In talking with various investors and potential short sale clients, one issue that has concerned many is what are the lending institutions going to do about the difference between the mortgage amount owed on the property and the amount the owner was able to get the lender to agree to accept at the time of the short sale.  This difference is known as a deficiency and there are some who believe the lenders can bill the short seller/homeowner to make up the difference and/or have the difference added to the   tax liability of the seller.  We will try to clear up some of the current thought process here.

Well, in August 2010 the California Legislature approved Senate Bill 931 (SB 931), which was added to Section 580e to the Code of Civil Procedure (CCP 580e), which will go into effect on January 1, 2011.  The new law provides “…No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the first deed of trust or first mortgage…..”

This piece of legislation applies to only the first mortgage or deed of trust for one to four unit dwellings.  So many of the more popular programs taken out immediately prior to the housing disaster, such as second mortgage or trust deeds are not addressed along with home equity lines of credit or cash out refinance first and second loans.

Naturally those loans, which were approved sales based on fraud, are not exempt in any aspect.  The most common cases of fraud are when the borrower claims a false hardship or otherwise lies about the financial conditions of the borrower. The new law also does not appear to apply when the homeowner commits vandalism to the home prior the leaving the home.  Trashing the home, neglecting maintenance, removing fixtures and appliances or any other intentional damage to the home may still result in the holder of the deed seeking damages against the homeowner.

A very technical aspect of the new law is “residential purchase money secured loans” are always considered non-recourse loans.  As the name indicates, a non-recourse loan does not allow the lender to pursue anything other than collateral.  Recourse loans get their name because the lenders have power to go after the homeowner for the amounts you owe, even after they have taken collateral.  The lender can bring a legal case against the homeowner to garnish their wages and try to collect the amount still owed.

As I stated California appears to be a non-recourse state relative to foreclosures and short sales.  Here is where it gets sticky.  Mortgages used to acquire a house tend to be non-recourse loans, while refinanced loans and home equity loans tend to be recourse loans.

How would this law affect you?  California had a recourse law which addressed initial purchase loans while the new law includes short sales involving all first trust deed loans.  Prior to the new law, a homeowner who had taken cash out in a refinance transaction would have the potential deficiency liability on a short sale unless the lender had released a written statement in the short sale approval letter indicating a full discharge of the indebtedness.

If you have been reading this site for any time, you know I am not impressed with the various government options made available for homeowners in financial trouble on their property.  The Home Affordable Foreclosure Alternatives (HAFA) does have one positive aspect to their program and that is there is a non-recourse provision in the plan.  HAFA seems to have been not particularly attractive to the vast majority of homeowners since many of those who have applied for the HAFA options have dropped out of the program before completion.

There are a variety of opinions about the second mortgages, cash out second loans and HELOC’s which were used to purchase the property initially.  A number of these loans were written as recourse loans but some legal scholars believe these loans also fall into the non-recourse loan category because they were initially used to purchase property.

As much of this discussion has been about what was legal and not, you want to talk with your attorney before you consider these options.  We can expect more changes as the new Federal and State Legislatures convene and try to address the housing crisis so stay tuned.

Tom Fitzgerald writes about real estate investments and its relationship to the financial community in his blog http://www.GreatDayForRealEstate.com. His writings, primarily addressing foreclosures and REOs, can serve as a primer for the new investor as well as a resource for the experienced investor. Tom would like your comments on those articles you find informative.

Many situations occur that are tailor-made for a real estate auction, but most, if not all, would fit under the category “time is of the essence.”

Property A is sold, and on the strength of this sale, your client purchases Property B. Now sale A develops problems in escrow and the sale cannot close. The client is now in a state of hysteria since his only hope of closing on Property B in 60 days is by closing on Property A. What do you do? Auction Property A and arrange a sale date well in advance of the closing date on Property B, stipulating that part of the terms and conditions of the real estate auction is a quick closing. This can only be accomplished with a real estate auction.

A type of situation which dictates the advantage of a real estate auction is the high divorce rate and the need to dispose of the real estate quickly. Often neither party can afford to hold a property that they previously owned as husband and wife.

When a partnership dissolves, the situation often demands an immediate sale of the assets, including the real estate. Private negotiated marketing cannot guarantee a sale within a set, short time period. A real estate auction can.

Heirs to an estate that involves real estate are usually highly motivated for a fast sale. Most states encourage a real estate auction as a method for generating the highest price in the shortest period of time. Illness, or the need for immediate cash, or the inability of the owner to hold and maintain the real estate is another reason you should recommend a real estate auction. Holding costs can be crippling. All too often, the carrying or holding costs during a private negotiated marketing effort won’t be recovered in a higher selling price. Instead the price is reduced. Therefore, the sooner a property sells, the greater the bottom line dollars in pocket for the seller.

