On December 23rd, I wrote about the new Independent Foreclosure Review Process that had been ordered by Federal Regulators against major residential loan servicers such as BofA, Chase, Wells Fargo and many others. http://stevebeede.com/2011/12/the-independent-foreclosure-review-process/.  That process required the lenders to hire reviewers to contact borrowers who had been foreclosed in 2009-2010 and gather information on how the process was handled.  Theoretically, if an error occurred that caused a borrower to be damaged, there might be compensation available.  Well, it didn’t take long for the scammers to jump in.

Oregon’s Attorney General, John Kroger, has issued an alert that scammers are contacting Oregon consumers and offering to conduct an “independent foreclosure home loan review” or a “securitization review” for a fee. However, there is no costs at all for the real Federal program. “If you receive a letter suggesting that you qualify for compensation or received a grant without having requested an independent review from the federal government, it is a scam,” according to the warning issued by Kroger’s office. The alert bulletin stresses that a government agency will never request personal or financial information through email, and that any claims guaranteeing a mortgage modification or a stop to the foreclosure process should be a red flag.

 How this scam will play out remains to be seen but it certainly will attract those who think they were treated improperly.  Most likely the scammers will take the victim’s “review fee” and then disappear.  Others may act as front men for attorneys that promise they will sue the lenders and “make them pay”. Often, the only payment that will occur is the money transferred from the gullible victim to the predatory scammer.

California and many other states have been cracking down on law firms and others who pray upon those in default or have lost their homes to foreclosure. The California Attorney General’s Mortgage Fraud Strike Force has been created to protect innocent homeowners and bring to justice those who defraud them. http://oag.ca.gov/consumers/loan-modification. They offer “5 Tips to Avoid Being Scammed”:

1)   Don’t pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.

2)  Don’t ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.

3)  Don’t transfer title or sell your house to a “foreclosure rescuer.” Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.

4)  Don’t pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.

5)  Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.

If you are upside down on your California property or have lost your home in foreclosure and need help in determining what to do, we at BPE Law are here to help.  We offer a $200 flat fee one hour attorney consultation program that can help you understand the process, determine what your options are, and select the best strategy for your situation. And we can do this in person, by phone, or even by e-mail. You can reach us by e-mail at sjbeede@bpelaw.com or by phone at 916 966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

While residential short sales and foreclosures have been getting most of the headlines for the past three years, in the backgroud was the increasing difficulties faced by commercial property owners trying to hold-on while facing large vacancies and increasing demands for rent reductions to keep tenants.  In 2011 we saw a rise in the short sales and foreclosures affecting commercial properties.  At the same time, we have also seen commercial lending begin to rebound and have been active in assisting our clients in both areas.

With commercial borrowers, the stakes are higher and resolutions are important as borrowers are trying to keep businesses afloat. Looking at current mortgage liabilities, there are three issues that commonly arise: (1) recourse loans in judicial foreclosure; (2) personal guaranties; and (3) cross-collateralization of loans.

Keith Dunnagan

Attorney Keith Dunnagan of our law firm has been especially effective in advising commercial owners and working with them to avoid deficiency liability on these issues.  He has represented multiple commercial borrowers in judicial foreclosures and helped them avoid liability on recourse loans. Lenders often pursue both a judicial foreclosure to gain control of the property through receivership and a non-judicial foreclosure to dispose of the property through a sale. He has been able to help commercial borrowers minimize exposure if not, entirely eliminate their liability through our representation in the litigation process.  For example:

*  Keith was able negotiate a settlement on a multi-million dollar personal guaranty secured by a now foreclosed 100+ unit apartment building for lump sum payment of less than 2% of the outstanding debt;

*  On several others, lenders had filed judicial foreclosure and were seeking deficiency judgment. Keith was able to get the lenders to complete Trustee Sales instead and avoid any liability for the deficiency.

We’re also seening increased liquidity in the commercial market which is enabling us to promote resolution through new opening lending possibilities. For example: 

*  Keith recently represented a commercial borrower and closed a $4.65M loan with an interest rate under 4% with a limited carve-out guaranty;

*  Keith is completing several commercial short sales by working closely with the real estate agents, lenders, and principals to effect a win-win transfer with no residual liability.

Many of these transactions require both creativity and perserverance such as using disposition of cross-collateralized property as a method to limit personal liability and guarantor liability. Others require plain old-fashioned hammering away in the negotiations while focusing on the numbers both of the borrower and the lender.  Bigger loans have bigger negative impact on lenders as well. That may mean leverage. Overall, we’re working hard to create the best possible ability for businesses to survive the recession.

