Dear Michael: My California home has two trust deeds for less than what is remaining on the two loans – a first to a bank and a second home equity line of credit (HELOC) to another bank. If I enter into a short-sale agreement to sell my home for less than what is remaining on the two loans, will the two banks claim a deficiency against me for unpaid balances?
Answer: Effective July 15, 2011, Gov. Jerry Brown signed into law Senate Bill 458, amending California Code Section 580e. The change is an important and significant expansion of California’s anti-deficiency laws as it applies to residential properties.
Under the prior rule, following a foreclosure or short sale, the law protected the seller from any deficiency liability under the first trust deed but not the second. This new law expands the protection to include both first and second loans. Both the holder of the first loan and the holder of the second loan must agree to the provisions of the short sale. All sale proceeds must be tendered to the lenders. The law prohibits the lenders from requiring “any additional compensation,” aside from the sale proceeds. The law does not provide protection to a corporation or an LLC. Title insurance will require that full re-conveyance of both the first and second trust deeds be recorded.
Dear Michael: We are buying an investment property and would like to know at what rate of inflation should we calculate our long-term return on our investment?
Answer: If you buy any property in today’s market, the safest and probably the most accurate way to calculate your equity appreciation is to use a 4% inflation return. This means that if you purchased an investment property for $1 million today, in 10 years it would be worth $1,400,000. This is not a definite number but with the exception of the last three years, this rate of return has been in line with equity appreciation. Most experts will agree that when you buy an investment property you should always think long term.
Dear Michael: I purchased a new house and have not been able to sell the old one. So, I’ve decided to rent it out. The renters I’ve been talking to want a three-year lease. I am concerned about whether I would owe taxes on the future sale of the property, as I have about a $250,000 profit on the property. Is there a way the sale can occur before the “two out of five year” requirement is up?
Answer: If your tenants lease your home for three years, you can still sell the home while the tenants live there. And even if you sell it on or before the end of the third year, you would still have owned it for two out of the prior five years and qualify for keeping the $250,000 in profits (up to $500,000 if you’re married).
Having tenants who want a long-term rental is very fortunate. Your property may continue to grow in value and you’ll hopefully be covering at least most, if not all, of your expenses. Make sure whatever type of lease or lease/option you sign covers all of your concerns. A real estate attorney should be able to help.
Dear Michael: I am constantly receiving flyers and mailers from local Realtors. I am tired of all the junk mail. Is this an effective method of marketing?
Answer: This is what happens in a competitive industry when one’s salary comes 100% from sales commission. In other words: “No sales, no money.”
The practice of delivering flyers or post cards by handouts or mail is called “farming.” Realtors spend thousands of dollars per year on farming and have been doing so from the start of the industry. It has been proven as one of the most effective ways to attract business.
When the day comes that you are contemplating selling your home, you may just take a second look as to who has been selling what in your neighborhood. Keep in mind that if it didn’t work, we would not be doing it.
Michael Kayem is a Realtor with Re/max Execs, serving Culver City and the Westside since 2001. Contact him at (310) 390-3337 or homes@agentmichael.com.