Improved Results for Short Sales in CA
Created: 7/20/2011
July 2011 – Since the beginning of 2011, we have seen some changes, some of which can be called improvements, in the process of completing a short sale in CA.
Perhaps the most important improvement for distressed borrowers is the passage of CA SB 931, the anti-deficiency bill, effective as of Jan 1, 2011. This law prohibits lenders from seeking deficiency judgments for ALL first mortgages that are retired as part of a short sale in CA.
HAFA, a federal program designed to facilitate the completion of qualifying short sales, has been adjusted to provide increased financial incentives to borrowers, lenders and agents. These are modest but important incentives that provide $3000 to borrowers for moving expenses post-sale, up to $6000 to holders of 2nd mortgages to mitigate losses, and protection of agents’ commissions from being hijacked by lenders as a requirement to close the deal.
Another important improvement is the availability of a centralized online resource for agents and lenders that provides a uniform environment for processing and negotiating the terms of short sales. This system, Equator, promises to significantly increase the efficiency of the process, allowing for greater transaction volume and shorter time frames. Every short sale that is completed is one less potential foreclosure, one less vacant home, and one less downward push on real estate prices.
In the early stages of the market downturn, the financial incentives were essentially all given to the financial institutions (lenders, insurers and securities brokers), using TARP funds, newly printed money, and future tax dollars. These incentives protected corporate interests by covering the losses incurred in the foreclosure process, essentially favoring foreclosure at the expense of alternatives less damaging to homeowners, using public funds.
This “Hot Money” flowed from the Federal Reserve to the financial institutions (at essentially zero interest), to the Treasury (in the form of bond purchases at non-zero interest), and then back to the banks in the form of outright gifts to cover their foreclosure losses. Quite a nice little game to play with trillions of our future tax dollars, isn’t it?
In the first and third of these steps, the financial institutions received essentially free money for interest rate arbitrage, and profit protection. In all three of the steps, the taxpayers incurred present and future losses. Private profits, public losses. In the words of Frédéric Bastiat, a 19th century French political economist, “Legal Plunder”.
As the taxpayers catch wise to this travesty of corporate welfare, we can understand that it’s not a conspiracy, it’s just the way the banking business has always been done.
Instead of pumping the “Hot Money” onto Wall Street and praying that the effects might trickle down to Main Street, we ought to consider the fact that reversing this process and putting the “Hot Money” on Main Street, whether any trickles up to Wall Street or not, would go much further towards healing current economic ills.
In the meantime, we have some modestly improved tools for heading off the damage that widespread foreclosures are causing. My own experience in closing short sales for local clients has been that they are working.
Paul Sieving is a Realtor® with Good & Company Realty, a former Director and MLS Chair of NCAOR, was Board Chair of the Grass Valley Chamber of Commerce in 2004, and has served our community as a real estate professional for 12 years. Comments, questions and thoughts are welcome at Paul@PaulSieving.com or (530) 274-0906.
