All Forum Posts by: Laura Ozols

@Samuel Rodriguez

California purchase contracts have a Liquidated Damages clause which states that if the buyer defaults on the contract, the home seller can keep up to 3% of purchase price. So, generally, the sellers real estate agent will look for a 3% deposit from a serious home buyer.

However, as with everything, it can be negotiated.

@Shearill Brown

There is insufficient information in your post to indicate whether or not your fiance is actually living in the house which is in arrears.  But the California Homestead Act has been brought up and I wanted to add that it only applies to the home in which the owner lives on the date the lien attaches and in which the owner continues to reside until the date the court determines that the dwelling is a homestead. 

If your fiance is actually living in the home, she can file a notarized declaration form with the county recorders office to get it declared as a homestead. She then will receive an automatic exemption to protect her equity if/when the court forces the sale of the house to pay for a judgment. Further, the homestead exemption can be used to prevent the sale if the creditor cannot prove that the sale of the house will satisfy the outstanding lien(s) and the exemption amount.

Secondly, I believe, there is a further issue as to whether or not the foreclosure is a judicial or non-judicial foreclosure.  If it is a non-judicial foreclosure, then the lien holder does not have to go to court to foreclose on the property as there is a power of sale clause in the deed that secures the mortgage loan by giving the trustee the authority to sell the home to pay off the loan balance at the request of the lender when the borrower defaults.  This is the most common foreclosure method in California.

 Your fiance should contact the 2nd mortgage holder to see if this can be worked out or contact legal counsel before it is too late and the house with all its equity is lost.  

In California, there are two types of foreclosures -- judicial and nonjudicial.  In general, there are no rights of redemption. Please see below and contact your attorney or legal advisor.

Nonjudicial is the most common type of foreclosure in California and does not require the lender to go to court to foreclose on the home.  In the deed of trust, there is a power of sale clause which gives authority to sell the home to pay off the mortgage balance if there is a default [failure to make mortgage payments].   The lender then gives up the right to collect any deficiency judgment from the borrower.  There is no right of redemption in California for nonjudicial foreclosures.

Judicial foreclosures are not the norm in California and usually occur when there is no power of sale clause in the deed or mortgage.  The process involves filing a lawsuit in court to get a court order to sell the home [foreclose].  Once the court order is in place to sell the home, the home is auctioned to satisfy the debt.  The lender also has the right to get a deficiency judgment against the home owner.  However, the homeowner also has the right of redemption, which allows them to get the home back under certain circumstances:

• three months after the foreclosure sale if the sale proceeds were sufficient to cover the total debt that the homeowners owed, or
• one year after the foreclosure sale, if there was a deficiency [A “deficiency” occurs when the foreclosure sale price is less than the total debt that the homeowners owed.]

However, if there is a deficiency and the lender waives the right to get a deficiency judgment (a personal judgment against the homeowners for the amount of the deficiency) or California law prohibits a deficiency judgment under the circumstances, the former homeowners don’t get any redemption period.

@Jim B.

 It is not illegal but in practice it may not be possible to do in the same day. It depends on your local county's policy on deed recordings.

State law requires that escrow and title have "good funds" before they can release money. What that means is that an escrow or title company must actually confirm receipt of funds before they can move it to the next party. When an escrow closes the money must be transferred from the title company of one escrow to the title company of the next escrow. This is normally done with a wire transfer and it often takes two or three hours to confirm that the funds have been received. So, here's how it looks:

Escrow #1:
Deed records at 10:00am
Wire is sent to escrow #2 at 10:45am
Escrow #2:
Wire is received at 2:00pm
Deed is recorded asap. This is where the hangup occurs.

Some counties have deadlines for recording. The deadline can be as early as 10:00 am. With a 10:00 am deadline there is no way the second escrow can record on the same day. 

To close on the same day it is more likely to happen if both transactions are held at the same escrow and the same title company and if the second property is in a county that has a second, afternoon or late recording. This makes it easier for the set up, the balancing and the recording. 

So, in practice, sometimes you can close on the same day but many times it is one day later. Hope this helps.

@Andrew Chu

Andrew -- first things first, guard your credit.  If you are a recent graduate of UCR, then you are entitled to get your student loans deferred -- do not let them get into arrears and affect your credit - which is something you will need for certain types of financing to do real estate investing.

Second, there are many real estate books out there which discuss investing without financial resources.  Here is a link for a list from Bigger Pockets.  Good luck to you.

https://www.biggerpockets.com/renewsblog/wp-content/uploads/2016/03/The-Best-Real-Estate-Books-Ever.pdf

I "read" [listened on Audible] "The One Thing" and loved it.  After reading the book, I realized that I would multi-task too often or become distracted by other things [shiny objects] and that I was lacking focus on the projects that really needed my full attention.  Now, every night, I decide what project is my focus and what I am going to complete without fail the following day.  While I may get distracted by other tasks/people throughout the day, I keep going back to my one thing that I have decided to focus on and put aside the time to complete it.  This is a new habit for me that I am trying to incorporate into my life and thus far, I am amazed at how focusing on one thing has really produced positive results for me.  

