Friday, September 30, 2011

Housin Market Hit Bottom: Former Realty Trac Executive Rick Sharga

Housing market hit bottom: former RealtyTrac exec

Friday, September 30th, 2011, 4:23 pm

The U.S. housing market hit bottom this year and will remain flat until 2014, when it will start to slowly recover, said Rick Sharga, an executive vice president with Carrington Mortgage Holdings.

"We’re looking at a catfish recovery," he told attendees at the Asian Real Estate Association of America conference in San Francisco Friday, saying the market will bump along the bottom for some time before starting to revive.

More than a million foreclosure actions that should have taken place this year have not yet moved forward, and that delay pushes a resolution of the housing market’s problems into next year and beyond, he said, citing data from RealtyTrac, where Sharga served as a senior vice president until this week.

"We can’t expect to see home price appreciation until we work through these distressed assets," he said.

Since 2005, there’s only been one quarter in which U.S. banks have sold more properties than they’ve taken back through foreclosure, leaving a huge overhang of real estate-owned assets that need to be cleared out.

Banks hold about 800,000 REOs, and three-quarters of those are not listed for sale, said Sharga. Another 800,000 homes are in foreclosure and 1.5 million loans are delinquent.

This "shadow inventory" will slow down a housing market recovery, he said, as monthly foreclosure numbers will remain elevated through 2012 and REO inventories will stay high through 2013.

Even with the continuing distress in the housing market, the country is not likely to enter a double-dip recession, said Eugenio Aleman, a director and senior economist at Wells Fargo & Co (WFC: 24.12 -3.48%).

Although U.S. workers have suffered as the nation has lost 9 million jobs over a two-year period, the manufacturing and service sectors are expanding, he noted.

"The rest of the economy is not booming, but it’s doing fine," said Aleman. Wells Fargo is projecting that the U.S. economy will expand over the next few years, but at anemic rates: 1.6% this year, 1.4% in 2012 and 1.9% in 2013.

"We are standing firm," said Aleman of Wells Fargo's economic forecast. "We are not going to go into a recession."


Fewer Loan Modifications Completed- O.C. Register

The nation’s mortgage lenders modified fewer mortgages to help keep delinquent borrowers in their homes this past summer, even though mortgage starts and sales increased, a new survey shows.

Lenders have been working to modify loans of borrowers who have fallen behind on payments by lowering monthly payments, lowering interest rates or in some cases by reducing the amount owed.

Hope Now, a coalition of loan servicers, investors and counselors, reported that loan mods fell nationwide to 55,828 in August.
That compares to monthly averages ranging from 84,000 to 115,000 loans modified a month in the previous nine months.

In addition, Hope Now reported:

221,746 loans were made in the third quarter ending in August.

That’s down from 345,197 loan mods made in the fourth quarter of 2010.

Lenders have modified nearly 4.9 million loans for homeowners since Hope Now began gathering data in 2007.

Of those, only 791,399, or 16.3%, of the loans were modified under the federal Home Affordable Modification Program, or HAMP.

Completed foreclosure sales increased 5% in August to 68,000, compared to 65,000 in July.

Foreclosure starts increased by 18% to 218,000 in August, up from 185,000 in July.

Read More from the Article Source:

Thursday, September 29, 2011

Why Is JPMorgan Chase Paying Up To $ 30,000 For Short Sale ?

Why Is JPMorgan Chase Paying Up to $30,000 for Short Sales?

Apparently Chase has been aggressively pursuing homeowners to enroll in their Short Sale Outreach Program. They are sending letters to certain mortgagors, offering up to $30,000 to people who are behind on their mortgages, to try to short sell the property, rather than letting it go to foreclosure. They promise to give approval within a short period of time, and to forgive any deficiency. There is one catch, the mortgage has to be owned by Chase (not merely serviced by Chase).

Why would they do this? Because they understand the math involved in a foreclosure. The mortgagee (holder of the mortgage) usually loses a huge amount of money if the property goes to foreclosure. In Florida, the average time from beginning to end of a foreclosure is over 600 days! [Editor’s note: nationally, the average is over 500 days.] That's almost two years worth of interest lost, real estate taxes and legal fees that have to be paid and association dues owed.

When you include the deterioration to the property, the loss in value overall, lenders are lucky to recoup 50% of the money owed on any foreclosure. The average price discount on a short sale is 12%, while on an REO it is 25%. It is much cheaper to pay the delinquent homeowner to get out, than to go through the entire foreclosure process.

The real question is why are they not being as aggressive on the loans which they service? Again, they understand the math involved. Since it is not their money being lost in the process (they already sold the loan to an investor, who is taking the loss), there is little incentive to stop the bleeding. And, the financial remuneration involved in servicing the loans actually goes up once a loan becomes delinquent.

