Short Sales in California are ILLEGAL!

Well that's what all the naysayers would have you believe anyways. I mean I get that California is a very disclosure happy state and can be a challenge for investors: paperwork this and paperwork that and let's not forget that we're a state that loves to file lawsuits. So everyone is very cautious and unfortunately in the real estate investment arena you get a lot of people perpetuating the hype that just about anything to do with investing must be "Illegal".

I realize that there IS definitely some fraud going on and especially in a recessionary market like the one we're currently in. But instead of going after the few bad apples that are committing the fraud, lawmakers take a shot gun approach to trying to stop the fraudsters and unfortunately a lot of good people get caught in the crossfire -- including the homeowners they’re trying to protect. Because some of the laws that are being passed are so ambiguous and restrictive that the people that can help or want to help have their hands tied and that leaves the homeowner with even less options (can you say ACORN :)).

So what's my point? My point is don't believe the hype that you can’t do short sales in California. There is so much negative media covering real estate and often things are taken out of context or is simply untrue. As real estate investors we are constantly looking to work outside the box in order find opportunities to prosper in real estate; and just because it's different, doesn't automatically make it illegal.

So a lot of people are up in arms in regards to the California Foreclosure Consultant Act, California Civil Code 2945 (CCC 2945) which was amended July 1, 2009. Basically it defines what a "foreclosure consultant" is, who is exempt and the procedures you must follow in order to be in compliance if you fall under this category. The naysayers are spreading rumors that short sale investors fall under this act because we’re working with homeowners who are in pre-foreclosure status (Notice of Default filed) and we’re charging a fee.

Well investors who are buying short sale properties (the right way) are principals and make money by buying at one price and reselling for a higher price. No different than if I bought a car at an auction and then resold it to someone for more money. The smart investor don’t charge fees and we don’t have to since we make our money on the spread.

So let’s look at section 2945.1 which gives the definition:

2945.1. The following definitions apply to this chapter: (a) "Foreclosure consultant" means any person who makes anysolicitation, representation, or offer to any owner to perform forcompensation or who, for compensation, performs any service which theperson in any manner represents will in any manner do any of thefollowing:

(1) Stop or postpone the foreclosure sale.

(2) Obtain any forbearance from any beneficiary or mortgagee.

(3) Assist the owner to exercise the right of reinstatement

provided in Section 2924c.

(4) Obtain any extension of the period within which the owner may

reinstate his or her obligation.

(5) Obtain any waiver of an acceleration clause contained in any

promissory note or contract secured by a deed of trust or mortgage on

a residence in foreclosure or contained that deed of trust or

mortgage.

(6) Assist the owner to obtain a loan or advance of funds.

(7) Avoid or ameliorate the impairment of the owner's credit

resulting from the recording of a notice of default or the conduct of

a foreclosure sale.

(8) Save the owner's residence from foreclosure.

(9) Assist the owner in obtaining from the beneficiary, mortgagee,

trustee under a power of sale, or counsel for the beneficiary,

mortgagee, or trustee, the remaining proceeds from the foreclosure

sale of the owner's residence.

Notice “for compensation” is in the first sentence twice, and again as investors we’re not compensated and we don’t charge fees. In my opinion, and I’ve talked to a few attorneys about this that agree, this was geared towards loan modification companies and individuals who charged up-front fees to perform this service before they were actually rendered.

And of course we know that most loan modifications never happened – so a lot of homeowners paid out money and never got the loan mod. Also notice 2945.1.(a)(9) which talks about “the remaining proceeds from the foreclosure sale of the owner’s residence”. This was written back when homes actually had equity and so homeowners were entitled to a refund after the foreclosure auction if there was anything left after paying off all encumbrances. Well that is obviously not a factor anymore. Bottom line, as far as I’m concerned, this law does not apply to short sale investors who are buying to resell for a profit and NOT charging any fees.

I know there are other statutes and laws that are lingering on everyone’s minds — but we’ll cover those another day. So hey, California Short Sales is alive and kicking (albeit with a lot of paperwork) and we’re going to keep on working the deals.

Peace and Success.

Moe M.

AGI Short Sales

Short Sales in California are ILLEGAL!