Recently, Real Estate Law has seen some important changes, including:
- The California Senate and Assembly have passed S.B. 1178, and it is now awaiting signature by the Governor. S.B. 1178 helps to clarify and extends protection from deficiency after a foreclosure. Presently, the holder of any mortgage that was in-fact used to pay the purchase price of the real estate which serves as collateral for the mortgage, is prohibited from seeking a deficiency judgment post-foreclosure. This is true whether the loan is a first, second or third mortgage. The key to existing law, however, is that it ONLY applies to the original, “purchase money” loan. S.B. 1178 extends that protection to a loan which is a refinance of an original, purchase money loan, to the extent it refinanced actual monies used for the purchase. Any increase in the loan on refinance would not be covered. If you wish to urge our Governor to sign this bill, please follow this link: http://takeaction.realtoractioncenter.com/campaign/sb1178.
- The Wall Street Reform and Consumer Protection Act recently signed by President Obama will have direct impacts on the residential and commercial mortgage industry, including the elimination of many of the incentives that drove borrowers into certain types of loans which many now point to as a leading cause of the economic collapse we experienced beginning in 2007. Further, nonconvential loans will continue to exists, but steps have been taken to minimize the impact on tradtional lending markets — including provisions that require the lender to ensure that borrowers have the actual ability to repay the loan they are taking; and a requirement that lenders who package nonconventional loans into securities must now retain 5% of the credit risk. Further, RESPA – the Real Estate Settlement Procedures Act will be overseen by the newly to-be-created Consumer Financial Protection Bureau, rather than HUD who is significantly over-burdened, and unable to properly oversee these important laws. Finally, tough Fannie and Freddie were not addressed in this new Act, target dates have been set by which the long-overdue overhaul process of Fannie and Freddie must begin. Next year (2011) will prove to be a pivotal year in real estate finance.
- Fannie Mae is now going to penalize those borrowers who make the decision to “strategically default” on a Fannie Mae-backed mortgage. A borrower who is deemed to have engaged in a strategic default will not be eligible for another Fannie Mae-backed loan for a period of seven years. A strategic default is still being defined by Fannie, but it essentially is a borrower who has the ability to repay their mortgage, but chose not to due to either because the property has negative-equity, or for other reasons. Troubling, however, is a provision which would label a homeowner a “strategic defaulter” if they chose not to complete a workout alternative (loan modification, refinance, short-sale, deed-in-lieu of foreclosure, etc…) in good faith. This may ultimately affect a lot of homeowners and investors.
- There is a lot of “chatter” about the looming Shadow Inventory. The National Association of Realtors (“NAR”) has estimated that approximately 2.4 million properties are part of the shadow inventory of homes that are at or near forclosure, but are being held back for whatever reason by the banks and mortgage servicers. NAR’s number, however, does not include homeowners who are attempting to modify their loans, or if a defaulted property is on the market as a short or foreclosure sale. Some estimates place these numbers at closer to 7 million when including the categories NAR eliminated. NAR’s estimate, in my opinion, is low, as we all know how dismal the performance has been thus far by banks and mortgage servicing companies in completing loan modifications. My own practice is seeing a significant wave of borrowers who have now given up on their modifications, and are just walking away from over-encumbered properties.
If you are interested in learning more about recent changes in Real Estate Law, or have need for legal assistance with a real estate transaction, please do not hesitate to contact our offices.
David L. Gibbs is an attorney with The Gibbs Law firm, APC. The firm’s practice focuses on issues related to Bankruptcy, Business Law and Manufactured Housing; including community subdivision, pre-purchase diligence and analysis as well as advising community owners on operational, financial and enforcement issues. The firm also represents manufactured home dealers in a wide range of issues. David L. Gibbs is admitted to the Federal Courts for the Central and Southern District of California, and also holds a California real estate broker’s license. The firm continues to offer a wide range of real estate and business related services as it has done for 35 years from its offices in San Clemente. Mr. Gibbs can be reached at (949) 492-3350.