Default Guide Blog

Property Tax Reassessment 
Exemption Applied Retroactively for Domestic Partners 

This new law retroactively applies the exemption from reassessment for transfers of real property between registered domestic partners back through January 1, 2001.  However, no refunds on property taxes will be provided for such reassessment reversals.

Under current law, most transfers of real property trigger a reassessment to the fair market value upon such transfer.  Certain transfers are exempt, including iinterspousal transfers, and certain parent to child transfers.  A prior law indicated that transfers between registered domestic partners would be exempt starting on January 1, 2006.

Under the new law, any transfer made of real property made between January 1, 2001 and January 1, 2006 between registered domestic partners would retroactively be exempt from property tax reassessment.  In order to reverse the reassessment, the recipient of the real property transfer must submit an APPLICATION for reversal of the reassessment by June 30, 2009.  

The State Board of Equalization must prepare a form for such reversal, and the county may charge a fee related to the administrativecosts with such applications. 

NO REFUNDS on property taxes already paid will be provided based on the reassessment reversal.

This law amends California Revenue & Taxation Code § 62. The provisions of this new law become effective immediately.  (It was signed by the governor on October 12, 2007.)

Automatic Homestead 

Under existing law, homeowners are protected for a certain amount of equity in their residence by a declared homestead, or the “residential exemption” (also known as the automatic homestead).  Even when homeowners do not file a declared homestead on their residence, the residence may be protected from sale by the “residential exemption” under California Code of Civil Procedure §§ 704.710 - 704.850.  In order to qualify for the protection of the “residential exemption,” either the homeowner with the judgment against him or her, or the homeowner’s spouse must have lived in the property at the time the lien attached to the residence, and either the homeowner or their spouse were required to reside in the residence continuously since then.  For purposes of these statutes, a spouse did not include a married person following entry of judgment of legal separation of the married couple.

Under the new law, the “residential exemption” applies even though the homeowner does not live in the property, if either (1) a separated spouse or (2) a former spouse:

·  Resides in the Property, or

·  Exercises Control over Possession of the Property.

The changes to the law do not allow any debtor to have more than one property as a homestead.  Additionally, the law does not change the rule that only the homestead of one of the spouses is considered to be exempt, if the debtor and the spouse reside in separate homesteads.

This law amends California Code of Civil Procedure § 704.720 and the provisions of this new law become effective on January 1, 2008.

President Bush announced a deal with the mortgage industry Thursday to freeze interest rates for up to five years for borrowers with subprime mortgages. The plan was brokered by the Bush administration, working with groups representing lenders, investors and consumers. Here, a look at how the program works, what it does, and just as important, what it doesn’t do.

What does the agreement to help troubled home borrowers do?

It would make it easier for lenders to “freeze” certain mortgage rates that are scheduled to reset between Jan. 1, 2008, and July 31, 2010. The “freeze” will last for five years. The idea is that if borrowers are given a little breathing room, the number of foreclosures can be held down.

Will this “freeze” cover everyone who took out one of these adjustable-rate mortgages?

No. The freeze would apply only to loans taken out between Jan. 1, 2005, and July 30, 2007. It doesn’t apply to real estate investors and speculators, or to people whose mortgages have already reset to higher rates.

Instead, it is aimed at a narrow category of borrowers: those who have so far been able to pay their mortgages but face an impending reset that may put them into default. People who fell behind in their mortgages even before their reset are excluded, as are people deemed by their lenders to be able to afford a reset.

That sounds as though borrowers who got in over their heads are rewarded, and more responsible borrowers get punished.

You could look at it that way, and many people do. But the country has already seen a sharp jump in foreclosures, which has hurt economic growth. And with some 1.5 million outstanding mortgages expected to reset next year, many more borrowers are expected to have trouble paying their bills.

Some help will be offered to other borrowers as well. The Bush administration points out that it has proposed new rules that will make it easier for some borrowers to refinance their mortgages, for example, by transferring into loans backed by the Federal Housing Administration, and those changes will apply even to borrowers who’ve paid their bills on time.

Where can people who are concerned about their mortgages get help?

Well, only people who ask for help will get it. They should call 1-888-8MODIFY (663439) — the number for the Default Guide, a group that offers free housing advice for homeowners.

