14 Feb Know Your Sales: Standard, Short, Foreclosure
Real Estate Attorney Romel Ambarchyan delivers insider tips on what every seller should know when it comes to standard sales, short sales, and foreclosures. This is a must read for anyone considering the sale of a home that is not fully owned by them.
In a standard sale, the seller is an owner whose equity in the home is more than what they owe to the bank or mortgage company.
Let us say the market value of a home is $225,000. However, there is a 30-year mortgage on it, and what remains to be paid off the capital (excluding interest) is only $100,000.
What if the home was originally bought for $140,000 and its current value is due to an appreciation in real estate prices? Is the owner’s equity considered as a percentage of the original price?
California law mandates that in the event of a standard sale, the homeowner makes a full disclosure when selling the property. The Department of Consumer Affairs, Bureau of Real Estate in California has a standard form that needs to be filled in by the homeowner. This includes a lot of things, including whether there are utilities and items like range/oven/pool/water heater/solar panels/others that are offered as part of the sale. The Disclosure Form also requires the seller to list any structural modifications that he/she has made to the home, whether the home has sustained any damage from flooding, fires, earthquakes, and/or other natural calamities. There is a specific section that asks whether the fittings are compliant with the Health and Safety Code.
Lastly, all the information filled in has to be verified by the licensed real estate agents who represent both the seller and the buyer respectively.
It is unlikely that the seller will know about Section 19211 of the Health and Safety Code that pertains to how the water heater is to be anchored. Or about the Swimming Pool Safety Act [Article 2.5, Chapter 5 (Safe Recreational Water Use), Part 10 (Recreational Safety), Division 104, Health and Safety Code]. What about Chapter 12.5, Part 3, Division 13 of the Code for automatic garage door openers?
Are the structural modifications (if any) compliant with the California Building Standards Code? This code is revised every three years. From this year, it is the 2016 version that applies. So even though the alteration/addition was compliant with an earlier version of the code, it might not be so with the latest version.
The chances of the broker(s) being conversant with these are slim. Not filling in the disclosure form correctly could lead to the sale being voided or the seller being sued for fraud by the buyer.
However, if the seller has purchased a bank-owned property, refurbished it and has put it up on the market for sale (without living in it), he/she is exempt from making a full disclosure.
As such, it is wise for the seller to acquire the services of an experienced attorney to be on the safe side when executing a sale. An attorney can also come to the rescue when there are professional differences regarding how the commission is to be split. The seller may have signed a 4% commission rate agreement with his/her broker, while the buyer may have a 6% commission agreement with his/her broker.
A short sale is when the asking price is less than what is owed against the property. This requires the consent of the mortgage company.
Let us say a home was purchased for $220,000. However, owing to deteriorating market factors, real estate prices have fallen and it can fetch only $160,000 in today’s market. The uncertain economic conditions have also led to the homeowner being out a job and unable to make the mortgage payments on the home. In such a scenario, the mortgage company may find that selling the home for $160,000 is better than foreclosure if there is a ready buyer for the property.
A short sale usually frees the homeowner from the debt owed to the mortgage company. However, if they are not careful, they might find themselves being served with a legal notice for the remainder of the debt. Mortgage companies often have this way of carefully wording their consent in a way that confuses the homeowner. They are tricked into thinking a short sale frees them from the debt owed to the mortgage company.
This is when the bank officially takes over the home after the homeowner defaults on the monthly payments. A lender cancels (forecloses) a borrower’s right of redemption of the mortgaged property through a court order (called foreclosure order). The court sets a date to which the borrower can redeem the property by paying off the entire loan balance (including foreclosing expenses). Thereafter, the lender is free to sell the property and, upon the sale, applies the sale proceeds first to the due amount and pays the remainder (if any) to the borrower.
Let us say the homeowner owes $100,000 on a home that originally cost $150,000 to own. If they are unable to make the payments, the bank forecloses it and lists it as being for sale.
What if it sells for $230,000? Would the homeowner be entitled to the difference? Under California law, the answer is yes. The mortgage company can make reasonable deductions towards legal costs and administrative fees, but what remains after that must be returned to the homeowner. In a real-life example, one person whose foreclosed home sold for $130,000 more than what he owed was handed $90,000 at the end.
If homeowners are not careful, the mortgage company may trick them out of the difference. Getting an attorney to represent them throughout the sale process can help to avoid such unfortunate issues.
What if the home sells for only $80,000 or less than what they owe? Would they be liable to pay the difference? Thankfully, under California law, they don’t have to pay the difference (this law came into effect on January 1, 2013). Having an attorney well-versed with California state law can help them immensely in such a situation, even if the lender claims to be headquartered in Florida and says that Florida state law is what applies to it. Under Florida state law, the mortgage company must (this is a legal obligation on their part) sue the homeowner for the difference.
If you are considering the sale of your home, contact us at RA & Associates, APC for expert advice catered to your specific situation.
RA & Associates, APC
1 (888) 280-1344
505 N. Brand Blvd.
Glendale, CA 91203
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