without notice. If you are dealing with a potential short-sale you are advised to consult the appropriate licensed professional.

As the housing markets recover, fewer and fewer homes will be underwater until finally the loan modification and the short sale will again become an unusual event.

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“ASK MIKEY”

http://www.AskMikeyHall.com

AskMikeyHall@gmail.com

voice: 949-887-1625

fax: 866-764-6325

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OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

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DRE Lic# 01886215

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voice: 949-505-3838

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CALIFORNIA REAL ESTATE PRIMER – The California Foreclosure Consultant Act

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

 

The California Foreclosure Consultant Act

If you are, or are about to be, in default on your home mortgage, and are approached by an individual or company that is offering to, in some fashion, save your home from foreclosure. you should consult with an attorney, or at least read the law and do your research, before you sign a contract or pay any money.

California Civil Code sections 2945 through 2945.11 contain a law called the “California Foreclosure Consultant Act.” This law outlines the responsibilities of individuals or companies who fall within the legislature’s definition of a “Foreclosure Consultant.” (Civil Code Section 2945.1(a))

If a Notice of Default has been recorded against your home, this law will prevent a foreclosure consultant (even a real estate licensee) from charging an advance fee (in any form) to help you work out a loan modification or in some other fashion avoid foreclosure. (Civil Code Section 2945.4)  Attorneys licensed in California rendering services in the course of their legal practice are exempt from this law.  (Civil Code Section 2945.1(b))

If a Notice of Default hasn’t been recorded on your home it may be permissible for a California real estate broker to assist you in obtaining a loan modification. Although in this narrow circumstance the broker can ask for advance payment they must provide you with a written contract which satisfies certain specific statutory requirements.

Moreover, the contract must have been previously submitted to the California Department of Real Estate for review and received a “no objection letter” regarding its use. Real estate brokers who do not charge an advance fee for loan modifications or similar services are not required by the DRE to obtain a “no objection letter.” However, their work must be completed before they’re paid.

You should know that there are agencies, attorneys, and real estate licensees who will assist you with your loan workout for a fee payable after the work is completed.

 

California Civil Code Section 2945 – Legislative Findings and Intent

The California legislature has found that individuals facing a foreclosure are sometimes subject to unfair dealings by foreclosure consultants. As a result, the legislature has passed this act with the intention (among other things) of requiring that foreclosure consultant service agreements be in writing to safeguard against deceit, and to permit the homeowner to cancel the agreement, to encourage fair dealing, and prohibit representations that tend to mislead.

The legislature goes out of its way to explicitly state that the law “shall” (not “may” or “should”) be liberally construed to effect the legislative intent. This is good news for the owner and bad news for those who want to take advantage of owners in financial trouble.

Civil Code Section 2945.1 – Definitions

This section defines a “Foreclosure Consultant as anyone who offers for compensation to perform any service which “the person in any manner represents will in any manner do any of the following.”

  • Postpone or stop the foreclosure sale
  • Obtain any forbearance
  • Assist in the reinstatement of the loan
  • Obtain extensions to reinstate the loan
  • Obtain any waiver of an acceleration clause
  • Save the residence from foreclosure
  • Avoid or repair adverse credit reports resulting from a foreclosure sale
  • To assist in recovering residual proceeds from the foreclosure sale of the owner’s residence.

After setting forth in rather lose language who qualifies as a Foreclosure Consultant, the legislative lists some narrow and specific exceptions to the law, foremost of which are attorneys who are rendering service in their practice as an attorney at law.

Civil Code Section 2945.2 – Right to Cancel

Under this section the owner is given 3 business days to cancel the contract and specifies the method of notice of cancellation.

Civil Code Section 2945.3 – Writings Required

This section requires that every contract be in writing, specifies the elements, language, and print size of the contract. This section also requires specific notice be given to the owner regarding the prohibition against advance fees or requiring liens or title transfers. The section even specifies the wording of a Notice of Cancellation to be given to the owner, as well as a notice regarding recovery of surplus funds after foreclosure sale.