How far will this plan really go to reduce the number of foreclosures and clean up the mortgage mess?

The biggest criticism of the plan is that it doesn’t go far enough. The Bush administration says 1.2 million people could be eligible for a rate freeze, but Barclays Capital has estimated that only a fraction of those—about 240,000 homeowners—would actually get relief. More will be eligible for refinancing assistance.

Most of the loans that will reset in the next two years were long ago bundled into securities and sold to investors. The value of these securities has already fallen. A freeze in interest rates would reduce the value of these investments even more. So some investors will consider going to court in order to stop the plan to freeze rates. Other investors have decided that fighting the freeze will only lead to more foreclosures — and an increased chance of recession. And that, they have concluded, isn’t good for anyone.

The House approved legislation on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

The vote reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.

Hours before the vote, President Bush dropped his opposition to the measure, which now is on track to pass the Senate and become law within days.

The White House swallowed its distaste for $3.9 billion in grants for devastated neighborhoods. In return, the administration got both the power to throw Fannie Mae and Freddie Mac a lifeline and the legislation Republicans long have advocated to rein in the government-sponsored mortgage companies.

Treasury Secretary Henry M. Paulson and lawmakers in both parties negotiated the final deal. It accomplishes several Democratic priorities, including aid for homeowners, a permanent affordable housing fund financed by the two mortgage companies and the money for hard-hit neighborhoods. The grants are for buying and fixing up foreclosed properties.

“It is the product of a very significant set of compromises,” said Rep. Barney Frank, chairman of the House Financial Services Committee. “We are dealing with the consequences of bad decisions and inaction and malfeasance from years before,” said Frank, D-Mass.

Paulson said he would push for enactment of the bill by week’s end. Despite disappointment with some items rejected, he said “portions of this bill are orders of magnitude more important to turning the corner on the housing correction and supporting our markets and our economy.”

Bush had argued the neighborhood grants would benefit bankers and lenders. But the White House said a showdown with Congress over the proposal would be ill-timed.

It was a striking split for Bush and many congressional Republicans. GOP leaders said they would not be stampeded into supporting a bill they called a bailout for irresponsible homeowners and unscrupulous lenders, even as they acknowledged it was probably necessary.

“It’s a bill that I wish I could support. It’s a bill that the market clearly needs … but this is not a bill that I can support,” said Rep. John A. Boehner, R-Ohio, the minority leader.

Only 45 Republicans — most from districts ravaged by the housing crisis and some facing tough re-election fights — voted for it.

Liz Glenn, a community planning official in Baltimore County, Md., said the grants “would enable us to acquire and rehab more homes and offer them at an affordable price.”

The Treasury Department would gain power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The two companies, chartered by Congress, back or own $5 trillion in mortgages — nearly half the nation’s total.

Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, said Bush’s turnabout reflected political reality.

“They looked at the Hill, they counted some votes and they see there’s pretty broad support for this,” said Shelby, his party’s lead negotiator.

He and Sen. Christopher J. Dodd, the committee chairman, said they would push for swift approval of the measure without any changes.

“We’ll be anxious to move this product along,” said Dodd, D-Conn.

But conservatives led by Sen. Jim DeMint, R-S.C., were threatening to slow the measure unless Democrats allowed a vote on barring Fannie Mae and Freddie Mac from lobbying and making campaign contributions. Senators’ objections could delay enactment of the measure until next week.

Congressional analysts estimate that a government rescue of the mortgage giants could cost $25 billion, but they predict there is a better than even chance it will not be needed.

The bill would let the Federal Housing Administration back $300 billion in new loans so an estimated 400,000 homeowners who cannot afford their house payments could try to escape foreclosure by refinancing into safer, more affordable mortgages. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

“The industry really has to step up and use it,” said Bruce Dorpalen, director of housing counseling for Acorn Housing Corp., a nonprofit housing group based in Philadelphia.

The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the agency. It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers, and increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

Lawmakers abandoned efforts to place conditions on any Fannie and Freddie rescue, but the bill hands the new regulator approval power over the pay packages of executives at the companies.

With worries about Fannie Mae and Freddie Mac looming over the banking industry, the best bet for homebuyers now is probably to lock in a mortgage rate while the scenario plays itself out.

