San Diego short sale


Sunday, November 25, 2007

San Diego Short Sale - Notice of Default

Real Estate Blog - San Diego Short Sale - Notice of Default: "And then she sort of asked if the short sale process takes about 4 months in CA. I said that would be about the minimum but I said it looks to me like you send out notices but don't always start the process right away. Which brings up a difficult choice for all owners... Right now countrywide has a deed in lieu track and a separate short sale track. How can anyone (lawyer or Realtor) make that choice for a client. All you can do is give them good info. And some of that info must include the ways they can use the court process to slow down a sale. There are legal ways to slow or perhaps even prevent a foreclosure sale. But you can't wait to the last minute to bring a lawyer on board. Most lawyers will not review a case if they do not have time to come up to speed. Once that NOD shows up, someone who holds themselves out as a fiduciary - has to start making sure the client is properly advised. This whole process is filled with traps. If your seller all of a sudden your seller gets upset and says why wasn't I on the deed in lieu track - how they heck can a Realtor even respond? No response will satisfy a plaintiff's attorney. (actually all your responses but one will please the plaintiff's attorney)."

Wednesday, November 21, 2007

California short sale attorney

I asked the following questions about California short sale law to one of the lawyers at the California association Realtors. I look forward to the answer. Almost everyday I am challenged by a short sale issue which brings up a huge range of legal complications. I am concerned for all the non represented sellers out there. This is a difficult field and mistakes may costs the short seller 10s of thousands of dollars.


At what point in the process should the agent make sure the seller has legal advice. For instance - Can the Realtor review the financial paperwork to determine what to disclose to the bank? Can an agent legally represent the homeowner in Negotiations with the bank or review the paperwork with respect to deficiency and loan forgiveness?

How about when the NOD is filed - you know sellers are going to say the Realtor said don't worry we will sell the house - Shouldn't the agent make sure the seller has legal counsel at the time and NOD is filed?

In fact being that a short sale is really part of a set of pre-foreclosure options which have serious and diverse legal and financial impacts should a Realtor even list a short sale before the owner consults an attorney?

Monday, November 19, 2007

Lawsuits - Los Angeles Times - protection from creditors

Homeowners considering short sales in California are starting to wonder if their other assets are exposed to potential deficiency judgments.

Here is an L.A. Times story on the subject. Please note - the IRS may be able to collect in situations where a third party creditor might not.

IRAs Could Be Fair Game in Lawsuits - Los Angeles Times: "Wong was all set to do just that when a co-worker warned him that, in California, IRAs were more vulnerable than 401(k)s to lawsuits. 'He said a qualified 401(k) plan is safe from any court taking it in the event of a personal liability case, such as if someone slips and falls on your property, whereas IRAs are subject to available assets to pay out such claims,' Wong said. Actually, California law does shelter money in IRAs and Roth IRAs that is deemed necessary to support the saver and his or her dependents in retirement, said Bill Norman, a certified tax specialist and estate planning attorney in Century City. Any excess, however, is indeed subject to creditors' claims in a lawsuit or bankruptcy. Exactly how much would be protected is open to a judge's interpretation, Norman"

Short sales and tax liability

Below is a link to an excellent page from the IRS. Please note that when a short sale happens the loan does not go back to the lender as full satisfaction. So it seems to me the correct legal strategy would involve something much more complicated that saying this is a non recourse loan so no loan forgiveness liability for a short sale. Also do not forget to factor in the potential for capital gains liability.

Questions and Answers on Home Foreclosure and Debt Cancellation: ". Can you provide examples? A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000. The borrower figures income from the foreclosure as follows: Use the following steps to compute the income to be reported from a foreclosure: Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt.) 1. Enter the total amount of the debt immediately prior to the foreclosure.___$220,000__ 2. Enter the fair market value of the property from Form 1099-C, box 7. ___$200,000__ 3. Subtract line 2 from line 1.If less than zero, enter zero.___$20,000__ The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040."

Sunday, November 11, 2007

san diego short sales seminar (part 1)

Yesterday I had the opportunity to attend a short sale class for san diego realtors give by an attorney and realtor. She sits on boards for Realtor associations, does some short sales and defends Realtors when they get sued.

She had a great deal of credibility with the audience of close to 200 as many had seen here lectures previously.

The take away from the class for me and I am sure for almost every Realtor there, is that a Realtor should not take a short sale listing until the client sees an attorney and tax advisor.

Here is just a beginning list of considerations why a Realtor should not list a short sale until the seller has spoken with an attorney and perhaps a tax advisor:|

1. No amount of disclaimers can make up for the fact that a short sale may harm many sellers and no amount of signed disclaimers will allow a Realtor to practice law, analyze the situation and declare a short sale is the right choice for the seller. A seller must consider and weigh the consequences of a deed in lieu of foreclosure and foreclosure.

2. No amount of disclaimers will avoid the fact that a lawyer needs to go over the paperwork to ensure the seller is well advised and protected. A short sale without agreements will probably get the Realtor sued.