With 2012, we anticipate that the commercial foreclosure rate will continue to rise and the commercial clients with conventional financing and with SBA loans will need creative solutions to resolve these mortgage issues. Whether it is navigating through work-out or restructuring programs or mitigating liabilities on guaranties and recourse loans, commercial borrowers will need the creative solutions to help protect them in these uncertain economic times. For that, you need Keith Dunnagan and BPE Law Group.

If you are upside-down on a commercial property and want to know more, contact our office at 916 966-2260 to schedule a one-hour initial consultation with Keith.  You can reach us by e-mail at kbdunnagan@bpelaw.com.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

On April 13, 2011, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision announced enforcement actions against 14 large residential mortgage servicers and two third-party vendors for unsafe and unsound practices related to residential mortgage servicing and foreclosure processing.  As part of those consent orders, federal regulators required servicers to engage independent firms to conduct a multi-faceted review of foreclosure actions in process in 2009 and 2010. Under the orders, independent consultants are charged with evaluating whether borrowers suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure practices and determining appropriate remediation for those customers. Where a borrower suffered financial injury as a result of such practices, the agencies’ orders require financial remediation to be provided.

To be eligible, the mortgage must have been active in the foreclosure process between January 1, 2009, and December 31, 2010, the property securing the loan must have been the primary residence, and the mortgage must have been serviced by one of the following mortgage servicers:

To be eligible, the mortgage must have been active in the foreclosure process between January 1, 2009, and December 31, 2010, the property securing the loan must have been the primary residence, and the mortgage must have been serviced by one of the following mortgage servicers:

• America’s Servicing Co.
• Aurora Loan Services
• BAC Home Loans Servicing
• Bank of America
• Beneficial
• Chase
• Citibank
• CitiFinancial
• CitiMortgage
• Countrywide
• EMC
• EverBank/EverHome Mortgage Company
• GMAC Mortgage
• HFC
• HSBC
• IndyMac Mortgage Services
• MetLife Bank
• National City Mortgage
• PNC Mortgage
• Sovereign Bank
• SunTrust Mortgage
• U.S. Bank
• Wachovia Mortgage
• Washington Mutual (WaMu)
• Wells Fargo Bank, N.A.
• Wilshire Credit Corporation

As part of that program, the 14 mortgage servicers covered by the enforcement actions will begin mailings November 1, 2011 that will continue through the end of the year. The mailings are intended to provide information to potentially eligible borrowers on how to request a review of their case if they believe they suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure proceedings related to their primary residence between January 1, 2009 and December 31, 2010. The mailings will include a request for review form. Requests for review must be received by April 30, 2012.

The third-party consultant will assess whether any errors, misrepresentations, or other deficiencies resulted in financial injury to borrowers. Where a borrower suffered financial injury as a result of such practices, the consent orders require remediation to be provided.  During the review, customers may be contacted by mortgage servicers for additional information at the direction of the independent consultant.

Borrowers may also visit www.IndependentForeclosureReview.com for more information about the review and claim process. Assistance with the form and answers to questions about the process are available at 1-888-952-9105, Monday through Friday from 8 a.m. to 10 p.m. (ET) and Saturday from 8 a.m. to 5 p.m. (ET).

If you believe that you are eligible for the Review Program or need assistance with the process or determining your rights, we at BPE Law are here to help you with both the application and review process as well as any related proces such as making a Qualified Written Request for your loan information. You can reach us by e-mail at sjbeede@bpelaw.com or by phone at 916 966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

If you’ve been involved in the real estate market over the past 6 years as a real estate agent, lender, seller, or even buyer, you are at a greater risk of being involved in a lawsuit. Today’s Article is one of several which will educate you on the strategies you can use when faced with a lawsuit to take control of the situation, minimize the risk, and maybe even make it go away.

Here’s a possible situation in which you could find yourself: 

A Demurrer is one of those funny sounding latin words which essentially means “so what”… as in “you’ve filed this Complaint but I don’t know what you’re saying so how can I respond?”  It is a hard to pronounce but powerful tool to narrow and focus the claims and possibly eliminate them up-front. In California, the legal authority for a Demurrer is found at Code of Civil Procedures Sec. 430.10. A demurrer is a pleading used to test the legal sufficiency of other pleadings, not their truth. For example, all facts stated in the Complaint are assumed to be true however improbable they may be!  The Demurrer challenges only defects in the Complaint which would prevent the Plaintiff from being able to actually state a claim against the defendants.

