Senate Bill 94 - California

Senate Bill 94 - California

Will BarnardPro Member

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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

Are any of you short sale investors aware of Senate Bill 94 which was placed into action October 12, 2009? If not, you need to read up on it right now. While it only affect us in CA, other states are soon to follow, although other states may do it better as usual.

Basically, the bill was designed to reduce/eliminate all the loan mod fraudsters out there. The problem has been taht a large majority of loan mod companies (95%+ in my book) are frauds and scams, looking only to take money from unsuspecting homeowners. In fact, many of the loan mod crooks are the very same mortgage broker crooks who sold ridiculous loans to people and now that they are out of the loan biz, they got into another biz to take maoney from people.
Unfortunatley, the infinite wisdom of our state officials made the bill so broad, that it encoumpasses not only loan mod people, but EVERYONE, including us investors.
It is my hope that the wording is edited or ammended so that it is more specific, but until that time, and according to the bill, anybody performing a short sale in CA without having a RE sales license, DRE # or being an attorney, you could be committing a crime, and not a small one, but a felony that carries with it 10 years jail time!

Read up and post your comments here.

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Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes

Hey Will, great topic... not to many short sale investors in CA, apperantly. I personally think it took long enough to implement Bill 94. It really boils down to taking up-front fee's. I'm a strong believer of producing results before anyone gets paid anything. I personally have a couple short sales in my pipeline and I don't see how it would affect me. 1st off I use an option agreement and second I actually pay the seller an option fee, so I'm not in anyway taking any up-front fees whatsoever. Another piece of advice, use complete transperancy between all parties involved... Your thoughts?

By the way if your doing short sale investing in CA. Read up on CA laws 1695, 2945 and Bill 94... Theirs also a great bulletin post by Freddie Mac on flipping distress property including REO and short sales. Flipping is legit as long as you do it the right way! Get Educated folks...

p.s. one last thing to be on the safe side of things keep your profit margins below 15% if not 10% is best...

Ed

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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
WOW, 60 views and nobody has a comment or any feedback on such an important issue?
Where are you CA short sale investors?
Wake-up!
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
Hey Will, great topic... not to many short sale investors in CA, apperantly. I personally think it took long enough to implement Bill 94. It really boils down to taking up-front fee's. I'm a strong believer of producing results before anyone gets paid anything. I personally have a couple short sales in my pipeline and I don't see how it would affect me. 1st off I use an option agreement and second I actually pay the seller an option fee, so I'm not in anyway taking any up-front fees whatsoever. Another piece of advice, use complete transperancy between all parties involved... Your thoughts?

By the way if your doing short sale investing in CA. Read up on CA laws 1695, 2945 and Bill 94... Theirs also a great bulletin post by Freddie Mac on flipping distress property including REO and short sales. Flipping is legit as long as you do it the right way! Get Educated folks...

p.s. one last thing to be on the safe side of things keep your profit margins below 15% if not 10% is best...

Ed
1 Reply
Scott R.
Real Estate Investor · Northern Territory · Member since 2009 · 136 posts · 10 votes
16y
good info. I was just running into issues here with some REO's since the banks are hoarding them on the books some of the areas are getting some fake appreciation or atleast look like they are stabalizing which isnt true in sacramento.

In one are for example it went from REO's 3 to 1 to Shortsales 3 to 1. So im just about to start working on shortsales. If i can pass the test i should have my license soon too but will have to figure out how it works as for me reselling and whats a conflict and whats not.

I have talked to a guy in so cal a few times who does shortsales and said he can help but he doesnt have much time. He said i can join his team but i wont get much money probably just be more of a bird dog. He sent me his addendum and he flat out says its contingent upon him finding a qualified end buyer and banks are eating it up! Him and his team have 72 shortsales in the pipeline and he wil ONLY work with agents. I guess its better when an agent has an un approved shortsale because he gets a new contact, and when he closes with an end buyer (mostly retail end buyers) the agents shoot the next deal to him again to make a fast profit. Not sure how hes doing his end buyer stuff or if he uses and agent? I believe he is back to back closing them though. here is his addendum, appearantly it works but what do you guys think? Seems to me like a bank might turn it down?