3. A Realtor may not advise the client on deficiency. To do so could get the Realtor sued.

Just think about the fun plaintiff's attoneys will have. Did you get paid for the short sale? Were you an agent? For whom, the lender? Did you have any duties? What were they? Was your client at risk for a deficiency? (you lose when you answer this one) How did you know? Do you ever mention anything about deficiency to the seller? Why not? So you made a legal choice for the seller? Are you licensed to make legal choice? Give counsel on California law? Why don't you explain 580b to me. So prior to the property going back to the bank does the owner have personal liability on the loan? So why do the short sale? Did you negotiate with the bank. As a representative, isn't that what attorneys do? Do you draft the release? Do you understand the legal consequences, did the seller etc, etc.

4. A Realtor may not advise the client on taxation for loan forgiveness. Even if they could they are not license to suggest that a short sale may be a better solution than a foreclosure. So again how can a short sale happen without legal advice?

5. A Realtor may not advise the client on taxation for capital gains. To do so or not do so could get the Realtor sued for the reasons seen above.

1. I think it is safe to say no Realtor should take a short sale until the client has been advised by a lawyer and perhaps a tax advisor. No amount of disclaimers will get around the fact that without proper legal advice a Realtor is taking on way too much liability.

Why? because a short sale is just one of the pre-foreclosure remedies a homeowner can consider. And for many it is not the best option. A short sale may introduce liability for deficiency and taxes to many homeowners who would not be exposed to such liability if a foreclosure or deed in lieu of foreclosure is selected.

In our next blog we will talk about the liability associated with the short sale package.

In future sales we will speak about negotiations and releases.

Friday, November 9, 2007

San Diego short sale specialists

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Now I ask - if you are going to dispose of an asset worth hundreds of thousands of dollars for which you could be held responsible for the the banks losses - or for which you could pay taxes on the the losses. Are the Students of these courses really the type of people you can trust as your San Diego short sale expert?

California has a very complex set of consumer protections, protecting homeowners against lenders and protecting people in "foreclosure" from realtors and investors. Before you sell your house and perhaps change your status from fully protected to fully exposed - speak with an attorney. It does not matter if the attorney is a foreclosure attorney, a real estate attorney, or a bankruptcy attorney. If you get your answers in writing and the attorney has mal practice insurance it will be the best use of your time -- period.

Tuesday, November 6, 2007

short sale tax consequences - recourse vs non recourse

Hi I'm a REALTOR & Certified Mortgage Planning Specialist in San Diego. Thank you for this valuable info.

Question 1:

I read somewhere that you may still have tax consequenses for the deficiency amount even if foreclosure was non-recourse(purchase money & lender chose NON judicial process), because although lender understands you are protected from being sued/judgement actions, it does not prevent them from taking a tax deduction, which from what the article mentioned is required by law(as I understood). Being that tax consequences based on lender taking a deduction & suing you for deficiency are two different things, this leads me to believe that it does not matter wether you have Deficiency protection from from lender going after you personally, you still may face the equivalent in taxes due to lender having the right to claim a tax deduction. Please correct me?

I have researched the IRS rulings and publications. I am comfortable giving my client an opinion letter saying they are not subject to loan forgiveness taxation after a foreclosure or deed in lieu. A short sale is very different. Since the property does not go back to the lender - I am truly surprised to talk to realtors who think they can advise their clients that are protected from tax liablity for loan forgiveness.

Those are arguments for California license Real Estate attorneys.

If you send me an email I will try to locate some of my research for you

anti deficiency case law

FindLaw for Legal Professionals - Case Law, Federal and State Resources, Forms, and Code: "Cal. Civ. Proc. Code S 580b. California's anti-deficiency statutes are intended 'to limit strictly the right to recover deficiency judg- ments, that is, to recover on the debt more than the value of the security.' Brown, 259 P.2d at 426. The bankruptcy court reasoned that S 580b applies only when there is a deficiency, defined as ' `that part of a debt secured by mortgage not real- ized from sale of mortgaged property,' ' and thus concluded that S 580b did not apply to prohibit East Bay's unsecured"

Recourse vs non recourse loan

The 9th circuit stated that California anti deficiency laws did the following including "requring the debtor be credited with the fair market value of the secure property before be subjected to personal liability.

FindLaw for Legal Professionals - Case Law, Federal and State Resources, Forms, and Code: "Moreover, even if the creditor does rely on the security first, his right to a judgment against the debtor for any defi- ciency may be limited or barred by the anti-deficiency statutes found in SS 580a, 580b, 580d, or 726. See Walker v. Commu- nity Bank, 518 P.2d 329, 331 (Cal. 1974). The purposes behind these provisions are 'to prevent multiplicity of actions, to compel exhaustion of all security before entry of a defi- ciency judgment and to require the debtor to be credited with the fair market value of the secured property before being subjected to personal liability.' Id. at 333."

Friday, November 2, 2007

Questions and Answers on Home Foreclosure and Debt Cancellation

If you are selling a san diego short sale property short you should compare your position on short sale to you or your clients status after a foreclosure

Questions and Answers on Home Foreclosure and Debt Cancellation: "2. Is Cancellation of Debt income always taxable? Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve: * Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. * Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception. * Certain farm debts:If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception. * Non-recourse loans:A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case "