Common grounds for Demurrer include: a) The court has no jurisdiction over the claim - such as when the parties have agreed to arbitration; b) The person who filed the Complaint does not have the legal right to sue - such as when the Plaintiff had previously filed and been discharged in Bankruptcy; By far, the most common grounds for Demurrer are: c) that the pleading does not state facts sufficient to constitute a cause of action against this Defendant; or d) the claims made are ambiguous and unintelligible.  The important part here however is that although the facts stated in the Complaint are deemed to be true (at that stage only), the Court on reviewing a Demurrer can consider certain other documents and statements by the Plaintiff where those counter what the Plaintiff claims in the Complaint.

So here’s how it works in practice. 1) You get served with a Complaint; 2) As soon as you are served, you serve the Plaintiff with discovery requests demanding that the Plaintiff clarify facts concerning the claims and produce all supporting documents. The Plaintiff must respond under penalty of perjury within 30 days thereafter; 3) within the time allowed for filing a response to the Complaint (generally 30 days), you file a Demurrer.  The Court will set a hearing date, generally 45-60 days out but in some Counties, such as Sacramento, the hearing may be 6 months later.  Now you wait for the Plaintiff’s discovery responses and, when they arrive, you look to see if they counter the Plaintiff’s claims in the Complaint. They often will.  Then, if and when the Plaintiff files an Objection to the Demurrer, you file a Reply with the Plaintiff’s own sworn Discovery responses undermining his claims. If the Court agrees with you, the Demurrer will be granted and the Court will usually give the Plaintiff a chance to fix the Complaint - if that can be done. The Plaintiff may file an Amended Complaint trying to deny the defects stated in the Demurrer, and if so, possibly another Demurrer is warranted.  The result of this strategic pleading will at least narrow the issues and often will enable you to win outright without ever having to file an Answer.

Here’s how this worked in a recent case where a foreclosed buyer sued the seller and real estate brokerage company over supposedly undisclosed defects:  All lawsuits must be brought within a certain time called the “Statute of Limitations Period”. For a Fraud lawsuit, this is 3 years (in CA) from the date the Plaintiff knew or should have known that they were injured from the alleged fraud, called the “date of discovery”. The dates in the Complaint indicated that the Complaint was filed within 3 years from this date of discovery.  However, when we received the Plaintiff’s Discovery responses, we received documents indicating that the Plaintiff discovered the alleged fraud months earlier and even had filed an insurance claim more than 3 years before the Complaint.  Based on this simple step, the Court granted the Demurrer and ultimately threw the case out.  But there was even more. Further Discovery revealed that the Plaintiff had filed Bankruptcy and had not disclosed this possible claim. So, the Plaintiff had no right to bring any claim on the alleged fraud.

This is not an uncommon result. It is strategically taking control of the case at the outset by going on the attack. If successful, you save years of legal battles and many thousands of legal costs incurred in going to trial. If nothing else, you force plaintiffs to lay out their claims more clearly, narrow the scope of the litigation, get rid of non-meritorious claims, and gain important evidence at the begining of the case. The downside is that you educate the Plaintiff in defects in their case that you can use against them later.  But I would rather seek to knock the case out up front if at all possible and, for this, the Demurrer is a great legal tool.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are facing a lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Here at BPE Law, our attorneys have handled thousands of lawsuits both in California and nationwide, plus in the Federal Courts. We’re experienced, aggressive, and focussed on getting you the results you want as cost-effectively as possible.  For agents, we have relationships with most E&O carriers and can work seemlessly with them on your behalf.  To learn more, contact me at sjbeede@bpelaw.com or even better, call us at 916 966-2260 for our $200 Attorney Consult to learn the strategies you need to move forward.

As the year winds down, it is time to take a look at the market and get some ideas what to expect going forward.