@DavidTran

Sorry to hear that you got involved in the hero program.  Any homeowner offered these types of programs associated with allowing homeowners to upgrade their homes with solar or any type of energy conversation improvements with no money down should proceed with caution.  

I recently did a lot of research into these programs and found the following:

1. The programs associate directly with contractors.  The price for the upgrade is between the program and the contractor.  Frequently the price is higher than a consumer would get if they contracted directly with a contractor.  The contractor is paid directly by the program.
2. The programs place a tax lien on your home.  The program is in the first position as a lien holder on your home which means that no bank is going to finance or refinance a home where the bank is not the first lien holder.  In order to sell or refinance the home, you will have to pay off the amount owed to the program.
3. People are led to believe they can write off the cost of your payments [principal + interest] on your taxes because they attach the debt to the property tax collected on your home. However, you can only get a federal tax deduction for the state and local taxes you pay on real estate that you own, such as your main home, a vacation home or bare land. This real estate tax is paid directly to the tax assessor or through an escrow account set up by your mortgage company.  The payments to these programs likely do not qualify. You may be able to deduct interest paid on the loan but to make this determination, please consult a qualified income tax specialist. 
4. The interest rates on these loans from the programs are usually at a much higher rate as they do not qualify people based upon a credit score.   By the way, they do not set the interest rate on the loan until they fund it -- so it could be higher than what you are initially quoted when qualifying for the program.  The programs also attach all sorts of fees in order to finance the loan.  
   -- This is one fee among many which I found in the Hero program loan documents which could add quite a bit to your principal -- 
   Program Administration Fee. At the time of closing, the Authority will charge you a one-time administration fee of up to 4.99% of the principal amount of the assessment on the Property to cover the costs of administering the Program. This fee will be added to the assessment amounts
5. Several of these programs do not allow transfers or early pay off without paying some sort of penalty.

Finally, there was an article in my local paper recently which discussed issues with the Hero programs when trying to sell your home:

** **Beth Mills, a spokeswoman for California Banking Association, said in a telephone interview that any program that makes homes more energy-efficient is valuable, but the financing structure is problematic.

“Essentially, they are cutting in line,” Mills said, referring to the super-lien priority status over a mortgage.

“Few, if any lenders are going to accept this secondary lien position,” real estate agent Then said, so the tax-lien associated with the HERO improvements will have to be paid off, in most cases, at the time a sale closes or the mortgage is refinanced.

The question becomes, who will pay it?

Jane Chaname, of Remax Results in Moreno Valley, said she lost a listing because of the tax-lien provision. Sellers of a $339,000 home learned they had to pay off $20,000 in energy upgrades because the buyer wanted to finance the sale with a government-backed loan.

“Because the $20,000 took so much away from their equity to put into another home, they decided not to sell,” she said.

Another client of Chaname had difficulty selling his home because would-be buyers balked at paying $16,000 more for a home with HERO-financed air conditioning, duct work, water heater and insulation when similar homes were selling for less.

The buyers argued they were paying for the improvements twice – through the higher valuation on the house and assumption of the loan. “We sold his home, but only on condition the HERO loan was paid off for the buyer with proceeds from the sale,” Chaname said. **

@GrantAnderson

I recently did a lot of research into these "green" programs for solar, energy efficiency windows & doors, tankless water heaters, etc.  What I learned from my research is 

(1) It is not a loan paid to you directly.  Each of the programs has certain contractors associated with them and they pay the contractors directly as they complete the work on the home.

(2) It is a tax lien on the home and the "program" is the 1st lien holder.  What this means is that no traditional mortgage company will finance the home as the 2nd lien holder so if you plan on refinancing or selling the home, you have to pay off the "program" to be able to do so.

(3) Some of these "programs" have penalties attached for early pay off or transfer of loan to another.

(4)  The interest rates on these "programs" for these loans are high as many of them do not use credit scores to qualify people seeking the loans.

Finally, there was a recent news article in my local paper about the "HERO" program [one of the green programs] which warned about using the program for these very reasons:

**Beth Mills, a spokeswoman for California Banking Association, said in a telephone interview that any program that makes homes more energy-efficient is valuable, but the financing structure is problematic.

“Essentially, they are cutting in line,” Mills said, referring to the super-lien priority status over a mortgage.

“Few, if any lenders are going to accept this secondary lien position,” real estate agent Then said, so the tax-lien associated with the HERO improvements will have to be paid off, in most cases, at the time a sale closes or the mortgage is refinanced.

The question becomes, who will pay it?

Jane Chaname, of Remax Results in Moreno Valley, said she lost a listing because of the tax-lien provision. Sellers of a $339,000 home learned they had to pay off $20,000 in energy upgrades because the buyer wanted to finance the sale with a government-backed loan.

“Because the $20,000 took so much away from their equity to put into another home, they decided not to sell,” she said.

Another client of Chaname had difficulty selling his home because would-be buyers balked at paying $16,000 more for a home with HERO-financed air conditioning, duct work, water heater and insulation when similar homes were selling for less.

The buyers argued they were paying for the improvements twice – through the higher valuation on the house and assumption of the loan. “We sold his home, but only on condition the HERO loan was paid off for the buyer with proceeds from the sale,” Chaname said. **

I would recommend that you stay away from these programs in doing your rehabs.