SRCAR Connect

This month we provide a brief overview of whether a property owner facing foreclosure should consider giving the property back to the lender through a deed in lieu of foreclosure.  If the property owner is willing to let go of the property, the lender may be willing to accept a deed for the property from the owner instead of going through with a foreclosure sale.  This is known as a “deed in lieu of foreclosure.”  Property owners facing foreclosure should be aware that it may be possible for them to avoid some negative consequences of foreclosure if they are willing to give the property to the lender before the foreclosure sale.

A deed in lieu of foreclosure is a transfer of title in real property from the property owner/borrower to the lender in order to avoid foreclosure entirely or to stop the foreclosure process.  The deed in lieu of foreclosure consists of an agreement between the borrower and lender that is negotiated after the possibility of a foreclosure arises.  Such an agreement cannot be part of the original loan documents.  That is, the lender cannot agree in advance that it will accept a deed in lieu of foreclosure.  Thus, borrowers cannot create a contractual obligation at the time they borrow money that would allow them to force a lender to accept the property instead of going through the foreclosure process.

Lenders cannot force borrowers to surrender a deed in lieu of foreclosure, as this would infringe on a borrower’s rights.  An agreement to accept a deed in lieu of foreclosure must be negotiated between the borrower and the lender.  The HAFA program provides for a deed in lieu process if a loan modification fails.  However, a borrower faced with losing property through foreclosure cannot simply execute and record a deed granting the property to the lender.  If a borrower attempts to do this, the lender will record a “Notice of Nonacceptance,” which provides legal notice that it has not accepted the deed in lieu of foreclosure.

A senior lienholder may not want to accept a deed in lieu of foreclosure.  If the property owner has other liens against the property, such as a second mortgage or judgment liens, a senior lender who accepts a deed in lieu of foreclosure accepts the property subject to those other liens.  A foreclosure, on the other hand, will wipe out any junior liens (a junior lien is one that is recorded after the lien foreclosed upon).  It may be more economically advantageous, therefore, for the lender to go through the foreclosure process.  Other reasons that a lender may not wish to accept a deed in lieu of foreclosure include the risk that the borrower may seek to set the deed aside and the risk that a borrower’s creditors may claim that the deed constitutes a fraudulent conveyance.  Lenders generally do not face these risks if they proceed with the foreclosure.

Even if the lender is willing to accept a deed in lieu of foreclosure, it may not be in the borrower’s best interest to execute the deed.  If the property is worth more than the amount owed to the lender, a deed in lieu of foreclosure results in the borrower waiving any right to the excess proceeds from the sale of the property.  It is rare in this economic climate that a property is worth more than what is owed on it, but there is another situation where a borrower may benefit from a foreclosure.  If a borrower has more than one loan against the property, for example, a foreclosure sale may result in a junior lien holder receiving part of the money owed. In some situations, payment through foreclosure of part of the money owed to a junior lien holder may prevent that lien holder from seeking a deficiency judgment.

To illustrate, assume that a borrower owes $150,000.00 on a first mortgage and $50,000.00 on a second mortgage.  Assume also that the property that secures these mortgages is worth $175,000.00.  If the property sells for $175,000.00 at the foreclosure sale, the second mortgage holder will receive $25,000.00 (for purposes of this illustration, assume that foreclosure costs are negligible).  The fact that the second mortgage holder receives some payment through the foreclosure will prevent it from obtaining a deficiency judgment.  Of course, if the second mortgage is a purchase-money mortgage no deficiency judgment is available anyway.  (See the September 2009 Courtside Newsletter for further discussion of purchase-money and non-purchase-money loans at www.glawgroupapc.com.)  Nonetheless, there may be circumstances under which the borrower benefits from a foreclosure sale.

A deed in lieu of foreclosure, however, may create a significant benefit to a borrower.  If the lender agrees to accept a deed in lieu of foreclosure, a borrower can minimize the injury to his or her credit.  Further, a lender may agree to cancel the debt and forego any claims to recover a deficiency in exchange for a deed in lieu of foreclosure.  The lender benefits by avoiding the costs of foreclosure, including costs associated with a delay in recovering the property.  Under the right circumstances, a deed in lieu of foreclosure can be a win-win situation for both the borrower and the lender.

As discussed above, a number of factors must be considered in determining whether to execute a deed in lieu of foreclosure.  As with all legal issues, it is important to consult a qualified legal professional in order to understand all of the risks and benefits associated with such action.

The author of this month’s newsletter is J Niswonger, an attorney with The GIARDINELLI LAW GROUP, apc.  Mr. Niswonger may be reached at jniswonger@glawgroupapc.com or 951/ 245-9163.