As the servicer of a loan, a bank gets paid a small percentage (usually about 0.25%) of the principal balance of the loan, to take in the monthly payments, and distribute the money (taxes, insurance, interest, principal). But, when a loan becomes delinquent, they raise the percentage (to over 0.5% - doubling their income), charge late fees and make money on force-placing insurance. This means that if they encouraged modifications or short sales of these loans, servicing income would decrease dramatically (since the principal balance of the loans they service would decrease). Instead, the longer a property remains delinquent, the more money they earn.

But wait, how can they be making money when no payments are coming in? Because their servicing agreements state that they are entitled to be paid first out of any proceeds from the sale of the property. So, when the property is finally foreclosed, all of their fees (together with interest on any money they had to front) gets paid to them first, with anything left over going to the investors.

Chase's program only underscores what many inside the industry have always known. If borrowers and investors could directly deal with each other to modify or allow a short sale, the real estate industry would recover much faster. However, it would mean that banks would not be able to make as much profit, so they do everything possible to keep the communication lines cut. [Bank of America, alone, reported a profit of $2 billion in the 2011 first quarter.

Source: Shortsaledailynews

Home Price Declines, Tight Lending Standards Blocked 2.3M Refinances - Fed Study

Home Price Declines, Tight Lending Standards Blocked 2.3M Refinances - Fed Study
By Alan Zibel

Published September 22, 2011

|WASHINGTON -(Dow Jones)- Tight mortgage-lending standards and dramatic declines in home prices prevented more than two million U.S. homeowners from refinancing last year, the Federal Reserve said Thursday in a new study.

The annual report underscores the difficulties that policymakers have had over the past two years in encouraging more Americans to refinance their mortgages and take advantage of ultra-low rates.

The report found that about 2.3 million homeowners would have been able to refinance their loans were it not for strict underwriting standards enacted after the housing bubble burst, and for home price declines that left millions of Americans owing more on their properties than their homes are worth. About 4.5 million of refinances were made last year, the study said.

The report analyzed data from more than 7,900 mortgage lenders, which are required to report detailed data on mortgage lending to the Fed and other regulators under the Home Mortgage Disclosure Act. In total, 7.9 million home mortgages--including refinances, home purchases and other loans--were made last year by the institutions analyzed in the report. That was down from 9 million in 2009 and a peak of 15.6 million in 2005.

The White House in 2009 launched an initiative called the Home Affordable Refinance Program that allows borrowers whose properties have declined in value to refinance without putting down more cash. It has enrolled about 830,000 homeowners, far fewer than expected. The Obama administration and regulators have been working on ways to expand access to that program.

The report comes as maximum size of loans that can be backed by government-controlled mortgage companies Fannie Mae (FNMA), Freddie Mac (FMCC) and the Federal Housing Administration is scheduled to decline at the end of the month. The new limits vary by location, but will drop to $625,500 in expensive markets such as New York, Los Angeles and Washington from the current $729,750.

The Fed study concluded that only a small number of loans are likely to be impacted by this change. It calculated that only about 1.3% of purchase and refinance loans guaranteed by Fannie and Freddie made last year would have been impacted had those lower limits been in effect.

Copyright © 2011 Dow Jones Newswires

Wednesday, September 28, 2011

Allow underwater borrowers to refinance, Fed's Rosengren says

Allow underwater borrowers to refinance, Fed's Rosengren says
The Federal Reserve's policy of keeping interest rates low to spur lending hit a barrier in the recovery with home prices falling and underwriting guidelines keeping borrowers from refinancing, said Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston.
With that in mind, the Fed Bank CEO said he supports policies that would allow homeowners who are underwater on their mortgages to refinance their loans. "Clearly getting more money into the hands of homeowners who spend it could help to fuel GDP growth," he said. "This would reduce one of the impediments to a more significant effect from the monetary policy actions taken to date."
Rosengren's Wednesday speech at the Economic Outlook Seminar in Stockholm, Sweden, focused entirely on housing and how its failure to robustly return in the wake of the recession led to an anemic recovery not experienced in previous downturns.

While low interest rates are forced deeper to spur lending, Rosengren explained this scenario is not working in an economy where many borrowers have fixed rates and homes underwater are keeping them from refinancing. "The characteristics of a country’s mortgage finance market determine the impact that will come from a change in the rates directly influenced by monetary policy," Rosengren said. "In the U.S., most homes are financed by 30-year fixed-rate mortgages, so a fall in long-term interest rates really only affects existing homeowners to the extent they refinance. As a result, the U.S. gets less effect from the movement of short-term, monetary policy interest rates compared to countries where the primary mortgage financing instruments are floating-rate loans."