IT’S NOT A PRETTY PICTURE FOR UPSIDE-DOWN PROPERTY OWNERS

At the start of 2011, I believed that we would get through most of the residential foreclosures by the end of the year and that the market would focus on commercial foreclosures and loan workouts. That turned out to be way too optimistic. Ongoing troubles in financial markets in Europe, the United States, and particularly California coupled with confusion and instability amongst lenders have kept the possible buyers wary of committing. As a result, the “shadow inventory” of distressed home mortgages remains at an all-time high, even though over-all numbers are slowly dropping. Lender Processing Services (www.lps.com) reports that currently there are 6,298,000 mortgages going unpaid in the US. Standard & Poor’s estimates that at current rates, it will take at least 45 months for all of these properties to clear the system either through sales or foreclosure. A deteriorating housing picture, coupled with an increase in expenses and a drop in consumer confidence, led to a sharp decline in consumers’ financial health during the third quarter. The nonprofit credit counseling agency CredAbility puts out a regular quarterly index measuring consumer distress. Between July and September, the gauge recorded its largest drop since the third quarter of 2008. CredAbility’s data show the average consumer has been in distress for 12 straight quarters now.  As reported on my earlier Blog on November 1st, the government’s various programs to help upside-down owners have remained ineffective. Loan Modifications remain as hard to get as ever and short sales are facing resistance from junior lienholders who may find better recourse by forcing a foreclosure.
The bottom line: we cannot expect the market to truly get back on its feet until 2014 or later.

IT’S A GREAT TIME FOR BUYERS AND INVESTORS
While any market turndown means disaster for some, it also means opportunity for others. Given the extreme depth of this economic recession, the result is unprecedented opportunities for those who can act:

1) Property Prices are Down – Prices in California continue to fall. DataQuick (www.dqnews.com) reports that home prices in Sacramento County are down 9.68% from 2010 with California overall down 6.8%. REO’s and short sales make up more than ½ of all sales. Expect further declines in the short run as BofA and other distressed lenders seek to offload the high number of bad loans on their books. Their dramatic increase in foreclosure starts over the summer will skew the numbers further downward but only until they catch up with other lenders who didn’t stall foreclosures after the robo-signer debacle of Fall 2010.

2) Loan Costs are Down - On November 1st, the government raised FHA loan limits through 2013 to 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets. The loan limits for Fannie Mae- and Freddie Mac-backed mortgages, however, will remain at 115 percent of local area median home prices, up to $625,500. That means loans as low as 3.5% down payment for a 30 year fixed rate at 4.0% interest rate.

3) Rents are Steady & Rising – a study by www.ApartmentRatings.com indicates that rents in Sacramento have been climbing in 2011. Our experience was that there has never been much decline throughout this recession. The high number of foreclosed homes has meant a large increase in prospective renters, typically people that know how to care for a home and who will work hard to rebuild their credit so they can buy in again two to three years later.
The bottom line: Get your hands on property now – not for quick flipping but as a steady and stable investment in your future at prices and loan costs we have not seen in a great many years.

Having been a real estate investor, manager, broker, and developer for over 30 years, I’ve survived multiple economic crashes… scarred but with more knowledge to move forward. If you’re upside-down or ready to move forward with property acquisition, we can help.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. In addition to handling all legal needs you may have, our attorneys are skilled in real estate purchase and sales, lending, property management, and negotiation.  Let BPE be your resource for real estate and business opportunity.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

As most of you know who follow my Blogs already know, last January the California Legislature passed SB931 which barred first lenders that consent to short sales from having any deficiency recourse against the borrowers. However, they quickly learned that it is junior lenders (seconds, HELOCS, etc.) that control the success of short sales. So on July 15th, the Legislature passed SB458 imposing the same recourse bar on junior lenders plus they barred any lender from requiring a money contribution from the sellers. These law changes created and then amended California Code of Civil Procedure Section 580e.

Reaction to SB458 was immediate. Proponents claimed it a victory for upside down homeowners while we and many Realtors thought it would be a disaster and kill further short sales. Indeed many short sales quickly died and pressure started mounting to undo the damage. But there wasn’t much data to go on as to its actual overall effects. So last week I sent out a Survey amongst our clients and contacts asking for input on what they were actually experiencing in their short sale deals. The responses were clarifying. Of those whose short sales were impacted, just over 50% said it hurt while just under 50% said it helped. Most responders were unclear on what the impact would be. I contacted representatives of the California Association of Realtors and learned that they had been polling hotline calls from their Members statewide. CAR found the numbers more positive than negative but again, like us, too little actual numbers to give a clear picture.

