Senate Bill 458 was signed and passed on July 15, 2011 with the intent to provide relief for homeowners and prohibit a deficiency after a “successful short sale.” As I read through the words of the bill, my worst fears were drawn to the words, “agreed upon” and “agreed to accept.” Immediately on the following Monday, July 17, investors rescinded thousands of short-sale approval letters throughout California on short sales that had been approved or were about to close. One investor rescinded over 300 approval letters throughout California.
In reality, SB 458 gives junior lien holders the power to demand more money or refuse to negotiate on short sales, forcing properties to foreclosure, and then aggressively pursuing homeowners for the full amount of the junior lien deficiency. Unfortunately, the first lender will not have the option to do a short sale, leaving their only option to foreclose and costing them millions of dollars more. This is most applicable when the first and second loans are not with the same bank. It seems only those brokers and agents doing a lot of short sales are even aware of this.
Example: Before the passage of SB 458, a junior lender with a balance of $78,000 wanted $20,000 to release with no deficiency, or $8,000 with the deficiency and settlement later. That same lender now wants $37,000 or will let the house go to foreclosure.
Today, nearly 90% of home loans are owned by Fannie Mae, Freddie Mac and other government sponsored entities (GSEs). These entities are now demanding no seller contribution to a junior lender. SB 458 specifies the only money a junior lender can get in a short sale is what the first lender offers them, a buyer contribution, or the REALTOR® commission. Junior lenders cannot ask for or accept money from the seller, even if the seller is able and willing to contribute.
Should REALTORS® be required to forfeit nearly all of their commission to make a short sale transaction work when they are actually the facilitator making the short sale possible at all, as well as helping to reduce the lender’s losses? REALTORS® are also the only people helping homeowners to avoid foreclosure and save their credit.
If SB 458 stands as is, many homeowners that have different first and second lenders on their mortgages will be at high risk of foreclosure, have ruined credit, and seek bankruptcy protection.
In my opinion, this is a California statewide emergency and we need to do something about it now. This Thursday, August 25, is the deadline to submit case example letters. Please send me a brief letter describing your experience with short sale lenders as a result of SB 458. The California legislative committee is going to review the downside of this bill. As REALTORS®, we must unite together and have a voice on this critical issue. I urge you to immediately email this article to as many REALTORS® and people of influence as possible. If this window of opportunity is missed it will have to wait until 2012.
Email your letter and short-sale case examples immediately to California Association of REALTORS® (CAR) legislative contacts Alex Creel at alexc@car.org or Stan Weig at stanw@car.org or call 916-444-2045. Roger Butcher is with Short Sales EXPRESS/Security Pacific Real Estate and can be reached at roger@rogerbutcher.com or 916-715-8929.
