California was key to the bank settlement. The state has the largest overall number of foreclosures due to the collapse in housing prices, and one of the highest foreclosure rates on a per capita basis nationwide. Had the state elected not to participate and to file its own lawsuits against the banks, the banks may not have agreed to participate in the settlement with the other states that were involved.

The $410 million in question is the cash portion of the settlement that the banks will pay directly to the state. The intended use for that money was to setup housing counseling services and legal aid for those facing foreclosure. But Jerry Brown has other ideas.

Brown wants to use the money to make interest payments on bonds sold by the state and to cover various welfare programs. But the Attorney General is fighting back. The LA Times quoted her as saying,

“The state Department of Justice stood firm for over a year against the nation’s largest banks on behalf of California homeowners harmed by the foreclosure crisis.”  She went on to say, “While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes.”

The Legal Aid Foundation of Los Angeles is also opposed to the Governor’s proposal. It released a statement that said,

“Foreclosures and their economic fallout are what got our state budget into this mess. Spending funds on housing counselors and legal services as the Attorney General had proposed will help fix the problem. The governor’s proposal is bailing out a leaking ship.”

While some may think that Brown’s proposal is good for the state overall by protecting the state’s social safety net, it is worth noting that while California has 10% of the nation’s population, it also has 1/3 of the country’s welfare recipients. There is an argument to be made that the state’s social safety net is actually too robust. Regardless of your thoughts on this topic, it is hard to understand how anyone can make the determination that certain welfare recipients are more deserving than someone else who has faced financial hardship and already lost their home.

It remains to be seen who will win this fight.

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In a piece that Shilling penned for the Christian Science Monitor, he said that he foresees another correction that could be as much as 20%. He believes that the only bright spot in housing markets these days is in multiunit rentals.

“Housing activity remains depressed, with the only life coming from the multifamily component, which is being driven by the zeal for rental apartments as homeownership falls.”

Of course, Shilling’s assessment is for the market nationwide. And there, he may very well be correct. As I mentioned in a recent blog posting, B of A has just changed their short sale approval process. Chase is hot on their heels with a new program that they are launching on May 1. The bottom line here is that the banks are starting to clear out their existing inventory of bank owned homes and gearing up for faster short sale approvals and faster foreclosures when property owners refuse to deal.

There is no doubt that these streamlined bank procedures are going to result in property gluts in some areas. But going with the old sales adage that “all markets are local”, you have to figure that the Los Angeles market isn’t likely to perform the same ways as… well… say the market in Detroit.

Here in LA if you talk to many agents, you will find that the lack of inventory is actually a common complaint. Bidding wars on properties are fairly common. Furthermore, there is a lot of overseas cash in the market. Because the dollar is weak and the real estate market is depressed, what looks like a decent deal to you actually looks like a fire sale to many foreign buyers.

Bottom line here is that I personally think that we’re near the bottom of the market here in Los Angeles. I do expect that the new bank procedures will result in an uptick in inventory sometime over the summer, and that may continue for several months. Given the current inventory shortage, that may actually just serve to stabilize prices for a while.

If there is another pricing dip, I would expect it to be small.  I don’t think we’re going to see anymore huge drops in price. And if the economy doesn’t fall apart, we might actually start to see some appreciation sometime next year.

Let’s just hope that the economy doesn’t fall apart. If there is a huge fall in pricing that encompasses most of the country, Los Angeles will be impacted; by how much is anyone’s guess. I just wouldn’t expect it to be as bad here as in some other markets. The one thing that Shilling did say that I found bothersome was that more than 1 million people who have taken out mortgages over the past two years are now underwater on their homes.

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The LA District Attorney has just charged a group of people with defrauding CitiMortgage and MetLife Bank out of $2.3 Million in a real estate fraud scheme. In this scheme, the crooks used stolen identities to acquire and transfer their properties using straw buyers, take out fraudulent real estate loans that they had no intention of paying back, and artificially inflating property values. Nice!

The crimes took place between 2007 and 2009 and appear to have been orchestrated by two people; Gerard Bueno, doing business as Pres Mex, Inc., and Jesus Vega Jr., doing business as JVJ, Inc. These two rocket scientists recruited seven other friends and family members to help them. All of them are now comfortably vacationing in the custody of law enforcement.

Frankly, I hope that the judge throws the book at them. These kinds of scams run up costs for all consumers and they don’t do anything to encourage lenders to make loans to legitimate customers.

Those arrested face multiple felony counts including identity theft, fraud and forgery.

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I’m going to start this out with the big disclaimer that is beaten into all real estate agents. I’m not an accountant or a tax attorney, and real estate agents are not qualified to give tax or legal advice. That said, I have evolved slightly beyond the amoeba state so I am capable of reading and reaching my own conclusions. I strongly advise that anyone considering selling a home, or who thinks they may be facing foreclosure, do the same and then speak with their tax advisor very quickly if they don’t think that they will be able to complete the sale before the end of the year.