Civil Code Section 2945.4 and 2945.5 – Violations of the Act and Waivers

Section 2945.4 sets forth the acts which will constitute a violation of the law. This particular section will define for you the things the Foreclosure Consultant isn’t allowed to do. If you have any doubts about what a Foreclosure Consultant can’t do, it would be worth your while to read this section. The next section (2945.5) voids any waivers of the owner’s rights under the Act and even makes it a violation of the act for the Foreclosure Consultant to obtain a waiver from the owner.

Civil Code Sections 2945.6 through 2945.11 – Rights and Liabilities Under the Act

These section lay out the owner’s rights against the Foreclosure Consultant for any violation of the chapter, as well as the damages available to the owner, including but not limited to treble damages and attorney’s fees. These sections also set forth the potential criminal penalties and fines available against the Foreclosure Consultant for any violations of the act.

If you are approached by an individual or company (non attorney, non law firm) who is offering to assist you in any way to workout a loan modification for your home, remember to do your homework. Consult with an attorney licensed in the state of California, the California Department of Real Estate or the Office of the California Attorney General – Department of Justice Department.

While there are reputable Foreclosure Consultants it pays to be well informed.

DISCLAIMER

This article is intended to be a general discussion only, and must not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article, or any of its links, is expressly disclaimed. This blog is not legal, loan, accounting or tax advice, and is not to be acted on as such, it was outdated the moment it was written, and is subject to change without notice. If you are dealing with a potential foreclosure or short-sale, you are advised to consult the appropriate licensed professional.

As the housing markets recover, fewer and fewer homes will be underwater until finally the short sale will again become an unusual event.

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“ASK MIKEY”

http://www.AskMikeyHall.com

AskMikeyHall@gmail.com

voice: 949-887-1625

fax: 866-764-6325

DRE #00792478

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OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

OC Property Management & Sales, Inc.

DRE Lic# 01886215

www.OCPropMgmt.com

OCPropertyMgmt@gmail.com

voice: 949-505-3838

fax: 866-764-6325

CALIFORNIA REAL ESTATE PRIMER – Buyer’s Short Sale FAQs

DISCLAIMER

This article is intended to be a general discussion only and should not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed. This blog is not legal, accounting or tax advice, is not to be acted on as such, it may not be current, and is subject to change without notice.

Over the course of time, we have fielded a lot of questions from buyers regarding short sales and some of those questions are more frequently asked than others. The questions below are the more frequent ones we’ve been asked:

 1. What is a short sale?

A short sale is the process by which homeowners can sell their home for less money than they actually owe on the mortgage(s). This is accomplished by providing proper documentation to the lender(s) to convince them to reduce the mortgage balance to allow the sale. If the sale is approved, the mortgages lender(s) will actually take a loss on the mortgage.

If a bank approves the discount of a mortgage, the home can be sold for a price lower than the total debt on the property without the seller having to come up with cash to cover the shortfall. The mortgage is satisfied and any foreclosure process stops.

2. Why would a bank or mortgage lender want to cooperate with a short sale?

A common saying is that banks are in the business of lending money and do not want to own real estate. While this is a little misleading, it is essentially true. When banks foreclose on a property it is a long and expensive process and generally means holding the property in their inventory as a non-performing asset. Banks have a limit to the amount of non-performing assets they want to hold. Once this limit is exceeded, they have strong incentives to get rid of the properties at discount prices.

For a lender, agreeing to a short sale avoids many of the costs associated with the foreclosure process. Attorney’s fees, delays from borrower bankruptcies, damage to the property, costs associated with resale, property tax, insurance, etc., must all be paid by the bank during a foreclosure. In a short sale scenario, the lender is able to cut its losses by getting rid of the property faster and at a lower cost.  The most important element in the lender’s decision process is whether or not the property is “underwater.”  If so, then it can’t be sold for an amount equal to or greater than the mortgage and a short sale may be a viable solution.

3. How does a bank determine the price it will accept on a short sale?

Every bank has a specific method of deciding how much they’ll accept on a short sale. Give me a call, Mikey Hall, at 949-887-1625 and I’ll explain it to you.