1.This contract is contingent upon short sale approvals, acceptable to Buyer.
2.Seller must sign all buyer contracts and disclosures
3.The Seller understands that he will receive NO FUNDS AT CLOSING.
4.Parties acknowledge that the purchase price has been initially based on an estimated
negotiated debt at closing. During creditor negotiations, there may be several different
purchase prices submitted by Buyer to the Lender(s)/Creditor(s) until a final offer is
accepted. Parties acknowledge their acceptance of the different offers and Seller agrees to
authorize Buyer to prepare various negotiating offers with various prices without obtaining
Seller's signature or approval of each and every negotiating offer.
5.SELLER hereby grants the Buyer and or their representatives all of the necessary rights
to immediately list for sale, market, negotiate and enter into a contract to lease or sell
the property immediately to a third party for a profit. All documentation in connection
with the foregoing will be made available at the Lender's request.
6.Parties acknowledge that Seller may be asked by Buyer to sign a new or transparent
contract for the resale of the property. Seller agrees to sign such contract should such
signature be needed and requested by Buyer so long as such signature will not result in any
financial gain for Seller and that such signature is for the purpose of permitting any MLS
Listing.
7.This contract is contingent upon Buyer or Buyer's Realtor finding a suitable 3rd party
for the Buyer to resell the property to upon closing.
8.Seller needs to select services.
9.This addendum supersedes any conflicting agreements in the initial contract.

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Scott R.
Real Estate Investor · Northern Territory · Member since 2009 · 136 posts · 10 votes
16y
Oh by the way. I was a little confused on a few things in the addendum.

#8 seller needs to select services (what services?)

#6.Parties acknowledge that Seller may be asked by Buyer to sign a new or transparent
contract for the resale of the property. Seller agrees to sign such contract should such
signature be needed and requested by Buyer so long as such signature will not result in any
financial gain for Seller and that such signature is for the purpose of permitting any MLS
Listing. (Why would the seller sign a new contract for the end buyer?)

#2.Seller must sign all buyer contracts and disclosures (what sort of disclosures am i bringing for him to sign? I feel safer working with a listing already listed by an agent that is not approved yet this way all things are taken care of. Is that a better way to go?)

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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Edward, I agree taht is how it should be, but if you read the entire bill, it is so open ended that you are not in the clear. I don't charge a dime to the seller either, but that does not eliminate you from possible prosecution according to my attorney who is my council on this subject matter.
FYI: My attorney also has strongly advised to use the PSA and not an option contract for short sales here in CA.
What does your attorney say?
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
Originally posted by nationwidepi:
Edward, I agree taht is how it should be, but if you read the entire bill, it is so open ended that you are not in the clear. I don't charge a dime to the seller either, but that does not eliminate you from possible prosecution according to my attorney who is my council on this subject matter.

FYI: My attorney also has strongly advised to use the PSA and not an option contract for short sales here in CA.
What does your attorney say?

Hey Will, I've been adviced to do the same and have used the CAR PSA w/ an attached addendum, but now your getting a buyer agent involved. My attorney went through my Option agreement and said it was fine to use. I also do one more step prior to using any of my own paper work and thats to use an Equity Purchase contract, then I let 5 days go by before I start with my own paper work.. . She also told me that the PSA is drafted to best protect us if used correctly, so in that sense your right and thats why attorneys advice us to use the PSA... I've also talked to a couple short sale investors here in CA and everyone seems to be doing things a little different, but more or less the same strategies. I guess we'll find out as time progress's ;) One things for sure keep everything transparant all the way around.
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
One thing im actually considering on doing is just buy & rehab, hold then retail. I feel that the main issue in all this is the quick flip scenerio. So that might be another solution.
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James Hiddle
Altus, OK · Member since 2008 · 2k+ posts · 690 votes
16y
It sounds like CA is becoming more difficult to invest in. That's one of the reasons why I've avoided that market because it seems that CA laws are becoming a pain in the neck for honest investors. I guess the old saying is true a few rotten apples does indeed spoil the whole bunch.