Industry analysts say evaluating which way mortgage rates will trend over the long term will be tricky because of all the unknowns regarding Fannie and Freddie, the two mortgage giants whose capital standing was called into question last week, setting off a market frenzy.

That’s why it makes sense now to play it safe and grab current rates while you still can. A 30-year fixed was going for 6.09 percent Monday, according to Bankrate.com.

“It is my recommendation that as soon as you basically know that you have found a property or are approved for a loan you should go ahead and lock in,” says Arnold Martin, president of Absolute Lending and Mortgage in Fayetteville, Ga. “Right now you have a much better chance of closing that loan if it is locked. If that loan is not locked a lender has much greater opportunity to say, ‘I’m sorry this is no longer going to be available.’ You may have to go out and buy a whole new loan.”

Mortgage rates took a slight dip Monday following an explosive weekend in which the government said it would make a variety of measures available to back up the mortgage debt Fannie and Freddie have on their books.

But whether that drop holds is dependent on an array of factors, the most important being the fundamental strength of the two lenders going forward. Should Fannie and Freddie falter and the government be forced to go out and raise money, most likely through Treasury bonds, that would pressure rates upward and the government probably would have to pay higher yields to get investors to bite on the bonds.

Similarly, if Fannie and Freddie go out and raise money on their own they too would be forced to pay bondholders a premium that also would push up rates.

If, on the other hand, the two companies are as solvent as Washington politicians say they are, rates probably would hold level. With the Federal Reserve in at most a holding plan on its key lending rate, there would be little incentive for rates to fall significantly.

“In the longer term the real question is how the bond market greets this news once they’ve had the chance to digest it a little bit,” says Mike Larson, bank analyst for Money & Markets online newsletter. “It’s never been harder to get a handle on where mortgage rates are going to go.”

Indeed, investors greeted the Fannie-Freddie mood initially with a broad wave of approval but then grew increasingly leery as the day progressed. Worries over the banking sector in the months ahead tempered a fast upsurge in stocks off the opening bell, and investors seemed to be betting on more trouble ahead.

Combined with continued economic unrest regarding inflation and unemployment, the state of mortgages remains murky.

“Even if there’s a temporary calm in the credit markets, bond traders are going to sit back and say, ‘What about the underlying fundamentals?’ ” Larson says. “The reality is what the Treasury and Fed did is the best of bad options. Until something can be done about longer-term problems … I don’t see anything over the longer-term bringing mortgage rates down.”

Martin said the problems could become especially acute for jumbo loans, the mortgages above $417,000 outside the purview of Fannie and Freddie that usually are issued at higher rates and could be even harder to come by as banks protect their capital standing.

That heightens the importance of locking in now, he said.

“If you’re not locked in you won’t have a leg to stand on” if conditions change, he said. “To me it’s not worth the gamble. Rates may not go down.”

Hundreds of worried IndyMac Bancorp Inc. customers lined up Monday to pull as much money as they could from the failed financial institution. However, federal regulators said it could be years before the affairs of the bank were fully resolved.

Charles Tengeri, a retired school teacher, was the first customer to emerge from the Pasadena headquarters of the bank. He held a check for $171,000 — an amount that he said represented most of his savings. “I didn’t think this could happen,” he said. “But I’m glad to get anything out.”

Customer Harvey Soldan said he had more than $100,000 in the bank whose assets were seized Friday by federal regulators. “It’s a question of how much we can get and how soon,” he said while waiting in line. Soldan spent Sunday night at a hotel near the bank so he could be at the door more than three hours before it opened at 9 a.m.

Two-hundred people were in line when the bank opened. A security guard at the door was allowing 10 people at a time to enter the branch. Customers were orderly as the line stretched around the block. The mortgage lender, which succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures, is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said. The Office of Thrift Supervision said it transferred IndyMac operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

The FDIC insures bank deposits of up to $100,000 per depositor and up to $250,000 for funds in retirement accounts such as an IRA. Customers with uninsured deposits could begin making appointments to file a claim with the FDIC on Monday. The agency said it would pay unsecured depositors an advance dividend equal to half of the uninsured amount. As of March 31, IndyMac had total deposits of $19.06 billion. The company operates 33 retail branches, all in Southern California. Some 10,000 depositors had funds in excess of the insured limit, for a total of $1 billion in potentially uninsured funds, the FDIC has said. David Barr, an FDIC spokesman, was stationed outside the IndyMac headquarters on Monday. He said people might actually have more money insured than they think.