Rosengren said real estate is hitting all sectors of the economy since many financial firms have exposure to the sluggish real estate sector through direct lending mechanisms or the acquisition of mortgage-backed securities."As a result, declines in real estate prices can have a substantial impact on the capital of financial institutions, which impacts their ability to finance not only the housing sector, but also other sectors of the economy," Rosengren said.

The inability to refinance existing loans paradigm is reinforced by tighter underwriting guidelines that are keeping borrowers from taking advantage of lower interest rates.
Rosengren stressed that no recovery can be fueled without restoration of the housing market. Residential investment grew more than 30% in the first years of past recoveries, while in the recent recovery, residential investment actually fell in the first two years following the end of the recession.

"More than one observer has commented that we are seeing a different pattern this time that equates almost to a “negative feedback loop," said Rosengren. "High unemployment leads to risk aversion, which decreases demand for new housing. But without construction activity we are not seeing the typical uptick in housing-related jobs."

Source: Housingwire

Tuesday, September 27, 2011

First-Time Buyers Losing Interest in Short Sales

The uncertainties and the long waiting time have caused many homebuyers to stay away from short sale despite the average 27 % discount. Rather, investors and homebuyers prefer REO which are cheaper and do not need to wait.  It is uncommon for homebuyers placing multiple offers on shor sale listings with the intention of staying with one.  Here is the latest recap of this trend:

First-Time Buyers Losing Interest in Short Sales

J P Morgan Chase the leader in HAFA short sale program.

JPMorgan Chase Has Completed the Most HAFA Deals

JPMorgan Chase Has Completed the Most HAFA Deals

Wells Fargo ranked second with 2,400 completed; Bank of America was third with 1,600. It seems the top 10 mortgage servicers also canceled approximately 600K trials because of a redefault, borrower ineligibility or insufficient documentation. Another 1.5 million distressed homeowners were denied from even entering the trial period.

The numbers also reveal that mortgage servicers are completing nearly 10 times as many private short sales and deeds-in-lieu.

Source: Short Sale Dailynews

Interview on the true impact of short sale & foreclosure on FICO score

Craig Watts_Full Interview from Nabil Captan on Vimeo.

Lender Financial Incentives for Short sale Sellers.

The nation’s leading mortgage lenders are extending extras for short sale transactions employed as an alternative to foreclosure – both in the form of monetary incentives for borrowers and streamlined procedures for real estate agents.

There are all kinds of incentives available to short sale sellers throughout the United States. Those incentives range from a few thousand dollars all the way up to $35,000 (enough to pay for some of your kid’s college education).

The average incentive offered by Citi has been confirmed at $12,000 – provided that Citi owns the loan.

Bank of America has reportedly implemented procedural revisions designed to minimize ‘red tape’—saving time for agents who are attempting to complete short sales. They launched the  Bank America Cooperative Program that pararell HAFA program  and qualified households receive $ 2,500 at closing.

According to, JPMorgan Chase is offering a range of incentives to borrowers who agree to a pre-foreclosure sale “because if we can’t work out a modification, a short sale is a better result for the borrower, the servicer, the investor, and the neighborhood than a foreclosure.”  In all cases, lenders indicate that incentive decisions are made on a case-by-case basis, depending upon a variety of circumstances.  Many agents claim that their clients received $ 20,000 for concluding the short sale with Chase.

According to a account, Wells Fargo stated that relocation offers can be as much as $10,000 or $20,000

Others banks such as Wachovia and Litton send letters to borrowers facing foreclosures offering incentives.  Sellers should read their mail and save the letter so that they can redeem the incentive at closing (usually between three and five thousand dollars).

One caveat is that the incentives offered may only apply on loans where the lender is 1st lien holder and the practice seems to more widespread in states where the foreclosure process is known to be lengthy and complex.

Before you accept the financial incentives, you need to consult with your tax advisor for any tax consequences.

For more information, please contact me at or (213) 820-7509.

Thursday, September 22, 2011

Tenants' Rights on Foreclosed On Properties

Learn on the Helping Families Save Their Home Act of 2009 which is aimed at protecting tenants that live on properties going through foreclosure.   As you know or will learn that banks strongly prefer the properties to be sold AS IS and that means that tenants will come with the property. 

This is an area that present challenge for homeowners facing short sale and also to real estate agents.  How many days in advance should the owner give notice to vacate to the tenants ? 30, 60, or 90 days ?  Should the owner or bank be responsible for cash for key money to aid in relocating the current tenants ?