It seems to me state regs are becoming anal about investors because of dishonest aholes. I just hope it's not going to be a nationwide deal otherwise a lot of us are going to be in deep trouble.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Couldn't agree more James! While CA politicians have their heads up their _ _ _, we have to find ways around all their BS. Be that as it may, don't fool yourself! CA is a great place to make a ton of money right now if you know what you are doing and do it right.
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Brett Sodders
Real Estate Investor · Murrieta, CA · Member since 2009 · 34 posts · 1 vote
16y
So, Will and others, what's the consensus? Can short sales be done legally in CA without a RE license? I tried to digest all of the stipulations in the bill and it's pretty inconclusive. There are a few statements in it that seem to eliminate our ability to work them and then there are statements like this:

1. Purpose of the bill To prohibit the charging of advance
fees by persons offering to help a borrower negotiate a loan
modification or other form of mortgage loan forbearance or
forgiveness from the institution servicing that borrower's
residential mortgage loan, educate borrowers who are being
solicited to pay for loan modification services about
no-cost options available to them, prohibit lenders and
servicers from charging borrowers in connection with loan
modifications and other forms of mortgage loan forbearance
and forgiveness, and strengthen the California Finance
Lenders Law by prohibiting false, deceptive, and misleading
statements, representations, or omissions.

That pretty much says they are strictly targeting loan mod companies taking fees up front. Thoughts?
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Originally posted by Brett Sodders:
...

1. Purpose of the bill To prohibit the charging of advance
fees by persons offering to help a borrower negotiate a loan
modification or other form of mortgage loan forbearance or
forgiveness from the institution servicing that borrower's
residential mortgage loan, educate borrowers who are being
solicited to pay for loan modification services about
no-cost options available to them, prohibit lenders and
servicers from charging borrowers in connection with loan
modifications and other forms of mortgage loan forbearance
and forgiveness, and strengthen the California Finance
Lenders Law by prohibiting false, deceptive, and misleading
statements, representations, or omissions.

That pretty much says they are strictly targeting loan mod companies taking fees up front. Thoughts?

I would classify a short sale as a form of loan forgiveness, so ... my guess is that short sale investors / negotiators who are taking advance payments would be included as well.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
According to my attorney, an investor needs to be, or bring on board, a licensed RE sales agent to negotiate a short sale in CA.

In regards to the small portion of the bill posted:
educate borrowers who are being
solicited to pay for loan modification services about
no-cost options available to them
this part does state that providing a no cost alternative to the homeowner (which a short sale is a no cost alternative) would constitute a violation without a license.
Again, I don't fully understand it as the language is so open ended at times and all-inclusive, that it just about covers everything and everybody needing a license to do anything with a distressed homeowner.
So what is the consensus? Not sure, but at this point, the over weighing factor for me is my attrorney's instructions to involve a RE licensee in all short sale transactions. I would like to know what any of your own attorneys say about it.
We can give our thoughts and opinions, but at the end of the day, does not prevent us from going to jail, that is what our attorneys are for!
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
Will, may I ask what your attorneys experience is with foreclosures and short sales? how many short sale transactions has your attorney done? Apperantly theirs an attorney/RE investor, here in southern CA whos apperantly done he's own transactions, and a resource told me that this attorney is actually going in front of the DRE to explain the proceedure used to do these types of transactions. I understand an attorneys role but sometimes they are not experienced in a specific matter. I know becuase I've called many of them on this topic and they are honest and tell me they are not the attorney for me even though they specialize in Real Estate. I also believe this whole thing has to do with your approach. My approach to people is "I'd like to buy your house" no representation, or advice, or anything of th sort. Just a simple I would like to buy your house, in which their response is GREAT but im facing a foreclosure. I say OK, I'd still like to buy your house, and explain how I'm going to do it without really going into details. I also feel out the seller I'm dealing with, and to tell you the truth the deals I have in the pipeline are typically non-owner occupied homes where the seller has pretty much walked away and is not at all intersted in any type of help other then getting rid of the house. Every scenerio is different, so you will get different results...
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
To answer your fist question, yes, my attorney is highly experienced in short sales and has been reviewing and studying the new bill for several clients, not just me, so he is well versed on the subject matter. I would not post his findings otherwise.