At the end of this year, there is a huge tax break that is currently set to disappear. And the people who will be impacted by this tax break are those who sell their home through a short sale or who are foreclosed on.

Up until a few years ago, the IRS viewed any unpaid balance on a loan as income if it was forgiven by the lender. Here is an example. Let’s say you borrowed $500,000 to buy your home. Now let’s say that you can only sell your house for $400,000. That means that you still owe the bank $100,000 more. In short sales and foreclosures in California, that $100,000 is almost always forgiven now due to state law.

Under the old tax law, the IRS would have counted that $100,000 as ordinary income. You would owe tax on it just as with any other income. But due to the scope of the housing crisis, Congress passed a law that releasing taxpayers from any income tax liability when they find themselves in this position. That law is due to expire at the end of this year, and the old rules will go back into affect.

But let’s just say you’re not in this situation. In fact, let’s say that you have lived in your home for fifteen years and are actually going to make money on it. Unfortunately, your sale may fall under the category of “no good deed goes unpunished”.

Current tax law allows single filers to exempt up to $250,000 in profit from taxes. Married filers can exempt up to $500,000. But this is sunny Southern California. It is one of the nation’s highest priced markets. So it’s not uncommon for people to make more than the maximum exemption amount on the sale of their home. To congratulate you for your success, the federal government has decided to provide you with a double tax whammy!

First, capital gains taxes will rise on January 1^st from their current 15% to a new 20% rate. This tax is as a result of the expiration of the so-called “Bush tax cuts” that you keep hearing some people complain about.

The second whammy is a brand new 3.8% tax for Medicare that will be levied on a portion of the sale of you home under certain conditions. This tax only impacts higher income individuals and couples. Individuals making more than $200,000 or couples making more than $250,000 annually. And again, it only applies to the portion of your profits that are above the exempt amount for capital gains. This tax is a result of the Affordable Health Care Act.

Bottom line here is that if you are thinking about selling a home, 2012 is going to be a much better year to sell than 2013 is likely to be.

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Bank of America is going to be overhauling its system this coming weekend. According to a newsletter from the Florida Association of Realtors, the changes will be nationwide and go into effect immediately. The goal is to cut the approval process down to 20 days. That’s light speed for a short sale.

“On April 14, Bank of America’s short sale process will change as follows:

Five documents will be required for short sales initiated with an offer:

•  Purchase Contract including Buyer’s Acknowledgment and Disclosure
•  HUD-1
•  IRS Form 4506-T
•  Bank of America Short Sale Addendum
•  Bank of America Third-Party Authorization Form”

Not only is the bank changing the documentation required at the time the offer is presented, it is also shortening the period for counter offers from its current14 days to just 5 days.

As with any big change, mistakes and unforeseen events are likely. Sellers who have a mortgage with Bank of America need to insure that their agents’ know about the new procedures and are following them .Agents also need to be familiar with the changes and make sure that all documentation is in order. Not complying is likely to result in the bank declining offers.

Although it has not been said anywhere publically that I can find, this probably the first step in a wave of new foreclosure activity. I also think that it is a result of the recent settlement between the states and the nation’s five largest lenders.

Look for other lenders who were involved in the settlement agreement to follow B of A’s lead here.

In the past, sellers who walked away from short sale offers that were accepted by the bank could reasonably expect to get another several months in their homes prior to actually going through a foreclosure. This announcement by B of A is probably the first step in putting a halt to that practice. I personally think that what we will see from this point forward is that if the seller is being unreasonable in the banks eyes, or refuses to complete an already approved short sale, the bank will be much more likely to foreclose in the shortest period of time possible. That’s likely to be measured in just a few weeks.

The settlement between the banks and the states made this possible. It gave the banks clear guidance on foreclosure procedures that the states deem acceptable.

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According to Trulia’s recently released Rent vs. Buy Index, out of 100 major metropolitan areas surveyed nationwide, it was more economical for most people to purchase a home rather than rent in 98 of those areas. The only two exceptions were Honolulu and San Francisco.

As you get more neighborhood specific, those statistics can change. For instance, if you are looking in Beverly Hills or Brentwood, there is a pretty good chance that renting will be more affordable than purchasing a home. But any city the size of Los Angeles has a lot of nice neighborhoods to look at so the chances are that if you have your heart set on finding an affordable home, you will be successful.

While banks have gotten a lot tougher on their appraisal and lending standards, there is money available for qualified buyers. And even if you sold a prior home in a short sale, if that sale took place more than three years ago and your credit is otherwise good, you may be able to start thinking about buying again.