You do not want to get into problems with LA Housing as some tenants have known to contact LA Housing Dept to complain which result in unwanted visits and issuance of violations which further complicate the short sale process.

Please visit the link below to's  report for more detailed information and avoid any Fair Housing Law :

Tenants' Rights on Foreclosed On Properties

Puedo salvar mi casa declarando bancarrota?

Puedo salvar mi casa declarando bancarrota?

En muchas ocasiones me han preguntado si es estrategicamente beneficioso declarar bancarota para parar a sus prestamistas y quizas salvar la casa. Mi opinion ha sido y sigue siendo como sigue:

Hable con un abogado o asesor sobre los beneficios y desventajas de declararse en bancarrota.
Declarando bancarrota es una decisión que se debe tomar con mucho cuidado. Queda en su record
por10 años y tiene impactos negativos en su vida hasta que se borra. Por ejemplo, no podria solicitar prestamos

Declarando bancarrota empieza una suspensión que no permite a los prestamistas tomar acción
contra usted para cobrar deudas mientras su bancarrota esta pendiente. En la mayoría de los casos,
para la ejecución hipotecaria por un tiempo. De todos modos, la ejecución hipotecaria podría
continuar en unas situaciones limitadas, por ejemplo si ha declarado bancarrota por varias veces
seguidas o si la propiedad fue transferida a su nombre inmediatamente después de declararla.

El más grande error que comete la gente es esperar unos días antes de la venta al remate público para
considerar la bancarrota como opción. El mejor tiempo para consultar con un abogado de bancarrota
es antes que ó a principios del periodo de la Noticia de Incumplimiento.

El tipo de bancarrota mas común para prevenir la venta en el remate publico se llama Capitulo 13
(“Chapter 13”) por que puede proponer un plan de repago que incluye la deuda anterior que debe a
la hipoteca u otros prestamistas contra su casa, durante un periodo entre 36 a 60 meses.

Usted puede archivar bancarrota sólo o con un abogado. Archivando sólo es más barato, pero a
riesgo de cometer errores y que no sea aprobada y después tienen que esperar muchos meses antes
de que puedan archivar de nuevo.

Al conseguir la ayuda de un abogado archivara la bancarrota correctamente, pero le puede costar
bastante. Si está considerando bancarrota y contratar a un abogado, pregunte al abogado cuales
resultados puede esperar si archiva bancarrota y pídale al abogado que le de una prueba escrita de
sus honorarios. Dependiendo en su situación, declarándose en bancarrota puede ser un retraso muy
caro de la inevitable perdida de su casa.

Para finalizar, les quiero decir que la bancarrota no es para todo, especialmente como un conveniente salida de sus problemas. Y aun más debe saber más demoras significa que Usted tendrá que esperar más para que se recupere.

Disclaimer:  The information contained herein is provided as a public service with the understanding that I make no warranties, either expressed or implied, concerning the accuracy, completeness, reliability, or suitability of the information. You need ,ultimately, the service of lawyer/legal counsel in this matter.

What Seniors Should Know before Modifying Mortgage

What Seniors Should Know before Modifying Mortgage

RISMEDIA, August 30, 2010—(MCT)—Maria Olmo doesn’t like her chances of paying off her new, 40-year mortgage. “I’ll die before it’s paid off,” said Olmo, who got her 30-year mortgage modified because she was at risk of losing her home to foreclosure. “This is the most ridiculous thing I’ve heard in years. They didn’t take my age or my income into consideration.” Since last year, companies servicing delinquent mortgages have been under orders from the federal government to modify the loans rather than foreclose on them.

The goal is to cut the monthly mortgage payments so they are less than 30% of the homeowner’s income.
More than half of the 390,000 mortgages already permanently modified through the federal government’s Making Home Affordable Program have lengthened loan terms—in most cases extended from 30 years to 40 years, according to lenders and federal reports.

Just six months earlier, in January, only about 42% of the loans modified at that point had been similarly lengthened. The U.S. Treasury Department has not released the number of struggling homeowners who have been put into 40-year loans, but lenders say that’s the predominant new term for modified mortgages.

Meanwhile, the number of mortgages that have been changed by trimming the principal on “underwater” houses held steady during that time between 27 and 28% of all modifications. All of the modified loans have had their interest rates reduced.

Orlando lawyer Matt Englett, who specializes in foreclosures, said he advises his older clients against lengthening their terms to four decades. “If you’re 60 and you’re in a 40-year note, you’re really just renting it from the bank, and you’re paying more than you would from someone else you could be renting from,” Englett said. “This is what the car dealers sell—they sell payments. That’s what the mortgage industry has gotten into.”