Despite various reports that the economic crisis may be improving, many property owners face the continuing problem of owing thousands if not hundreds of thousands of dollars more than their properties are currently worth. Many of these owners have chosen to allow their properties to go into foreclosure rather than continue to pay on loans that far exceed the value of the property. For many property owners, however, there may be an alternative to foreclosure. This month we provide a brief overview of the potential benefits of a Chapter 13 Bankruptcy proceeding when a real property owner owes more than the property is worth.

PROPERTY OWNERS MAY BE ABLE TO REDUCE THE DEBT OWED ON REAL PROPERTY THROUGH A CHAPTER 13 BANKRUPTCY PROCEEDING

While many economic reports note that foreclosures have been gradually decreasing, a significant number of real property owners struggle to make payments on loans that exceed the value of their properties. A Chapter 13 bankruptcy proceeding may offer relief to such property owners who are “under water.” In certain situations, Chapter 13 bankruptcy can eliminate a second or third lien against real property. In bankruptcy parlance, this is known as “lien-stripping.”

In order to qualify for this benefit, the property owner must be eligible for a discharge in bankruptcy under the provisions of Chapter 13 of the Bankruptcy Code (lien-stripping is also available in Chapter 11 bankruptcies, but that discussion exceeds the scope of this article). If a person has been discharged in a Chapter 7 bankruptcy within four years of filing the Chapter 13 petition, for example, then he or she is not eligible for discharge under Chapter 13. Additionally, if the property is the debtor’s personal residence (the “debtor” is the person who files for the bankruptcy), the lien cannot be stripped unless it is completely unsecured. This means that the homeowner must owe more on a senior lien than the property is worth.

To understand how this is applied, assume that a person’s home is worth $200,000.00, and that the person owes $236,000.00 to Wells Fargo Bank (the “first” mortgage). Assume also that this person obtained a second loan from Bank of America in the amount of $75,000.00 that is secured by the property (the “second” mortgage). In this situation, the second mortgage is considered completely unsecured because the value of the home is not enough to pay the first mortgage if the property went into foreclosure. If the homeowner is otherwise eligible for discharge in bankruptcy, a Chapter 13 proceeding will allow him or her to “strip” the second mortgage. Thus, following completion of the Chapter 13 proceedings, this person will not have to pay back any part of the second mortgage.

If, on the other hand, the home is worth $250,000.00, the second mortgage is not completely unsecured because there is a $14,000.00 difference between the value of the home and the amount owed on the first mortgage. The second mortgage is therefore partially secured by that $14,000.00 in value. In this situation, the homeowner cannot strip the second mortgage through a Chapter 13 bankruptcy.

In order to receive the benefit of a Chapter 13 lien-strip, a homeowner must observe certain other formalities required by the bankruptcy court. For example, a formal appraisal must be performed on the property, and the appraiser must verify the appraisal under penalty of perjury. The homeowner will have to prove the amount owed under the first mortgage, and must follow certain procedures designed to give proper notice of the intent to strip the lien. Finally, the homeowner must remain current on all payments required by the first mortgage after the Chapter 13 petition has been filed.

If the bankruptcy court approves the lien-strip, and the debtor completes all of the requirements of the Chapter 13 bankruptcy (which involves payments to the bankruptcy trustee for three or five years), then the second mortgage is “discharged.” This means that the debtor does not have to pay it back. Once the debtor obtains the discharge, then the second mortgage lender must re-convey title to the property back to the debtor. This re-conveyance will show that the property is free and clear of any lien by the second mortgage holder.

Chapter 13 bankruptcy is a powerful tool that can provide significant relief to homeowners who are struggling to pay multiple mortgages against their homes. Chapter 13 bankruptcy relief may also be available to owners of investment properties that are “under water.” As noted above, however, not all property owners will be able to obtain the lien-stripping benefits of a Chapter 13 bankruptcy. As with all legal issues, it is important to consult a qualified legal professional in order to understand all of the risks and benefits of filing for bankruptcy.

The author of this month’s newsletter is J Niswonger, an attorney with The GIARDINELLI LAW GROUP, apc.  Mr. Niswonger may be reached at jniswonger@glawgroupapc.com or 951/ 245-9163.