I hear what you are saying about the approach, but again, you are just splitting hairs with the new senate bill. Your approach is no different then mine. Hey I want to buy your home, etc. I charge them nothing and provide no advice. I am just a buyer, but I am also asking for an authorization to release information which is necessary to speak with their lender on their behalf. That right there could be an issue contributing to the factors of this senate bill.
Again, I am not a lawyer and can not possible understand how the wording of this bill would be interpreted by a judge in a court of law. It is my understanding through legal counsel that I should employ an agent or attorney to be part of the transaction to remove any and all liability for my part.
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
I must agree with you Will on employing an agent do to shifting any and all liability issues. It would just mean you would have to train them and pay the buyer commission which inturn the deal will pay for regardless. My issue with agents have been that they lack the knowledge but other then that It definitely seems like the best way to go at this point. One last question for this forum, who are you afraid of the most in question to bringing a lawsuit against you? the Buyer? the lender apporving the sale? the lender financing the end-buyer? or all?
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Originally posted by Edward Alvarez:
... One last question for this forum, who are you afraid of the most in question to bringing a lawsuit against you? the Buyer? the lender apporving the sale? the lender financing the end-buyer? or all?

How about anybody feeling like they got screwed when they see what your profits were? So that could be any and all of those you listed, just depends on if they are having that feeling ...

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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
Originally posted by Steve Babiak:
Originally posted by Edward Alvarez:
... One last question for this forum, who are you afraid of the most in question to bringing a lawsuit against you? the Buyer? the lender apporving the sale? the lender financing the end-buyer? or all?

How about anybody feeling like they got screwed when they see what your profits were? So that could be any and all of those you listed, just depends on if they are having that feeling ...

Steve,
No ones getting screwed when everyone involved knows whats going on + they sign off on all paper work and its in writing...Thats why you disclose all this up front, even profit margins...(rule of thumb keep the profits around or under 10%) If someone doesnt approve of something then the deal doesnt go through. first off rule # 1 the seller cant make any money whatsover from a short sale so how are they getting screwed by you making a profit? #2 the lender who approves the short sale is apporoving a pay off its their final dicission, they dont have to agree to the short sale they have a choice, so how are they getting screwed? and 3rd the end buyers lender if they use a conventional loan, NO FHA here, is well aware that your flipping the property over but your first closing the first transaction with your money and you will hold title before you sell to the end-buyer. Now if the buyers lender doesn't want to lend the money then theirs no deal, but in all reality no ones getting screwed. I would understand if your hiding your profits but its all out in the clear for everyone to know and see. I know the attorney general and FBI are currently searching for Mortgage fraud, and rightfully so, but their is a legitamite way to do these flips, you just need the right knowledge, the right team, and the right intentions... Its called Transperancy.
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Edward,

I did not intend to imply that you or anybody else was screwing those other parties. What my statement was intended to say is that once they discover the amount of profits (it will be public record at some point), then they might FEEL that way. Your last post sounded a bit defensive, and I just wanted to clarify - no offense intended.
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Nick J.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
16y
Will, I just got off the phone with Michael. That's crazy stuff!!!