The conclusion at this point is that there is still a lot of uncertainty in the market, particularly amongst lenders trying to understand and respond to SB458. However, here are the main benefits we see emerging:

1. SB458 forces junior lenders to evaluate right now whether or not they could collect from a borrower if they waited for the first lender to foreclose and then sued as a sold-out junior lienholder. Prior to SB458, the junior lender could get some money in the short sale while holding out for recourse on the balance. They could then wait this out for several years and hope the borrower gets solvent. Not any more. Clearly this makes the borrower’s hardship application and particularly their net worth statement even more important in the decision making process;

2. SB458 appears to have brought an additional liability protection for borrowers who agreed to a prior short sale with deficiency recourse. The first Paragraph of the new short sale law begins: “No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered…..” Nothing in SB458 states that it only applies to short sales after July 15th.

No doubt there will be a lot more debate and analysis and litigation concerning SB458 and its impacts. As with any law, it will be subject to judicial review in the courts and further change, expansion, and clarification by the Legislature. But for now, CCP580e is the law of the State of California.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you have specific questions about dealing with upside down loans or real estate, be sure to contact a real estate attorney in your State. We provide advice worldwide concerning California property.

If you have further questions about SB458, need assistance convincing junior lenders to consent to a short sale, or are facing collection actions by any lender, please feel free to contact us for knowledgeable advice and experienced guidance. You can reach us by calling our office at (916) 966-2260 or you can e-mail me directly at sjbeede@bpelaw.com.

by Steve Beede, Robert Enos, Alexander Munn, and Keith Dunnagan

As readers of this Blog are aware, California recently enacted SB458 dramatically changing the rights of lenders who participate in a short sale. Although as we expected, this new law has made short sales much more difficult, recent experience has shown us an unexpected benefit, a ray of hope for all borrowers who previously completed a short sale and may have junior lender deficiency risk. 

Background on Deficiency Liability: California Code of Civil Procedure Section 580 contains the law governing rights of plaintiffs to obtain a judgment against a defendant. It’s principal Sections, 580a, b, c, and d, govern the rights of lenders to obtain a deficiency judgment against a borrower following a real estate foreclosure. For example, CCP 580b prohibits deficiency judgment for purchase money loans on 1-4 unit owner-occupied property. Until 2011 however there was no clear law defining liability in “short sales”. That changed last January with the passage of SB951 which added Section 580e, commonly called the Short Sale Anti-Deficiency Statute, which bars first lenders who consent to a short sale from getting any deficiency judgment against the borrower. While this was helpful, the change left unclear the rights of junior lenders who would regularly demand recourse and/or money in order to get their consent to do the short sale. This has now changed. 

Passage of SB 458 - On July 15, 2011, California enacted SB 458 which revised Section 580e and drastically changes how short sales are handled in California. The revised CCP580e now provides that:

     1) all lenders are prohibited from seeking or obtaining a deficiency judgment following a voluntary short sale (including junior lenders);  and

     2) no lender can require that the borrower make any monetary contribution to the sale proceeds.

The impact of these two provisions are tremendous for bad or good and since it’s passage we’re seeing both.

First the Bad: As we wrote immediately following the law’s passage (see Will New Law Help or Hurt Short Sales), our fear was that junior lenders would simply kill short sales and seek a better result through post-foreclosure deficiency lawsuits. That certainly has happened and currently short sale participants are scrambling to save sales through first lender, buyer, and agent contributions to junior lenders. There’s even instances of sellers supposedly “volunteering” contributions to junior lenders since under the new law such lenders cannot require them to do so. In other cases, sellers that have access to some cash are negotiating “discounted pay-offs” of junior loans removing them entirely from the short sale. But without question. SB458 made short sales much harder to complete and foreclosures are climbing.

Now the Good: Over the past four years, hundreds of thousands of short sales have been completed in California and in a great many cases sellers agreed to junior lender demands that they remain liable for any deficiency. While we are certain that SB458 bars all attempts at collection of deficiencies for short sales which close on or after July 15, 2011, the legal question is whether the new law will apply retroactively to protect sellers in already closed short sales. We have been arguing that it does and gaining great results from our clients who had been facing lender lawsuits. Here’s a sample of what we’re experiencing since the law was revised:

     (1)   A major credit union in our area unilaterally dismissed a lawsuit against a borrower who had signed a short sale approval letter in 2010 which contained a deficiency clause requiring her to pay nearly $100,000. The credit union dismissed the case because it had yet to obtain a judgment against the borrower, and believed that because the revised statute prohibits any judgment for any deficiency, it’s case no longer was valid;

     (2)    In another instance, a national lender well known for its aggressive deficiency collections settled a borrowers pre-SB458 deficiency for only 10 cents on the dollar due to the uncertainty surrounding the revised CCP580e. What is uncertain is whether the revised statute prohibits collection of pre-July 15, 2011 deficiencies. As with the nationally-known lender, the ambiguities in the statute forced the lender to accept a mere 10 cents on the dollar. Our expectation is that this will compel many lenders may make the same type of settlements.