The GIARDINELLI LAW GROUP, apc

Riverside County Office
31772 Casino Drive, Suite C
Lake Elsinore, CA  92530
951 / 245-9163

Orange County Office
1601 East Orangewood Avenue, Suite 175
Anaheim, CA 92805
714 / 978-2060

This article is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission.  This article does not necessarily reflect the point of view of the Association or other person or entity who publishes it.  This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers.  Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances.  Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation. To request further information or to comment on this article, contact The Giardinelli Law Group, apc, at jvg@glawgroupapc.com, or 951/ 245-9163 and visit our website at www.glawgroupapc.com

Written by: Gene Wunderlich, SRCAR GAD

Seems like everywhere you look there’s more bad news on the housing front. Make that everywhere you look but here. I’m chockfull of tidings of good cheer right now and hoping I won’t be proven chockfull o’nuts before mid-year. It could go either way.

Let’s start with good news for homebuyers. The FHA has been very busy lately doing some good things for the market. Since they are currently backing about 30%+ of housing loans in this country (80% of first time buyers), whatever they do has a significant impact. Back in November we had a chance to chat with FHA Commissioner Dave Stevens, a Realtor® himself, and we were much encouraged by his take on the market.

Since then they have made a couple serious moves to further benefit home buyers including increasing the number of properties an investor can hold and, as of February 1, waiving their 90 day anti-flipping rule for one year. Why are these good moves? Well, 18 – 24 months ago many of the REO (bank-owned) properties on the market were in pretty good condition. You could buy one and move right in. Today, many of the homes are pretty thrashed making it impossible for somebody to move in without some degree of re-hab – new appliances, flooring, windows, electrical wiring, plumbing, etc. 1st time homebuyers usually can’t afford to do that nor can they get financing on a house like that anyway.

Continue reading ‘Good news for housing’ »

Social networking sites, such as Twitter, LinkedIn, MySpace and Facebook, have rapidly become popular in the professional real estate community and are changing the way real estate agents communicate with their clients.  Social networking sites provide many benefits, but also raise multiple issues of potentially increased duties and risk of legal liability for agents and brokers.  This Special Report discusses some key issues that real estate agents and brokers should be aware of when deciding whether to “tweet” and use social networking sites.  We also suggest some steps that should be taken by agents and brokers to reduce their exposure to liability and protect themselves and their business when using social networking sites.

Traditional Responsibilities and Duties Apply

Social networking is relatively new, and the laws pertaining to use of social networking sites are still developing.  However, communicating through a social networking site does not change a real estate agent’s responsibilities regarding client communications.  Brokers, agents and REALTORS® remain bound by California Real Estate Law, the California Department of Real Estate (DRE) regulations, the Standards of Practice and Code of Ethics of the National Association of REALTORS® (NAR) and the rules of conduct of the local REALTOR® association or Multiple Listing Services where they hold membership.  All marketing, even on social networking sites, is subject to the same general rules that apply to traditional marketing.  Being unaware of a violation is not a defense.  Brokers are responsible for supervising their agents’ actions.  Therefore, brokers should be aware of the potential risks of liability, establish policies and monitor their agents’ and employees’ use of social networking sites to protect themselves and their businesses.

No Privacy and Potential Common Law Liability

Privacy is a main concern when using social networking sites.  Voluntarily posting information on social networking sites can be deemed to be a waiver of any right to privacy the user may otherwise have.  In Moreno v. Hanford Sentinel, a recent California Court of Appeals case, a college student posted a rant about her hometown on her private MySpace page.  A local newspaper republished the post without permission.  The student author of the rant brought a lawsuit claiming primarily a violation of her right of privacy.  The court rejected her privacy claim and held that the act of affirmatively posting the rant on a hugely populated internet site erased any reasonable expectation of privacy she may have had.  It should be noted that she did not raise a copyright infringement claim.  Agents and brokers should remember that almost anyone can see the profiles and information posted on a social networking site.  Posting derogatory material could result in defamation or copyright infringement liability.

Duty of Buyer’s Agent to Investigate

An agent has a general duty to disclose material facts relating to a transaction.  Some may argue that an agent representing a buyer has an affirmative duty to investigate social networking sites to determine if negative comments are being made about a particular property.  The California court in the 1998 case Field v. Century 21 Klowden-Forness Realty, explained the broker’s fiduciary duty:

“The broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision.  He is hired for his professional knowledge and skill; he is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal’s decision, and he has a duty to counsel and advise the principal regarding the propriety and ramifications of the decision.  The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information.  …  This obligation requires investigation of facts not known to the agent and disclosure of all material facts that might reasonably be discovered.”

A buyer’s agent may be required to investigate certain issues in order to be able to provide material information and professional advice to the client.  Given the rapidly increasing use of social networking sites, it is possible that this investigation could include searching social networking sites.  Brokers and agents should be aware of this potential expansion of their fiduciary duty and protect themselves by clearly communicating to their clients whether or not the agent will check social networking sites for negative comments.  Whether or not social networking sites will be or have been checked should be put in writing, either by including language in the Buyer-Broker Agreement or some other document executed by the client.