First time home buyers who never thought they would be able to afford real estate in Los Angeles should also think about taking the plunge rather than continuing to pay rent. There are a lot of programs available to first time buyers to assist with the process and to make monthly payments affordable. And by purchasing, a portion of those monthly payments you are making are going back into your pocket rather than into your landlord’s. They can also help reduce your annual income tax bill.

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There are actually three cases in play. They are known as the “Agard” cases – referring to Ferrel L. Agard; the person who was being foreclosed upon.

Last year, at the insistence of MERS attorneys, a federal bankruptcy court judge decided to review MERS business practices. Why MERS wanted the review is beyond me as a state court had already ruled that MERS had the authority to foreclose on Agard’s home and since federal bankruptcy courts don’t have the authority to review state court rulings. But MERS persisted.

The ruling they got – which included other items as well – wasn’t one that they wanted. Instead of the court finding that MERS acted within the law, the court actually found that MERS had no authority to do what it was doing. That ruling created a panic in the banking community and it threatened the very existence of MERS; who appealed the ruling.

Late last week, US District Judge Joanna Seybert tossed out the portion of the ruling that dealt with MERS.

In her ruling, Judge Seybert referring to the state court rulings against Agard stated, “There was no longer a live case or controversy.” Since the case had already been decided, her ruling means that the bankruptcy court didn’t have anything to review and never should have involved itself in MERS business in the first place.

Seybert said in her ruling that the ruling from the judge in the bankruptcy case was “advisory” only. That means that his finding that MERS business practices are illegal may very well be correct but that the finding can’t be enforced at this time. Seybert herself didn’t state whether or not she thinks that MERS business practices are illegal.

No word on any potential appeal of Seybert’s ruling, but the question of MERS legality still hangs heavy in the air. If Agard doesn’t appeal the ruling, then some other case will have to be used to review MERS business and that could take years. In the mean time, MERS appears poised to continue business as usual. At this point, all stories of MERS imminent demise would appear to be premature and without foundation.

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Short sales are an odd type of sale. When an agent lists a short sale, the listing agreement is signed between the agent and the seller. The bank is not involved at this stage. That means that the agent’s fiduciary duty is to the seller; not the bank. And there are some legitimate reasons that seller’s might now want their home to show up on a third party website, including reasons associated with their rights to financial privacy. For some reason or another, some people might not want their entire neighborhood to be able to go online and see that they can no longer afford to keep their house!

But unlike a traditional sale, the listing agreement may be with the seller, but the sale and all commissions and payments associated with it have to be approved by the lenders and investors who own and manage the mortgage. And lenders are well within their rights to turn down any offer to purchase a home for less than what is owed on it.

This means that agents and some sellers could face several serious dilemmas.

Agents who are aware of the issue should explain it to their clients. If the practice becomes widespread, agents will have a duty to explain it to their clients. The seller would still be within his or her rights to ask that their home not be marketed on third party websites but they need to be aware that this could decrease the chance for a successful transaction and increase the chances that they will be forced into a foreclosure.

Agents are also faced with another issue. There is a concerted effort among some agents to keep their properties off of third party websites. The reason for this is that many of these third party websites actually sell advertising and leads that makes it look like a particular listing is from someone other than the actual listing agent. From the agent’s perspective, these sites function as parasites that make money by diverting their leads to third parties that are the highest bidder. Their business model dries up if agents prevent them from displaying their listings. If the banks get involved in this, agents lose a lot of their leverage.

Sellers need to be aware of some statistics when they list their home. The most important statistic is probably that 40% of all new home searches begin online, with consumers who don’t yet have an agent. That means that in most cases, sellers will want to insist that their homes be listed on third party sites. But there may be some exceptions. At the very least, you should have a detailed conversation with your listing agent about the plusses and the minuses associated with third party websites displaying your home.

Buyers also need to know some things about the homes shown on third party websites. Many of these sites display public record information. That’s why you can find homes that look like they are listed for $30,000 in a $1 million neighborhood. For the record, that home is never going to sell for $30K. What you are probably looking at is a combination of late payments, back taxes and maybe some HOA fees associated with the property.

Buyers also need to know that what they see online may not include all of the properties that are available on the MLS. The only way you are actually going to find out what is available in the area you are interested in is by contacting a local real estate agent. I might as well use this as a shameless plug. You can call me at 818-728-1100 if you are looking in the San Fernando Valley or the West Side of LA.

The bottom line here is that if you are an agent, you need to explain to your clients that not including their listing on third party sites may hurt them. From here on out, I’ll be doing that in writing. If you are a seller, you need to make sure you understand all of the ramifications of the way in which your home is listed, and take control of the process. And if you are a buyer, the only way that you can know that you are seeing all of the available homes in your area is to check with a local agent.