Rocky Stubbs, Chase vice president for homeowner preservation, said lenders participating in federal foreclosure-prevention programs are opting for interest-rate reductions and longer loan terms before principal write-offs because the government called for that specific, stepped approach to modifying home loans.

He noted that mortgage companies are prohibited by the federal Equal Opportunity Credit Act from considering the age of homeowners when putting them into loan products.“We cannot look at the credit application of a 30-year-old customer any differently than we would a 90-year-old customer,” he said during a recent interview.

Homeowners who have agreed to go from a 30-year mortgage to a 40-year home loan can always pay more than the monthly minimum if they want to treat it like a 30-year loan and pay off the mortgage sooner, Stubbs added. The modifications typically don’t have any prepayment penalties.

But in east Orlando, Olmo said she can hardly afford her home’s new, $1,300-a-month loan payments because she is struggling with less income since her husband is now unemployed. Rather than adding years onto the mortgage, she said, her lender should have accepted that the house has lost value and should have cut some of the loan’s principal.

Englett, the foreclosure lawyer, said 40-year loans make little sense financially, particularly for seniors who face paying the upfront interest possibly for the rest of their lives.“If you look at the numbers, if someone is 60 years old and they extend their mortgage to 40 years, oftentimes they’re paying 50 percent more to own the house than they would pay if they were renting in the same neighborhood,” he said. “And when they go to sell, they still won’t have enough to pay it off.”

Despite such warnings, Englett said, most older clients opt for the reduced interest rate and longer term—”they get attached to the house and want to stay there.”

(c) 2010, The Orlando Sentinel (Fla.).

Distributed by McClatchy-Tribune Information Services.

Wednesday, September 21, 2011

Quick Guide for Waiting Periods

This guide will provide you with the required wait times information for new loans after concluding short sales, foreclosures, and bankruptcies.

Conventional Loans:

*Chapter 7 BK- 4 year waiting period from the discharge/dismissal date.
*Chapter 13 BK - 2 year waiting period from the discharge date or 4 years from the dismissal date.
*Multiple bankruptcies - If there are multiple bankruptcies within a 7 year period, the waiting period               is 5 years from the most recent discharge/dismissal date.
*Foreclosure - 7 year waiting period from the completion date.
*Deed-In-Lieu /Short sale - Minimum 2 year waiting period.


*Chapter 7 BK - 2 year waiting period from the discharge/dismissal date.
*Chapter 13 BK - 1 year and the court must grant permission to the borrower to enter into a mortgage
  transaction. Document that the borrower's current situation is not likely to recur.
* Foreclosure/Short sale/DIL - 3 year waiting period.
* VA Loans Only - 2 year waiting period for Foreclosures.

Please remember that banks will require higher LTV ratio when making a new loan after completing the waiting time.  For example, Fannie Mae requires 80 % LTV after 2 year wait time.

Shadow Inventory- Realities and solutions

For the sake of this discussion, shadow inventory are those homes that are more than 12 months delinquent in the mortgage payment or in foreclosure.  Recent report  by Anherst Securities Group, we have currently a total shadow inventory of 3.2 million units. Meanwhile we are liquidating 100,000 loans/month which translates into 32 months (2.7 years) to liquidate those loans. And this time frame does not take into account for those loans that have yet to reach 12 months delinquency and those homeowners who are still paying mortgages on underwater properties.

The supply/demand imbalance is not uniform throughout the country. For example, states such as Texas, Virginia are faring better than Nevada and our Golden State which is leading in forclosure sales figures.

The problem of liquidation is exacerbated by the tightening of credit standards for new loans by requiring higher FICO scores, even lower LTVs (Loan to Value). For example,  GSE and Bank portfolio loans for 2009/2010 had an average of 67 % LTV and the average FICO score for new GSE origination was 762  and 756 for banks for those years. These numbers are only met by a very select group of consumers and the new proposed Dodd Frank rules implementing QRM (Qualified Residential Mortgage) and QM (Qualified Mortgage) will furtehr tighten the credit availability.

So far the effort to correct the supply/demand imbalances has been attempted thur modification plans which have had a very low success rates. These actions have not solved the problem, they merely postponed them.

Right now home prices are more affordable when we compared with the peak prices of 2,006. Close to 40 % in price correction has been attained (more in some areas) and mortgage rates are at generational low, comapred to 11% in 1990, now hovering little over 4 %.  But some experts still foresee more price drop and further homeowners being underwater creating a housing death spiral.