DRE Regulations

The DRE requires agents to place their license numbers on all first contact advertising and marketing materials and to include in an MLS listing certain information, such as the name of the REALTOR®’s firm in a reasonable and readily apparent manner.  Violations of these regulations, including omitting the firm name or the agent’s license number on every posted advertisement or listing on a social networking site, could result in the agent and broker being held liable.

NAR Code of Ethics

The Code of Ethics applies to all real estate licensees who are members of NAR.  Unfortunately, users of social networking sites do not have the same protections that the social networking sites themselves have under the law.  Not only are brokers and agents subject to liability as users of the social networking site, they also have the added risk of liability under the Code of Ethics.  REALTOR® members should carefully comply with the Code of Ethics at all times, especially on social networking sites.

Article 12 – True Picture in Advertising

REALTORS® have an obligation to present a true picture in their advertising, marketing, and representations.  Article 12 of the NAR Code of Ethics states, in pertinent part: “REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”  Multiple Listing Service (MLS) rules and regulations require the listing data be accurate.  The listing information should not be presented in a way that produces a deceptive or misleading result due to the use of Internet lingo (i.e. “lol”), abbreviations, keywords, or symbols that might mislead consumers.

Article 15 – Statements About Competitors

Article 15 spells out the duty of REALTORS® to not knowingly or recklessly make false or misleading statements about their competitors, their businesses, or their business practices.  NAR recently proposed to amend and adopt Standard of Practice 15-2, which states:

“The obligation to refrain from making false or misleading statements about competitors, competitors’ businesses and competitors’ business practices includes the duty to publish a clarification about or to remove statements made by others on electronic media the REALTOR® controls once the REALTOR® knows the statement is false and misleading.”

Under this amendment, a REALTOR® will have to take some affirmative action, instead of just refrain from doing something.  With the use of social networking sites, it is not only easier for a REALTOR® to post a statement that may be misleading or false, but it is also easier for the competitor to become aware of the misleading or false statement.  That increases the risk of liability to agents and brokers.  Brokers and agents need to be careful and always act appropriately when posting messages, information, or files to social networking sites.

Client Confidentiality

A broker or agent should never disclose confidential information shared by clients.  Brokers and agents should obtain the consent (preferably in writing) of the client before posting any information related to the client on a social networking site.

Protect the Firm Image and Reputation

Brokers and agents must recognize that the information they post on social networking sites shapes the public image of the individual and the firm.  Brokers and agents should manage their online reputation by being alert and by staying aware of what information is being posted about them and their firm.  Social networking sites, if not used properly, increase the risk of possible liability.  Ultimately, a broker may be responsible for the information disseminated from the firm and for the image of the firm portrayed to the public.

Establish Policies

Brokers should establish policies regarding social networking use by their employees and independent contractors, whether or not the firm facilitates, allows, or encourages its employees and agents to use social networking as a way to stay connected with clients, vendors, and business associates.  An electronic media and social networking policy should be established as part of the firm’s employee handbook or its employment or independent contractor agreements.  The policy should identify what information the firm deems confidential and set forth the procedures and disciplinary actions that will be taken if an employee violates the policy.

To Tweet or Not to Tweet

Every firm is unique, and the social networking policy should be designed to fit that firm’s needs.  Brokers and agents who understand the emerging technology and put it to use in their businesses while remaining in compliance with applicable laws, meeting their professional duties, and managing their exposure to risk, will have the competitive advantage.

If you have questions about the information in this Special Report or need assistance in establishing policies for your firm, contact attorneys Kelly Neavel or Sylvia J. Simmons at the phone numbers or email address below.

GIARDINELLI & DUKE, APC

31594 Railroad Canyon Road                                                   1601 East Orangewood Avenue, Suite 175

Canyon Lake, California 92587                                                                        Anaheim, California 92805

(951) 244-1856                                                                                                                (714) 978-2060

This article is a copyrighted publication and may not be reproduced or transmitted in any form or by any means without written permission.  This article does not necessarily reflect the point of view of the Association or other person or entity who publishes it.  This article provides legal information abridged from statutes, court decisions, and administrative rulings and contains opinions of the writers.  Legal information is not the same as legal advice, which is the application of law to an individual’s specific circumstances.  Although every effort is made to ensure the information is accurate and useful, it is recommended that you consult with a lawyer to obtain professional assurance that the information provided and your interpretation of it is appropriate for a particular situation.  To request further information or to comment on this article, contact Giardinelli & Duke, APC, at office@gdlawoffices.com or (951) 244‑1856 and visit our website at www.gdlawoffices.com

NATIONAL ASSOCIATION OF REALTORS® this week announced the launch of the REALTORS® Federal Credit Union, a banking resource that’s designed specifically for the unique financial and cash-flow requirements of real estate professionals.