Most importantly, if the lender has not as yet sued the borrower on a pre-SB458 deficiency, or has sued the borrower and has yet to obtain a judgment, CCP580e can be read as creating an absolute bar to any such actions. In summary, while the revised CCP580e will likely kill many short sales that would have, under the old statute, been approved, it is a ray of hope to those borrowers saddled with a deficiency obligation.

So, if you completed a short sale before July 15, 2011, or know of a past client who did so, and it contained a deficiency clause, contact one of our attorneys immediately to discuss possible defenses under the new statute.  If you’re in the middle of a short sale and having difficulty with junior lender demands, we can possibly help convince the junior lender that doing the short sale is their best option.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com. We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

While we have all looked hopefully to an improving real estate market as 2011 progressed, it is now fairly clear that we’re in for continued uncertainty as financial concerns continue to rock the economy.

On the International level, the downgrade last week of the United States’ credit rating by Standard & Poor’s has triggered a dramatic sell-off in the stock market and raising the borrowing costs for the government. This means the cost of US Treasury bonds will climb and can be expected to push up real estate interest rates for new loans. Those borrowers with adjustable loans tied to Treasury rates can expect similar increases. The biggest fear is that this, combined with instability with European financial markets, will cause businesses to continue holding onto cash instead of investing in new jobs. Business confidence and job growth is needed to lift us out of this recession and avoid further declines.

On the National level, real estate foreclosure rates continue to climb. Lender Processing Servcice reports that 217,000 new foreclosures were started in June and that 4.1 million loans are now either in foreclosure or 90+ days delinquent. This is a 13% increase from last year. What this indicates is that efforts to assist upside-down borrowers continue to fail. Plus, we’re seeing an increase of defaults among borrowers who have interest-only loans which will convert to full-pay in 2012. Without an option to modify, refinance, or sell, many such borrowers are deciding to take the hit now. The key to making such a decision is knowing whether the borrower will be at risk of a lender lawsuit for recourse after a foreclosure or shaort-sale. BPE Law’s consult services for upside-down borrowers can answer these questions for California property owners.

California remains in disarray as borrowers, lenders, and agents still try to make sense of the recently passed SB458 which amended California Civil Code Section 580e. By barring junior lenders from either deficiancy recourse or contribution, the legislature suddenly made short sales an all or nothing situation. All lenders owe their investors a fiduciary duty to try to recover as much as reasonably possible. First lenders generally make more money from a short sale than they would from a foreclosure so, this change has not substantially affected them. But junior lenders now must weigh the nominal amount offered them by a first lender (typically $3,000) against what they might recover by suing the borrower for deficiency after the first lender forecloses. Unless the borrower is clearly a Bankruptcy candidate, junior lenders will increasingly find foreclosure more attractive than short sale. For Realtors, this means further declines in short sale closing rates, more REO properties, and continued market decline.

We have a long way to go and many hurdles to cross before we reach any kind of certainty. Huge lawsuits are being filed against lenders by their investors, most recdently AIG’s $10 billion suit last week against BofA. Meanwhile, the proposed Settlement of the Attorneys General lawsuits against lenders arising from the “robo-signer” scam remains in limbo. The battle-ground there is demands that lenders modify loans and cut principal balances. The lenders refuse… or at least refuse to agree to government-imposed loan changes. For upside-down borrowers, there is no indication that anything transpiring in the economy or in the courts will bring any more hope for homeowners nor will there be any government bailout.

In the long run, as with past recessions, it will take inspiring and effective political leadership to move us forward. Today’s political infighting in Washington and in the States - especially California - has not produced any sense of confidence in the US or the World that we have the political will to make the hard decisions necessary to put our economy on a path to recovery. Any path will be painful. How that pain is balanced will remain the battle-ground.