 4. Can I really get a deal on a short sale home?

Yes, you can, but not every short sale is a deal. You still have to do your research and estimate the current market value of the home. This is one of the areas where a knowledgeable real estate agent’s level of experience really pays off.

5. Who pays the real estate commissions on a short sale?

In a standard sale, commissions are subtracted from the seller’s funds and paid out of escrow to the Realtors. In a short sale, the seller has no funds in escrow which means the commissions end up being subtracted from the monies that would go to the lender. So, the lender ultimately is the one paying the entire sales commission.

6. Are short sales guaranteed to work?

No. All of the criteria must be met before a bank will even consider a short sale. Even then it isn’t easy to convince a bank that the market value of the home is lower than what they are owed.

Even if all the paperwork has been correctly completed it can take several weeks, or even months, only to be denied. If the lender does not approve the short sale, no transaction occurs. The Purchase Agreement becomes void and the listing continues. There are, however, ways to put a time limit on the lender’s time to issue approval.

In a rising market the delay in a short sale approval runs against the buyer for at least two reason 1) The buyer’s purchasing power decreases as prices increase; and, 2) there is no guarantee the lender will approve the sale and the delay may cause the buyer to be priced out of the market.

A falling market has just the opposite affect because a buyer’s purchasing power increases as prices decrease.

7. How long does a short sale take to complete?

From a few weeks to several months.

8. What if the house I want needs repairs.

Remember, when an owner short sells their home it’s because they are suffering a financial hardship. This means there is no money for repairs and as a buyer you can’t reasonably expect the seller to do much in the way of repairs. The good news is we have had some success convincing lenders to repair termite damage and to make reasonable repairs relating to safety. But, this type of cooperation is dependent on the expense involved, the nature of the repair, the purchase price being paid and the direction of the market.

9. What if the house I want has liens on it?

Liens can complicate matters because the owner will not have the financial capability of removing them. Depending on a number of factors, including the real estate market and the purchase price, the lender might be persuaded to clear the liens. Or, sometimes the lien holders themselves might be convinced to reduce their liens. A short sale in this circumstance will take substantially longer.

10. I’m an investor, can I buy a short sale?

The simple answer is yes, you can. However, there can be serious complications.

11. Can I buy the short sale for the price stated in the listing?

An experienced Realtor can quickly tell you whether or not the property is priced unusually low. If so, the home was probably intentionally priced that way to attract offers which might prompt the lender into letting the Realtor know what price it will accept. In which case, the chances of buying the property at the asking price may not be very good.

On the other hand , the property might be priced correctly and your chances of getting the property at the asking price will be reasonably good.

12. How long will it take to get bank approval of my offer?

The answer to this question depends on the expertise of the listing agent, which bank is involved, and how many loans are on the property. Once approval is obtained, the property can go into escrow which takes no longer than a standard sale.

14. Will the banks negotiate on price?

Yes.  More in down markets and less in up markets.

15. Do I get title to the property when I buy a short sale?

Yes, title is transferred to the buyer at the close of escrow, just like in a standard sale.

16. Are my property taxes based on the amount of debt that was on the short sale property?

No. In California, your property taxes are based on the purchase price of the home.

17. Can I transfer my property tax base to a sale short?

Possibly, depending on whether or not you meet the requirements. You might want to read our article entitled, “Transfer Your Property Tax Base Year Value To Your New Home“.

As the housing markets recover, fewer and fewer homes will be underwater until finally the short sale will again become an unusual event.

1 Mikey & Pixey Best 1

“ASK MIKEY”

http://www.AskMikeyHall.com

AskMikeyHall@gmail.com

voice: 949-887-1625

fax: 866-764-6325

DRE #00792478

Return To The Table of Contents

OTHER INTERESTING AND INFORMATIVE INFORMATION SOURCES

OC Property Management & Sales, Inc.

DRE Lic# 01886215

www.OCPropMgmt.com

OCPropertyMgmt@gmail.com

voice: 949-505-3838

fax: 866-764-6325