What are the solutions to this supply/demand imbalance ?  There is no magic bullet that will solve the current situation but some recommendations will be for the banks to raise their approval rates for loan mod including principal reduction and help borrowers to cope with payment shock in the early stages of delinquency.  I have clients who are out of job and can't afford the reset rate which in many cases doubled making impossible to keep making payments. Even those homeowners qualifying for the loan mod, many end up being denied further assistance as borrowers are given conflicting information.  Banks need to seriusly consider not just shaving interest rates but offer borrowers substantial debt relief and this will require bold actions.

Tuesday, September 20, 2011

Short Sale/Deed In Lieu, and Foreclosure impacts on Credit Score

There seems to be difference of opinions as to the effect that short sale and foreclosure have on the credit score of homeowners.

On my recent attendance at the NAHREP (National Hispanic Real Estate Professional) national Conference, which focused on housing trends and policies affecting the Hispanic population , the topic of homeownership following a short sale or foreclosure attracted many real estate professionals as they upgrade their training to better inform their clients.

When I started receiving my training in short sale in 2,009, the consensus was that the short sale only lowered 50 to 100 points in their FICO score. Nothing could be further from the truth as homeowners succesfully concluding short sale and /or losing thru foreclosures experience drop as much as 160 points.

For example, for those homeowners whose pre-short sale/foreclosure were in the 600-650, the drop is between 85 to 105 whereas those in the 700 + FICO score, the drop could be as high as 140 to 160 points. Thus, the higher the score, the higher the impact on one's credit score. Furthermore, the severity will be more pronoinced if you are behind other payments besides your mortgage payments such as credit card, student loans, car loans, and so on.

The difference in credit score drop between short sale and foreclosure is only 35 to 55 points contrary to popular beliefs.  Bankruptcy (Chap. 7 and Chap. 13) damage to credit score was more severe. Those in the 600s score, the drop was between 130 to 150 whereas the drop to those with 700 + FICO score, the average drop was 220 to 240 points.

On my next posting, I will try to incorporate graphs that were featured at the conference and which will be made available soon.

My advise for homeowners facing foreclosure is that you need to know in advance what are the consequences to your credit score as you contemplate the different options.  In short, there is very little difference between short sale and foreclsoure and if the real estate agents advise to the contrary, either they are not being honest or they are misinformed on short sale.  You make the choice.  After all you are the person who will be affected by your decision.  My intention after all is to empower you with the correct information and practical knowledge to help you to repair and rebuild your credit after a short sale or foreclosure.

I will inform you about the waiting periods to qualify for another loan after short sale and/or foreclosure.  Depending on the type of loans, there are big differences.

Saturday, September 17, 2011

Friday, September 16, 2011

California: Ground Zero for America’s Foreclosure Crisis

Here is the latest news that describes our Golden State as the ground zero for foreclosure in America. How did we get here ?

California: Ground Zero for America’s Foreclosure Crisis

Our Bornstein & Song Small Business Toxic Mortgage Surveys, U.S. National (Nov. 2008), California (April 2009), and California Hispanic (June 2009), provide the first compelling evidence that a significant number of small business owners are stuck with toxic mortgages such as Alternative-A (Alt-A), Option ARMs (Adjustable-Rate Mortgages), Interest-Only, Subprime etc., which they acquired by refinancing their home equity during the Housing Bubble in order to quench their continuous need for cash for their newly created or existing businesses. These small business owners placed themselves at-risk of payment shock at the resetting of these negative amortization mortgages in 2009 to 2012 and beyond. They are now at-risk of financial distress, default, and foreclosure. The resulting job loss for their employees will impact unemployment and the housing crisis.

In order to determine the extent of small business owner involvement in these toxic mortgages, we authored three Small Business Toxic Mortgage Surveys. In November 2008, after concluding our U.S. National survey, we selected California because more than 58 percent of all toxic mortgages in the U.S. originated in the State of California, and its small business owners were at greatest risk. These Surveys confirmed the 2nd “Tsunami” Wave of Foreclosures & Job Loss in 2009 to 2012, related to small business owner involvement in the toxic mortgage crisis.

Small Business Toxic Mortgage Surveys Highlights:
• Respondents took out mortgages after 2004: U.S. 60.1%; California 55.4%; California Hispanic 53.3%.
• Respondents cashed-out the equity in their homes as home values spiked during the 2004-2007 housing bubble: U.S. 33.9%; California 34.3%; California Hispanic 36.9%.
• Respondents have toxic mortgages: U.S. 31.9%; California 51.8%; California Hispanic 52.6%.
• Respondents are expecting resets between 2009 and 2012: U.S. 22.9%; California 34.9%; California Hispanic 44.7%.
• Respondents are "very worried" about their monthly mortgage payment at reset: U.S. 18.4%; California 29.9%; California Hispanic 49.3%.