An exchange being held up waiting for a buyer on one of the legs – auction it. The real estate auction can also work especially well in a “Bull Market”. The law of supply and demand, where the demand exceeds the supply, is an ideal market to expose the real estate to competitive bidding to get the maximum return. The real estate auction is highly desirable in overbuilt or stagnant markets, where no reading exists on how low prices will fall or how long the market will stay overbuilt.

The private negotiated method and auction marketing method are different. A real estate auction can most generally guarantee a sale within a short period of time, and the attention is directed to the property being auctioned. Private negotiated marketing can’t accomplish this.

Clearly, real estate auctions offer owners of all types of real estate advantages that are not available with private negotiated real estate firms.

All of us in the real estate profession are salespeople first and foremost. Let’s forget for a moment the fancy titles and diplomas we have earned during our years in the business. The bottom line of success in our profession is still determined by our ability as salespeople. We constantly look for sellers so we have more listings. Our next step is to find the buyers.

A professionally managed real estate auction is a method of marketing that will find the buyers crawling out of the woodwork, and it is this benefit that will enable you to gain additional sales by offering your clients the real estate auction marketing option.

Adrian has many years as a real estate educator, investor, and personal financial consultant. He has personally purchased over 50 single family houses in the past 5 years using various methods of creative real estate investing.. He shares his invaluable experience and techniques to those looking for guidance in their real estate and personal financial activities. He is currently a Certified Real Estate Auctioneer selling properties in the Tacoma/Seattle area of Washington State. For more information visit his website at http://www.auctionsnorthwest.com

Rich Haas, of Mankato, Minnesota is president of Continental Real Estate & Auctioneers. The company does primarily real estate auctions on a regional level, but because of the nature of the auction business, Haas said the company “gets involved with all types of auctions.” He is also president of Continental Auctioneers School in Mankato. http://www.auctioneerschool.com/

Real Estate Investors are in for a tougher time in 2011 unless they adapt their current methods of investing. I’m sorry to be the bearer of bad news today but there’s some data I have in my hands that I must reveal to you.

Short Sale flips are tougher to do than ever. There simply aren’t enough people who can get bank loans to “cash you out” once you get your short sale approval from the bank. Plus title companies are very strict on disclosing back to back flips to both the “A” and “C” lenders. Anyone who’s an active short sale flipper knows this is getting tougher to do.

Rehab flips are tougher to do than ever. Title problems and “robo-signing” scandals have tainted the title to many properties and caused uncertainty about the quality of title when buying an REO. On top of that buyers must have a 700+ credit score on average to qualify for a FHA loan plus a down payment. This means there are less buyer’s to “cash you out” using FHA loans.

Most leads that you will generate into your real estate business will be houses with little or no equity. So if you are an “equity” wholesaler you will have trouble getting “equity” leads in 2011. My prediction is that this is just 5% of the deals I’ll do in 2011.80 -100 million people – roughly 30% of our entire population cannot qualify for a traditional bank loan. Cool thing is there’s a “golden opportunity” that’s been created because of tighter bank lending standards.Credit is expected to tighten in 2011, not loosen, according to Inside Mortgage Finance magazine.

Look at these statistics 10.7 million home owners have no equity according to CoreLogic. Another 4.3 million have very little equity. They are 87% – 100% leveraged. The FHA short refi program has helped just 3 people in 4 months. Just ask the FHA. *52% of all HAMP loan modifications “fall out” within 6 months. Just ask Obama. He knows.

So where are the real estate investment opportunities in 2011? What can you do about this and still be a successful investor in 2011? The answer: Go where the money is and diversify into strategies that do not require banks at all.

There are four simple, fast, safe and easy ways for you to make money that don’t require any banks whatsoever that you can profit from any type of property. Houses with equity, houses with no equity and no default (which are most common) and over-leveraged houses in foreclosure (short sales).The investment strategies are proven and have been used by astute investors since 2004. Just now in late 2010 and 2011 they really going to “blast off” because of the current state of the financial markets.

These four techniques will enable investors to continue to profit for many years to come. Some investors are finding that they can get cash now, cash flow each month, and then cash out down the road without ever owning the home. These types of leads are everywhere and require little to no marketing costs on your part to obtain. This is the easiest, fastest way to make money in real estate with no money, bad credit, and no loans for you or your buyers. So position yourself and your business for massive success in 2011 without any banks, FHA loans, private money or government programs using new “Cash Infusion” strategies.

I personally think the jokers at Fannie Mae, Freddie Mac and FHA are not all bad guys. They just are in over their heads. A recent Fannie Mae study showed 54% of the people surveyed want to buy a home in 2011. They realize there are lower prices than ever out there. Problem is with the current Fannie and Freddie and FHA guidelines they simply won’t qualify. So how are you going to use this to your advantage?

Duncan Wierman teaches how investors how to take their business to new levels using creative marketing methods and strategies. Find out more about real estate investing cash strategies http://www.duncanwierman.com/strategies-for-2011 or marketing at http://www.duncanwierman.com/blog