The credit union is exclusively online, accessible 24 hours a day, seven days a week. RFCU offers access to thousands of surcharge-free ATMs nationwide, secure online banking and bill pay, safe deposits, affordable loans, and financial advice.
Some of the benefits include money market savings accounts, no-fee eChecking with debit cards, personal loans and credit lines, real estate loans and credit lines, share certificates, 24-hour online account access, and 24-hour Member Care that offers support by phone or online.

RFCU also offers competitive interest rates on both savings and lending, and funds are federally insured to at least $250,000 and backed by the full faith and credit of the U.S. government.

Owned by its members and directed by an elected volunteer board, RFCU earnings accrue to the benefit of the credit union’s members, not stockholders.

REALTORS® and their families are eligible to become RFCU members, as are NAR staff and the staffs of state and local REALTOR® associations and boards, and their families.

For more information regarding services, benefits and membership requirements, visit RFCU’s Web site at www.realtorsfcu.org.

TAKE ACTION NOW! Oppose A Multi-Billion Dollar Paid Sick Leave Mandate

AB 2716 is a proposed new law that would unreasonably expand employer’s and local government agencies’ costs and liability by mandating paid sick leave for all employees, including, interns, seasonal, part-time, temporary, and full-time employees.

All employers in California would be mandated to provide paid sick leave to an employee after only seven days of work in a calendar year. The proposed new law impacts all employers, large and small, regardless of the current level of sick leave already provided.

This proposal, estimated to cost employers billions of dollars in increased costs, places a massive burden on our local businesses at a time when our economy is underperforming and job cuts are continual.

Click here to take action!

Several Association of REALTORS® (Associations) and their Multiple Listing Services (MLSs) have received requests from sales and mortgage brokers and listing agents to delete (“zap”) a listing entirely from the MLS as if it were never inputted or to change the true listing date or listing expiration date of a listing. We have counseled our Association clients not to engage in such activities.  In this Special Report we explain the reasons why. Continue reading ‘CHANGING OR DELETING LISTING DATA’ »

The California Latino Home ownership Initiative is a coordinated effort by the California Association of REALTORS® (CAR), Freddie Mac, the National Association of Hispanic Real Estate Professionals (NAHREP), the League of United Latin American Citizens (LULAC), and other organizations, designed to help educate real estate professionals on how to serve the Latino home buyer and significantly expand home ownership opportunities for Latino Families.

For more information, please contact Adriana Guerrero at 213-739-8297 or via email at adrianag@car.org. For recent calendar of scheduled classes, please visit http://www.car.org

On Tuesday, June 24, 2008, MRMLS will update the list of Area Names within MRMLS Matrix as follows:

Note: “Inglewood United” will be corrected to “Inglewood Unified” in the School District list.

Imagine having access to listings across the Southland in one place and in one data feed. It was announced today that the CARETS IDX data feed for brokers is on schedule to be delivered on June 2, 2008. This historic event will mark the first time the full listing data from participating MLSs throughout most of the Southland will be available in one data feed.

After delivery of the IDX data feed, work will begin to aggregate listing data from each MLS into the CARETS “super” data set. In the September/October timeframe all listings will be available within MRMLS Matrix. The CARETS data set will cover all property types, all statuses, and all history. Come see the proof-of-concept at the CARETS booth at the CAR Expo, June 4th– June 5th in Sacramento.

Questions and Answers:

Q. What is IDX?
A. IDX stands for “Internet Data Exchange” and is a downloadable raw data feed that allows you to customize the way listings are displayed on your website.

Q. When will CARETS IDX be available for Agents?
A. The CARETS IDX feed for agents will follow Mid-Summer.

Q. Which MLSs are participating in CARETS?
A. The following MLSs are participating and more are in discussions:

• CRISNet (San Fernando Valley)
• CLAW (Combined Los Angeles/Westside)
• I-Tech (Glendale and Pasadena)
• MRMLS (Multi-Regional Multiple Listing Service)
• SoCal MLS (Orange County and parts of Los Angeles County)

Q. How can I get more information on CARETS?
A. Go to the CARETS website at www.ca-rets.com.

Q. Will I be able to get Northern California Listings?
A. Yes. The participants in the MLS Alliance are also working with CARETS, including the listings from Quatro (San Jose/San Francisco) and MLS Listings, Inc. (Santa Clara).