New Short Sale Law is a Game Changer
Ever since the robo-signing debacle, major banks have been forced to let severely delinquent homeowners sell their houses short (for less than the loan amounts owed) as part of a broad settlement of federal and state investigators. However, many short sales have not gone through because junior lenders have required the borrower contribute financially towards the deficiency. Even in non-deficiency states (such as California) where the senior lien holder typically doesn’t have the right to pursue of the deficiency, the junior lienholders usually do.
Not any longer in California. Thanks to Governor Brown and the , which requires any lender that accepts a short sale (in a senior or junior position) must release the borrower from any liability for the deficiency. With this legislation, which is in effect immediately, regardless of what’s owed or if the lender has the right to pursue for it, if they accept the short sale, the amount they receive from the transaction will be all that they’re able to collect.
This is a good move. A large number of homeowners will now re-consider a short sale, knowing that they won’t be forced to contribute more money in the form of cash payment or promissory note, which are often requirements of lenders. Also, many people who can barely afford their payment but don’t have the funds to contribute cash at closing (or via a promissory note), could now consider a short sale as well.
For the distressed real estate investor this is also good news. Short sale approvals will skyrocketed. And for investors looking for great deals, my suggestion is you focus on the fixer-type properties that have a higher chance of an aggressive short sale price being accepted.
There are four basic reasons this is true:
- From the robo-signing problems of the past, banks continue to struggle with clear title issues post foreclosure. A short sale is a title guaranteed sale with a grant deed. Good for both the bank, the seller and the investor.
- Properties with heavy deferred maintenance cannot be sold without either additional rehabilitation costs or deep discounts to cash buyers. A short sale allows the bank to sell to an investor without flooring a dilapidated liability.
- Previous bank culture considered a short sale a negative action. Laws which force the action will remove the stigma and the banks will actually realize it is cheaper to short sale. Investors will find even more streamlined roads for cash purchases.
- Homeowners who avoided short sales in the past because of second lienholders who held them hostage to promissory notes, additional cash at closing, or deficiencies after closing… will no longer have those obstacles. There will be more motivated sellers ready to make a deal and more great deals for us to buy… while helping the homeowner with their fresh start.
This folks is good news and will be a central topic in my free webinar this week. If you don’t know how to profit from this news, you will after attending this call, so check it out.
Recent Comments