Effective July 15, 2011, California has prohibited Junior Lenders (2nds, HELOCs, etc) from having any deficiency recourse claims against the borrower if the lender agrees to take part in a short sale. Gov. Jerry Brown signed SB 458 (Corbett) into law and it took effect immediately. In January, 2011, SB 931 (2010) was put into effect requiring that any First lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. But unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens. Both laws only apply to one to four unit residential properties.

Whether this is a victory for sellers and the real estate industry remains to be seen.

California Association of Realtors President Beth L. Peerce stated: “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

But the real question is whether this will in fact make short sales harder to get done.  For any lender being asked to take the loss of the deficiency in a short sale, their only obligation is to determine whether a short sale will get more money back for their investors than a foreclosure. For first lenders on one to four unit residential properties, short sales are almost always better because: 1) Buyers pay more at a short sale than at a foreclosure sale; and 2) almost all foreclosures of these type of properties in California are done using a Trustee Sale from which there is no deficiency recourse. So for the foreclosing first lender, the short sale will generally bring them more money than a foreclosure. That is not necessarily the case with junior lenders.

In most short sale situations, there is not enough value in the sale proceeds to pay anything to junior lenders. Unless the junior lender made a “purchase money loan” (acquire personal residence), the junior lender has recourse against the borrower if not paid in full. However, unlike the first lender, the junior lender will not foreclose. They will wait for the first lender to foreclose which will wipe-out the security for the junior loan. Once that happens the junior lender can file a lawsuit against the borrower for whatever is owed them and, unless the borrower files Bankruptcy, the lender can collect everything owed to them. This is very different from what pre-existed this law when at least borrowers had some legal defenses against junior lender collections after a short sale. There are few if any defenses to post-foreclosure junior lender collection lawsuits.

One of Murphy’s Laws is called “The Doctrine of Unintended Consequences”. We got into this market collapse as a result of a government policy to promote expansion of home ownership. But this required making loans to people who were less qualified to repay them. This noble Policy drove up demand for homes and that drove up prices…. until borrowers could no longer afford to pay their debts. SB 458 is a similarly good sounding Policy. As much as I hope it does not occur, I fear that the unintended consequence of the passage of this law will be that junior lenders will reject short sales, more homes will go into foreclosure, and the real estate industry will further decline (except for those handling post-foreclosure REO properties). Time will tell whether this is a victory or a disaster.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com. We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

While the real estate recession lingers on, one segment of the market is hot and competitive: buyers seeking to snap up great deals. This has led to a situation we haven’t seen since the height of the real estate bubble: multiple buyers going after the same property.  While the winner is generally determined by whose purchase offer is accepted first, sellers and their agents are finding themselves in lawsuits by angry buyers who lost out yet who claim their offer was “accepted”.  To clear some of the confusion, the following analyzes the law in California on when is a purchase offer actually accepted and enforceable.

WHAT MAKES A VALID OFFER? - Real Estate law, indeed all contract law, is based upon a relationship of “Offer” and “Acceptance”.  To be effective, a real estate Purchase Offer must at a minimum identify: 1) the Subject of the offer, ie: the Property; 2) the Consideration, ie: the purchase price to be paid; 3) the Time for performance, ie: the closing date; 4) it must be in writing; and 5) it must be delivered to the Seller or their authorized agent.  Once a Purchase Offer is delivered, the Seller then has a “Power of Acceptance”. They can accept it as is; they can reject it totally; or they can respond with different terms, ie: a counter-offer.  In most instances of residential purchase in California, prospective Buyers use forms created by the California Association of Realtors (CAR) which provides for these terms as well as many other terms that generally must be agreed upon by Sellers and Buyers to reach a clear and unambiguos agreement and to comply with California laws.

AN ACCEPTANCE MUST BE UNQUALIFIED - To be effective, an acceptance must meet the terms proposed by the offer exactly, precisely, and unequivocally. It must be unconditional, and it cannot add new terms or conditions. A qualified acceptance is a counteroffer. An offer is not accepted if the acceptance adds a new condition. An offer qualified by new terms or conditions becomes a counteroffer and accomplishes a rejection of the offer. After a counteroffer, the original offer may not be accepted by the offeree.