The 7 Most Common Short Sale Pitfalls Part 2.

The 7 Most Common Short Sale Pitfalls Part 1.

Foreclosure Vs. Short sale

Perhaps the most frequent question that I receive as real estate agent versed in Foreclosures and short sale is about the consequence of foreclosure and/or short sale on one's credit.  I have prepared the above table with the details of each for your reference.

Disclaimer:  The information that I provide in the chart is for educational purposes and comes from materials generated by the Distressed Property Institute. Anyone facing short sale or foreclosure should always consult with an attorney or an accountant with regard to legal and accounting matters.

Non-Judicial Foreclosure in California

Prerequisite: Deed of Trust With Power of Sale

Contrary to popular belief, banks can't just take back a property when an owner stops making payments. In non-judicial foreclosure states, the right to foreclose and sell the property actually lies with a 3rd party, known as the trustee; who has a fiduciary responsibility to both the lender and the borrower.
When you purchase a property, ownership is transferred to you using a document known as a deed. When you take a loan (in a non-judicial foreclosure state), you sign a deed of trust, which gives this third party trustee the right to sell the home if you fail to make payments. This power of sale is what makes non-judicial foreclosure possible.

The Notice of Default

The foreclosure process is first triggered when the lender notifies the trustee that the owner is not paying their loan, as agreed. Upon receiving that notice from the lender, the trustee will issue a Notice of Default, which is typically published in the local paper, posted on the property, and recorded at the County Recorder's office. This notice provides the borrower with a period of time (varied by State), in which to either dispute the lender's claim that the borrower has defaulted on their loan, or to pay it current prior to the house being sold. Here are some of the common features of a Notice of Default:
  • Puts owner and public on notice that the foreclosure process has started.
  • State statutes define when a Notice of Default can be issued.
  • Typically lists the default date and default amount. The default amount can be more than the loan amount in the case of a balloon payment.
  • Provides lender contact information to the borrower.

The Notice of Trustee Sale

Once the owner has received the notice of default and has been given an opportunity to bring the loan current, the trustee will proceed with scheduling the auction date and time if the owner has not yet brought the loan current. The Notice of Trustee Sale sets forth that auction date, time, location, and in some States, the opening bid amount. A few states only issue a Notice of Trustee Sale, but in those states there is usually an extended period of time before the Notices of Trustee Sale is issued; and the auction notice also serves as a Notice of Default as well. Here are some of the common features of a Notice of Trustee Sale:
  • Sets date, time and location of foreclosure auction.
  • State statutes specify the required information, format, and procedures for Notices of Trustee Sale, as well as how the trustee sale must be conducted.
  • Provides bid amount.
  • The published bid amount usually equals the principal balance + past due payments + late fees + foreclosure fees.

The Trustee Sale Auction

On the date and time of the trustee sale auction, one of four things may occur with the property:
  1. The auction for the particular loan may be cancelled.

    This may occur because the property was sold before the auction, and therefore the loan was repaid (or partially repaid in the case of a short sale); the owner was able to refinance the loan; the owner came up with the cash to bring the loan current; or, there may have been an error made in the sale process, and the trustee has decided it would be better to restart the process.
  2. The auction may be postponed to a later date and time.

    Common reasons for postponement include: mutual agreement, where the borrower and lender agree to delay the sale; beneficiaries request, where the lender decides to postpone; trustees discretion, where the trustee decides to postpone, often because it can't reach the lender for bidding instructions; bankruptcy, which actually doesn't completely stop foreclosure, but instead puts a temporary stay on the sale until the lender can get a motion granted by the judge allowing them to continue the sale; and operation of law, where a court has ordered that the sale not be held.
  3. The property may be Sold to 3rd.

    The loan being foreclosed on was offered for sale by the trustee, and a bidder (other than the lender) ended up purchasing the loan.
  4. The property was Sold to the Bank.