How come this issue didn't come to light sooner?

I sure hope you crazies in Californication land don't influence other states LOL!!!
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Edward Alvarez
Involved In Real Estate · Los Angeles, CA · Member since 2008 · 89 posts · 15 votes
16y
No offense taken Steve, this is merely debating, thats all. I really wish all this was as clear as a crystal ball. Its a very SERIOUS topic, especailly since I already have skin in the game. I just finished reading about 41 investors going to jail in NY, due to mortgage fraud using straw buyers, etc... so its still going on as we speak. Theirs lots of dough to be made in short sales, here in CA, but the rules of engagement arent as clear as we would want them to be... Nevertheless lets keep each other informed using BP, the best site for Real Estate Investing knoweldge, hands down.
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
To answer your question Nick, we wanted to be sure we had the right and proper counsel first before spouting off. Now that we have some sort of clarification from our attorney, we wanted to discuss it here and let others know about it. We should be inviting all CA short sale investors to this thread to read and post. I am also hoping that one or two attorneys here can provide some insight or an investor who has received direct info from their own attorney.
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Luiz Souza
Real Estate Investor · Gainesville, GA · Member since 2009 · 241 posts · 34 votes
16y
I don't know about you but I am sick and tired about bad news! So let me be a bit positive for a change. If you are an Investors that is crossing all your Ts according to your local laws I believe you have nothing to fear. Either you agree the Short Sale lender is avoiding a greater loss, the seller's credit is already messed but he or she wont have foreclosure on their credit that would last much longer than SS. Your end buyer is getting a hell of a deal and everybody else will get paid.
As I said as long as you are doing this the correct way covering all angles and bases you should fear not.
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Nick J.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
16y
Originally posted by Luiz Souza:
If you are an Investors that is crossing all your Ts according to your local laws I believe you have nothing to fear.

the problem with that statement is, it doesn't matter what you believe when the law clearly states what it states and it is translated into plain English Words by your paid attorney.
Will, what I meant was how come this wasn't all over the investing world a long time ago by others. I know you were getting clarification by your attorney and Michael said you guys were getting a second opinion but I'm curious why some guru with some course hasn't already come out with the 'solution' LOL!!!

I certainly hope I don't have to get a realtors license, I don't the teacher at those little make believe dream schools are going to like me very much. I will be 'that guy' in class :mrgreen: Prolly get beat up during lunch by all the skinny/starving kids :roll:
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Scott R.
Real Estate Investor · Northern Territory · Member since 2009 · 136 posts · 10 votes
16y
the classes arent bad. In fact, my teacher back at the end of 2005 when i took all the classes said there is a good chance real estate is going to have some problems in the near future and will be hard for us. Thats where i first heard it but didnt understand more till 2006. But i was 21, i didnt know enough to even start. You might like the classes!

Hey nick, someone said go to your web site and i cant see it on your profile. can i get that from you? Im trying to get some education on what you do exactly and how i can work these shortsales since they are killing the reo's here now
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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Originally posted by motiv8td:
the problem with that statement is, it doesn't matter what you believe when the law clearly states what it states and it is translated into plain English Words by your paid attorney.
That is exactly right Nick. Makes no difference if we dot our I's and cross our T's or what we think or feel. It makes no difference if we choose to be positive or not, the only thing that matters is what the judge rules in a court of law and all that T crossing does not get you around the law in this case, according to my legal counsel to date.
Originally posted by motiv8td:
Will, what I meant was how come this wasn't all over the investing world a long time ago by others.
Brought to you first by Nationwide's one and only Will Barnard! :lol:
I have no idea why it is not being talked about elsewhere yet Nick, I do know it is important to understand the new law and stay within the legal limits of the new senate bill. It just past October 12, so it is quite fresh and many just are not aware it exists yet. My partner and I are always looking to stay abreast of new changes or additions to laws that govern us and affect our business.
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