A COUNTEROFFER MUST BE ACCEPTED IN FULL TO BE ENFORCEABLE - The counteroffer is a new proposal that must be accepted by the original offeror. A counteroffer that is not accepted by the original offeror-counterofferee has no further legal significance, and no legal relationship is created. However, on acceptance of the counteroffer by the counterofferee, a contract is formed that is binding on and enforceable against the counterofferor.  A counteroffer includes the terms and conditions of the original offer. When an offeree makes a counteroffer, all of the terms of the original offer are incorporated into the counteroffer, except as modified by the counteroffer. Effect of a counteroffer to two offerees - When a counteroffer is made to two or more persons, each has the capacity to accept the offer. A counteroffer to two or more offerees that provides for an acceptance by the highest bid is binding on the counterofferor.

METHOD OF ACCEPTANCE IS GOVERNED BY THE TERMS OF THE OFFER - When the method of communication is permitted by the terms of an offer and is reasonable under the circumstances, an acceptance, on being placed in the course of transmission, is legally effective to create a contract. To be considered “in the course of transmission,” the acceptance must be placed beyond the control of the offeree. However, an offeror can prescribe the method of acceptance to be used. Real estate purchase contracts, including the CAR contracts, generally specify a method of acceptance that must be followed.  When the method of acceptance is specified by the offeror, no other method is sufficient.  When an offer does not require a specific mode of acceptance, any reasonable and usual method is acceptable. If an offer merely suggests a permissive method of acceptance, any reasonable manner of acceptance is effective. The offeror can specify that an acceptance is not effective until received by the offeror. When an offeror does not want to be bound to a contract without knowledge and does not want to assume the risk of actual receipt, the offer can provide that the acceptance will not become effective until it is actually received by the offeror or the offeror’s agent. With such a provision, no contract is formed unless the acceptance is actually received by the offeror or the agent prior to the termination of the offer.

THE CAR RESIDENTIAL PURCHASE AGREEMENT (5/10) contains the following terms:

1) “Acceptance” means the time the offer or final counter offer is accepted in writing by a party and is delivered to and personally received by the other party or that party’s authorized agent in accordance with the terms of this offer or a final counter offer. 

2) “Delivery” means the personal receipt by Buyer or Seller or the Individual Real Estate Licensee for that principal (unless other terms are stated).  The means of that delivery can be by messenger, mail, e-mail, fax, etc.

3) “Terms and Conditions of Offer” includes the language: “Seller has the right to continue to offer the Property for sale and to accept any other offer at any time prior to notification of Acceptance”. 

BOTTOM LINE:  To create a binding and enforceable real estate purchase contract: 1) the Purchase Offer must be clear in its terms; 2) the Acceptance must be in writing and agreeing to the exact same terms; and 3) the Acceptance must be delivered to the offeror using the method stated in the offer.

WHAT IS NOT AN ACCEPTANCE:  The simple answer is any response to the offer that does not meet the above definition. For example:

1)  An oral acceptance does not create a contract for the sale of real estate (Statute of Frauds - must have a writing).  However, other types of contracts including rental agreements can be created orally;

2)  A phone call “I’m coming to your office to accept” - it’s just an oral acceptance;

3)  When there is no real meeting of the minds: the writing says it’s accepted but the communication conveying it states that there are other terms.

AVOIDING LAWSUITS - There is no realistic ability to assure that no-one will sue another to enforce what they believe is an acceptance.  Winning that battle is another thing.  Often the filing of a lawsuit can be strategic to scare the Seller and competing Buyers.  If there is some reasonable grounds, this can be effective especially since such lawsuits tie up the property’s title (Lis Pendens).  Such grounds can include:

1)  The terms of the offer state one method of acceptance but the Seller or their agent states another - this is not uncommon with REO sales where the terms require written acceptance of the offer by the Seller but requires communication to be e-mailed through Seller’s agent;

2)  Written acceptance was delivered to agent’s office but agent didn’t personally know of it.  Is the acceptance enforceable? Possibly, but not if the terms of the offer require delivery to Seller, ie: agent is not authorized to bind the Seller so acceptance is not valid until received by Seller (unless Seller has withdrawn prior counter-offer or accepted other offer first.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. The key here is that if you are a party or agent involved in a dispute over a real estate contract, get competent legal advice in your State immediately so that you can determine your best options.. If you’re an agent, be sure to check your E&O coverage for when you must report possible claims. You could get sued by both sides. 

Here at BPE Law, we have over 50 years experience assisting and representing brokers, agents, buyers, and sellers in real estate transactions and disputes of all kinds. We know what we’re doing and we can work seemlessly with your insurors if needed.  If you have specific questions about your transaction, feel free to contact me at sjbeede@bpelaw.com. Or give us a call at (916) 966-2260.