Customers will be informed about how their accounts are structured and may be eligible to recoup dollar-for-dollar beyond the $100,000 limit, he said. If deposits aren’t fully insured, customers will receive a receivership certificate and told about the process to possibly recoup more of their money. Barr said it may take several years before the FDIC completely resolves the collapse and addresses customer claims. “We have to completely unwind the affairs” of the bank, he said. “We may sell a portion to another bank, sell real estate. There may be lawsuits. There are a lot of different aspects to this.” He said the FDIC will waive any early withdrawal penalties for certificates of deposit, with interest paid up to the withdrawal date.

Customer James Sherman said he also had more than $100,000 in the bank. “This is my life savings here. I feel really horrible,” he said. Sherman said he was hoping to get 50 cents on the dollar above the federally insured limit, with the remainder possibly applied to his mortgage with IndyMac. “What do you resort to now, putting money back in the mattress?” he asked.

Tengeri said he was hopeful about getting the remainder of his life savings from the bank. “I’m keeping my fingers crossed,” he said. “I have full trust in the U.S. government. It may take a little time but I’m not worried.” 

The anxiety over Fannie Mae and Freddie Mac, crucial to a recovery of the battered housing market and the economy as a whole, took stocks on a wild ride Friday. An early selloff was fanned by speculation of looming bailout. The stocks recovered on assurances by a leading senator that no rescue is needed. Immediately after the markets opened, shares of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) fell more than 47% from their already battered closing price the day before. They soon rebounded later in the morning but Fannie shares were still down about 24% and Freddie shares were off 22% in early afternoon trading. The shares of both companies recovered most of their losses shortly after 2 p.m. when Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, defended the strength of both firms. Dodd said that his discussions with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the regulators who oversee the firms and the two companies’ CEOs convinced him they have more than adequate capital and that there was no need to even discuss failure or a bailout. He also vowed quick passage of a long-debated housing bill to give greater oversight of the two companies, saying he expected it to passed and ready to be signed into law sometime next week. “There is a sort of a panic going on,” he said. “The facts don’t warrant that reaction in my view. Fannie Mae and Freddie Mac were never bottom feeders in the residential mortgage markets. People ought to feel confident about them.” While shares of Fannie were still off 10% after his remarks, Freddie shares were off only 3% when he concluded his comments. Still, the problems for Freddie and Fannie weighed on broader markets, causing a sell-off in U.S. stocks, especially hitting major banks, Wall Street firms and home builders.

Fannie and Freddie hold or back $5 trillion between them, or about half the mortgage debt in the country. They play a central role in the U.S. housing market, providing a crucial source of funding for banks and other home lenders, especially since a credit market crisis last summer left them the only major players in packaging pools of mortgage loans into securities for sale to investors. If they were unable to do so, it would significantly raise the cost and restrict the availability of mortgage loans, causing significantly more problems for already battered housing prices and sales. That in turn would be another significant problem for the overall U.S. economy, as well as global credit markets.

The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen. The shares started to erase early losses when word came that Treasury Secretary Henry Paulson was set to speak. He said that the government’s primary focus is making sure that mortgage giants Fannie Mae and Freddie Mac remain as presently constituted to carry out their mission. Even before the latest report on a possible rescue plan, speculation about the future of the firms this week sparked a run by investors away from their shares. That in turn raised questions about how difficult and expensive it will be for them to raise needed capital in the future, which fed into the stock plunge in a vicious cycle. In the first four trading days of the week, the shares of Fannie have lost 30% of their value, while Freddie shares have tumbled 45%. For the year, Fannie is down 67% and Freddie 77%. “Fannie Mae and Freddie Mac have lost investor confidence evidenced by the rapid brutal sell-off in their stocks, which could dramatically hinder their ability to raise any additional capital going forward,” wrote Richard Hofmann of research firm CreditSights in a note Friday. He added that the firms’ ability to function normally “remain at the core of government efforts to stabilize the mortgage markets.” A number of scenarios were being discussed by bankers and analysts about what the government may do to deal with investors’ current crisis of confidence in the firms. Jaret Seiberg, a financial services analyst for the Stanford Group, a Washington research firm, said Thursday options that among the options are: The Federal Reserve could purchase some of the Freddie and Fannie debt or mortgage-backed securities; the Treasury Department could make billions of dollars in loans to the companies or even buy stock in the companies. “Government officials are always planning for worst-case scenarios and our note is intended to highlight some options that may be available to policymakers,” he wrote. “We suspect hybrid versions of these plans also are possible.”