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Laboratory tests of samples for volatile chemicals have identified emissions of the sulfurous gases carbon disulfide, carbonyl sulfide, and hydrogen sulfide. These emissions, which have the odor of rotten eggs, worsen as temperature and humidity rise and cause copper surfaces to turn black and powdery, a chemical process indicative of reaction with hydrogen sulfide. Copper pipes, wiring, and air conditioner coils are affected, as well as silver jewelry. Homeowners have reported a variety of symptoms, including respiratory problems such as asthma attacks, chronic coughing and difficulty breathing, as well as chronic headaches and sinus issues.

As if all of this isn’t bad enough, now there is another reason to get rid of any Chinese drywall that may be lurking in your home. It could make your home “uninhabitable” according to the FHA. That translates into making it unsellable.

There is a story now posted on ShortSaleSuperstars about a house with Chinese drywall in it. In this case, the drywall had caused such extensive damage that the FHA deemed the property uninhabitable. The current lender on the house, Bank of America, has apparently decided that it won’t agree to let a cash buyer make the purchase until all of the drywall is removed.

According to the posting, the FHA and B of A think that the liability for selling the house is too high even though the buyer has signed disclosures acknowledging the fact that they know the house contains Chinese drywall.

Anyone who knows that they have an issue with Chinese drywall in their home should seriously consider replacing it if they can. Yes, it is expensive to make such modification. But if the this particular case is indicative of the way that the market is now responding to this problem, not making the replacement could be even more costly when you attempt to sell. If could mean either than you can’t get your lender to agree to a short sale… if one is needed. Alternatively, if you are going through a regular sale, it could create a disclosure issue that would make it impossible for potential buyers to get a loan to purchase your home.

Unless you plan on living in your current home for the rest of your life, most homeowners would be wise to get rid of any bad Chinese drywall that they are aware of. And even if you are planning on living in your home for the rest of your life, if you don’t want your plumbing and electrical to corrode, replacement is probably still a wise decision.

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The Sackett’s led a fairly average life. Back in 2005, they decided that they wanted to build a custom home in an existing subdivision located in the Idaho panhandle. They spent $23,000 on their lot, obtained all of the required building permits, and began to grade their lot. As a part of that grading, they brought in several tons of gravel. That’s when the EPA showed up.

An EPA inspector informed the Sacketts that their home was a federally protected wetland. Never mind the fact that there were other houses surrounding their lot. And never mind that they didn’t have a river running through their lot or a shore line butting up against them.

The EPA ordered the couple to stop their construction and return lot to its pre-construction condition. If they didn’t comply, they could face fines that actually ranged up to $75,000… per day!

The Sackett’s asked for an administrative hearing with the EPA. Their request was denied. Then they attempted to sue the EPA, only to be told that they didn’t have the right to sue.

The Obama administration, the EPA and a wide variety of environmental groups fought against the Sackett’s. The Pacific Legal Foundation represented the Sackett’s and they were supported by a wide variety of business and non-profit groups.

Once the Sackett’s filed their law suit… which was simply to get the right to go to court to protect their property rights… they lost. The 9^th Circuit Court of Appeals specifically stated that the couple hadn’t used all other remedies available to them including a permitting process that the EPA has for designated wetlands – a process that would have cost them more than the original purchase price of their land. But the Sackett’s pushed on and the Supreme Court agreed to hear their case.

The ruling against the EPA was unanimous, and the language used to describe the agency’s actions was stern. The primary ruling from the court was written Justice Antonin Scalia. But the most enjoyable reading comes from a concurring opinion by Justice Samuel Alito. He wrote,

“The position taken in this  case by the Federal Government—a position that the  Court now squarely rejects— would have put the property rights of ordinary Americans  entirely at the mercy of Environmental Protection Agency (EPA) employees.

 

The reach of the Clean Water Act is notoriously unclear. Any piece of land that is wet at least part of the year is in danger of being classified by EPA employees as wetlands covered by the Act, and according to the Federal Government, if property owners begin to construct a home on a lot that the agency thinks possesses the requisite wetness, the property owners are at the agency’s mercy.  The EPA may issue a compliance order demanding that the owners cease construction, engage in expensive remedial measures, and abandon any use of the property.  If the owners do not do the EPA’s bidding, they may be fined up to $75,000 per day ($37,500 for violating the Act and another $37,500 for violating the compliance order).  And if the owners want their day in court to show that their lot does not include covered wetlands, well, as a practical matter that is just too bad.  Until the EPA sues them, they are blocked from access to the courts, and the EPA may wait as long as it wants before deciding to sue.  By that time, the potential fines may easily have reached the millions.  In a nation that values due process, not to mention private property, such treatment is unthinkable.”

The case is Sackett v. the EPA. The final opinions can be found here.

The ruling means that all Americans now have the ability to take the EPA to court when it issues an administrative compliance order involving the Clean Water Act.

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