    Remember that it is the trustee, not the bank, that sells the home. Since the lender clearly has the most to lose in the transaction, and because they are the beneficiary of any funds received from the sale, they are allow to place the first bid, and are allowed to credit bid (bid without bringing cash to the sale), up to the amount they are owed.
Before bidding at auction it is important to consider the following factors:
  • Auctions open to the public—Typically held on the courthouse steps.
  • Payment requirements will vary from state to state, but generally the property must be paid for, in full, at the time of the auction, and bidders are usually required to show proof of payment, typically cashier’s checks or cash, in order to qualify for bidding.
  • Generally, you are not able to perform any inspections on the property, other than a visual inspection from the street or neighbors yard. Hidden work can be extensive, so auction investors need to be prepared to suffer losses from time to time.
  • Subject to existing liens and encumbrances. Remember that properties aren't sold at foreclosure auction—loans are. One of the great things about foreclosure auctions is that it wipes out loans that came after the one being taken to auction. This can help clear up excess debt on the property, allowing it be resold at an affordable price point. The flip side is that the buyer is responsible for any loans or liens on the property prior to the loan being taken to auction. For example, delinquent property taxes, which are a lien on the property, are almost always the responsibility of the new owner.
  • No title insurance. One of the things that can help buyers sort out what debt they might get stuck with after buying a property at a trustee sale, is a preliminary title report; which would show which existing loans and liens the buyer would be responsible for. One important thing to note is that even the best title companies make mistakes, and occasionally miss items that can have a dramatic impact on the amount owed on the property. To reduce or eliminate this risk, title companies offer homeowners and lenders a title insurance policy which agrees to defend against or pay any claims that their preliminary title report failed to show. Unfortunately, such insurance is generally not available for purchase at trustee sale.

The Trustee's Deed

Once the property is sold at auction, the property has been foreclosed. Ownership of the property is transferred to the new owner (whether the bank or a 3rd party bidder) with a Trustee’s Deed, and any secured interest in the property held by junior lienholders is wiped out.
Even though the bank or 3rd party bidder now owns the home, they may have to evict the current occupants. Eviction processes vary from state to state, and can also vary depending on whether the property is occupied by the former owners, or a renter. Lease agreements recorded after the foreclosing lien, are wiped out by the foreclosure, just like other liens and encumbrances.

N.O.D and Foreclosure Timeline in California

There are two types of foreclosure allowed in California, Judicial Foreclosure and Non-Judicial Foreclosure.
Judicial Foreclosure is very rare in California and requires the lender to sue the owner in foreclosure and proceed with a trial in a court of law. Appraisals and other items are required, and there is still an auction. The owner has the right of redemption allowing them to buy it back from the successful bidder at auction for 1 year after the sale. The advantage of judicial foreclosure for the lender is that they can receive a deficiency judgment against the borrower for the difference between the amount owed (including penalties, fees and costs), and the amount received at auction.
Non-Judicial Foreclosure is what most people are referring to when they talk about "foreclosure" in California. When using non-judicial foreclosure lenders give up their right to collect a deficiency judgment against the borrower, however, most lenders prefer this process given the expedited time frame and minimal costs. Non-judicial foreclosure sales are typically postponed 1 or more times, and can be postponed for up to 1 year based on certain postponement reasons.
 Non JudicialJudicial
Requires Court TrialNoYes
Expedited Time FrameYes - 111 DaysNo
Right of RedemptionNo - Except HOA liens, which have 90 daysYes - 1 Year
Deficiency JudgmentNoYes - Except purchase money

Overview of the California Foreclosure Process
Key California Foreclosure Laws:

Welcome to my blog on foreclosure


Many friends and colleagues have suggested me that I write blog to let myself known and help with my real estate business. Although it was one of the main reasons for starting this blog, a bigger reason is to help people who are perhaps going through the most difficult time in their lives with the possibility of having their homes repossessed by banks.

Even though I do not know them personally, I feel sympathy for them because these people are families and friends who have made their dreams, at least only briefly, and now must leave behind part of their lives.   Many times, these distressed homeowners fall prey to scam artists who promise them a lifeline, when most are at their more vunerable states, with  empty promises and end up losing valuable resources. There is a saying that it only takes three months on the dole for the average American to face difficulties because the whole system is based on the payments.

Who would have imagined that this foreclosures wave would unleash with such force that hinders the recovery of the entire economy of this nation.? Worse, we will face another tsunami of foreclosure as a result of the appearance of toxic mortgages (ARMs, negative amortization) due this year and next. As of know, California is leading the nation in number of forecloures and more than 60% of home sales are either short sale and/or REOs.

I am firm believer that every homeowner deserves the best information and education to avoid losing a home to a foreclosure and damaging credit for years to come. As a CDPE (Certified Distressed Property Expert) and CHP (Certified HFA Professiona), I have been specifically trained to assist homeowners in these difficult situations.

However, many people have given up hope and are embarrassed by the circumstances in which they are. Many simply do not react or get help when there are many government programs aimed at helping homeowners. Please remember that you are not ALONE.

Lately, major banks headed by BofA, Chase, Wells Fargo, have started offering incentives up to $ 35,000  for homeowners concluding short sales succesfully.

I would like to publish and share with you, my readers and audiences and hope that you leave your comments on my blog and we can learn and share as we attempt to understand and hopefully be on the recovery path soon.  I have also published a sister blog in Spanish at  for those readers who is more comfortable in Español.