Under current law, the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of Fannie and Freddie, could take control of the firms if their capital falls too far below required levels. It is unclear how the firms would operate in that situation, known as a conservatorship. OFHEO Director James Lockhart issued a statement late Thursday saying that his agency was closely monitoring the firms’ credit and capital positions. But he pointed out that they had already raised $20 billion in capital and that they adequately capitalized, holding funds well in excess of his agency’s requirements.

Still investors were worried that continued problems in the housing market would cause more than the $12.7 billion losses the two firms have lost between them since last July. The decline in their stock value makes raising additional capital to cover those future losses that much more expensive and difficult. “Our primary concern about Freddie and Fannie is that credit losses are likely to be worse than the management’s current judgment, which will further pressure the capital base, and we remain cautious until we are better able to quantify these risks,” wrote UBS analyst Eric Wasserstrom in a note Thursday. Those concerns prompted him to raise his estimated loss for Freddie and to cut his price target for the stock, although, he retained his neutral rating on both firms, rather than urging clients to sell their holdings.  Part of the problem for the stock Friday is it is unclear if current shareholders would see their holdings wiped out under some of these government rescue options.

A Fannie spokesman said Friday morning that the company had no comment, while a spokeswoman for Freddie was not available for immediate comment. Both firms issued statements on Thursday saying they had the necessary capital to continue operating, adding they would not comment on the decline in their stock value.

Did you know you can appeal your property taxes?

If you bought your home between 2004-2005 and believe the value of your property is less that the assessed value established by the Assessor you should look into having your assessment challenged by filing an Assessment Appeal. There are no fees required for filing your assessment appeal. Timing is the major restriction and you can only apply from July 2-September 15th.

If you are not sure what your property value might be you can visit zillow.com to get an idea. You are also welcome to send your property information to info@defaultguide.com and we can get an accurate value from MLS.

Assessment appeal forms and instructions can be found at: http://assessmentappeals.ocgov.com/aa/

Be careful not to make blanket statements such “Property Values have Bottomed Out” as factual data, besides what the market is doing you must look at the requirements under Proposition 13 which sets standards for valuing property in California. You should try to use factual evidence based upon the market conditions that exist on the lien date not future speculation.

If you feel as if you need assistance with this process please feel free to contact us at info@defaultguide.com or simply visit our website by going to defaultguide.com

DG

The nation is calling for our profession to step up and become more educated in order to provide assistance to homeowners who might be facing the devastation of foreclosure, and you are taking an important first step toward answering that call.

The data shows that foreclosure rates are hovering at an all-time high, despite a strengthening economy. Experts predict these rates will further increase over the coming years, both locally and nationally.

• A number of life circumstances—divorce, family tragedy, illness, career change—that have very little to do with the real estate market can cause a homeowner to unexpectedly fall behind on mortgage payments.
• Furthermore, because many first-time homebuyers are buying homes that are overvalued and utilizing 100% financing, they wind up in an especially vulnerable, negative equity situation from the beginning, making it difficult or even impossible for them to sell their home.

For all these reasons, the demand for creative pre-foreclosure solutions has risen dramatically over the last several years. In an effort to avoid accumulating real estate and bad loans on their books, banks have become more and more eager to negotiate down on their payoff, taking what is now better known as a Short Sale.

Short Sales provide an excellent, win-win solution for the distressed homeowner and their bank.

• The homeowner avoids a foreclosure on their record and the bank avoids the effort and expense of the foreclosure process.

The tragedy is that so few real estate professionals are educated about the Short Sale process, and homeowners remain unaware that such an option is available to them.

Our hope is to cure this by providing the tools and instruction for real estate professionals to better educate and service the distressed homeowners in our communities—because if we don’t, who will?

Look inside defaultguide.com because we can help you! Our services are 100% FREE.

DG

info@defaultguide.com

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