SHORT SALE UPDATE:Current Market Dynamics &

Legal ChangesIn California Short Sales

Presented by: Aaron Lewis, 9/14/2011

Sellers Sold Their Properties Because They Were Under Water

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100%

5%

10%

15%

20%

25%

30%

35%

40%

29%

Q. What was the single most important reason for selling/buying the property?Source: C.A.R. 2010 Annual Housing Market Survey

% of Homes Sold Due to Foreclosure/Short Sale/Default

Sellers in 2010 Showed Signs of Distress

Desired larger home

Desired bet-ter/other loca-

tion

Mortgage payment went up (reindex)

Job loss, un-certainty, lossof in-

come

Trouble mak-ing mortgage

payments

0%

10%

20%

30%

40%

50%

60%

70%

80%

55%

20%

0% 0% 0%5%

0%

7%

35%

25%

2006 2010

Q. What was the primary reason for selling your home?Source: C.A.R. 2010 Survey of California Home Sellers

Versus

Sold Home Due toTrouble Making Mortgage Payment

First time sellers

Experienced sellers

Total

63%

61%

62%

72%

62%

67%

74%

69%

72%

2010 2009 2008

Q: Did you sell because you had problems making your mortgage payment?Source: C.A.R. 2010 Survey of California Home Sellers

Market Conditions & The Decision to Sell

Mortgage too expensive

Income not keeping up with expenses

Monthly payment went up (re-index, interest rate went up)

Job, income uncertainty

Concerned interest rates were go-ing up

Concerned that the economy is in a recession or heading into a reces-

sion

Home not worth what we paid for it, owe

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

0.39

0.37

0.21

0.1

0.05

0.02

0.02

2010

Q: What role did market conditions play in your decision to sell your home?Source: C.A.R. 2010 Survey of California Home Sellers

Primary Reason for Selling- Historical Comparison -

2003 2004 2005 2006 2007 2008 2009 2010Job Loss, loss of household income, job uncertainty

0% 0% 0% 0% 0% 0% 18% 35%

Trouble making mortgage payments 0% 0% 0% 0% 0% 20% 30% 25%Mortgage payment went up (reindex) 0% 0% 0% 0% 5% 16% 15% 7%Financial difficulties (unspecified) 0% 0% 0% 0% 0% 11% 11% 12%Low home prices allowed us to move up 0% 0% 0% 0% 0% 0% 0% 6%Desired larger home 56% 54% 56% 55% 42% 14% 3% 5%Moved to another state that was more affordable 0% 0% 0% 0% 0% 0% 0% 5%Loss in home value 0% 0% 0% 0% 0% 0% 0% 5%Concerned interest rates were going up 0% 0% 0% 0% 0% 0% 0% 3%Desired better/other location 24% 23% 20% 20% 16% 7% 0% 0%

Market Conditions & The Decision to Sell - Historical Comparison -

2004 2005 2006 2007 2008 2009 2010Mortgage is just too expensive 0% 0% 0% 0% 26% 26% 39%Income not keeping up with expenses 0% 0% 0% 0% 40% 58% 37%Monthly payment went up (re-index, interest rate went up)

0% 0% 0% 0% 13% 7% 21%

Job, income uncertainty 0% 0% 0% 0% 7% 18% 10%Concern interest rates were going up 0% 0% 22% 21% 13% 14% 5%Home not worth what we paid for it 0% 0% 0% 0% 8% 9% 2%Concerned that the economy is in a recession or heading into a recession

0% 0% 0% 0% 11% 10% 2%

Low interest rates helped us move to a better location, neighborhood, prompted move

40% 38% 37% 35% 10% 0% 0%

Appreciation, increasing home prices let us move up

15% 15% 43% 41% 0% 0% 0%

Low interest rates helped us buy a larger home 38% 39% 39% 41% 0% 0% 0%Likelihood that interest rates will move up motivated us

27% 30% 36% 36% 0% 0% 0%

Moved to an area where it was more affordable 14% 13% 13% 14% 0% 0% 0%Improving economy gave us more confidence to move up

14% 14% 13% 13% 0% 0% 0%

Income not keeping up with inflation 0% 0% 0% 0% 12% 11% 0%Dropping home prices allowed us to move up or buy

0% 0% 0% 0% 32% 12% 0%

Net Cash Loss To SellersPercent of All Homes

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0%

5%

10%

15%

20%

25%

30%

35% 30%

Q. What was the net cash gain or net loss to the seller as a result of this sale? Source: C.A.R. 2010 Annual Housing Market Survey

Long Run Average = 10.5%

NEW LAW: California CCP § 580eNo deficiency judgment in a completed short sale!!

Type of Loan AfterShort Sale1

After Non-Judicial FC2 After Judicial FC2

1st Trust Deed YES YES YES (if purchase money & owner occupied)

2nd Trust Deed(or 3rd, 4th, etc)

YES NO YES (if purchase money & owner occupied)

Purchase money YES YES, from foreclosing 1st only (not wiped out 2nds, etc)

YES (if owner occupied)

Non-purchase money YES YES, from foreclosing 1st only (not wiped out 2nds, etc)

NO

Owner-occupied YES YES, from foreclosing 1st only (not wiped out 2nds, etc)

YES (if purchase money)

Non-owner occupied YES NO NO

Short Sale v. Foreclosure:When is a 1-to-4 unit homeowner generally protected against deficiency?

1 CA Code of Civil Procedure Section 580e2 CA Code of Civil Procedure Section 726, 580(b) & 580(d)

NEW LAW: California CCP § 580e(b)No more seller contributions allowed?

“A holder of a note [bank] shall not require the trustor, mortgagor, or maker of the note [seller] to pay any additional compensation, aside from the proceeds of the sale, in exchange for the written consent to the sale.”

Source: ftp://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_458_bill_20110715_chaptered.pdf

You Need To Know What The ‘Big 3’ Are Doing

$0

$500,000,000,000

$1,000,000,000,000

$1,500,000,000,000

$2,000,000,000,000

$2,500,000,000,000Residential Servicers Ranked by Total Volume

62% of all short sales will be with one of the ‘Big 3’

Source: MortgageStats.com

You Need To Know What The ‘Big 3’ Are Doing

• Bank of Americawww.bankofamerica.com/realestateagent

• ChaseHas a local “Homeownership Center” location in Sacramento www.chase.com/chf/mortgage/keeping-your-home

• Wells Fargowww.wellsfargo.com/homeassist