PRESIDENT SIGNS $168 BILLION ECONOMIC STIMULUS BILL
President Bush today signed off on the $168 billion stimulus package approved by Congress last week, which, in addition to tax rebates for millions of working Americans and business owners, includes a vital, but temporary increase in the conforming loan limit. The economic stimulus package will allow the Federal Housing Administration, as well as Fannie Mae and Freddie Mac to offer mortgages above the current conforming loan limit of $417,000 to as much as $729,750 in high-cost areas for loans originated between July 1, 2007 and Dec. 31, 2008.

“The actions of Congress and our president represent a significant victory for homeowners across the state and nationwide,” said C.A.R. President William E. Brown. “C.A.R. has long fought for increases to the conforming loan limit in order to close the gap for would-be home buyers in high-cost areas, such as California, and, with the spotlight now fully shining on this important issue, will continue those efforts and push for permanent changes beyond Dec. 31.”

To read the president’s remarks regarding the signing of this bill, go directly to http://www.whitehouse.gov/news/releases/2008/02/20080213-3

Q: I have a year’s lease but need to move at the end of 10 months because of a job change. I asked the management company if they’d let me out of the lease without having to pay for the remaining two months if I found an acceptable new tenant, and they said yes. This is a tight market and the apartment is nice, so I’ll have no trouble getting a sub, and I’ll leave it spotless. But the company is holding me to a clause in the lease that says if I break the lease, the owner can deduct from my security deposit the leasing commission that the owner paid the company. Is this legal? –Katy D.

A: Tenants who live in states that closely protect tenants’ security deposits will have some formidable arguments on their side. Most states strictly control how landlords may use the security deposit, and limit that use to unpaid rent and damage beyond normal wear and tear. Those states don’t include “reimbursement of leasing commissions” as a permissible use. In these states, the owner’s attempt to recoup this amount from the deposit would violate the statute.

That’s not the end of the matter, however, because the owner could also seek to enforce this clause by suing you in small claims court, in a lawsuit that doesn’t involve the deposit. Here’s where things get a bit tricky, but when you study how this clause works, you’ll see how you can attack it.

The management company makes its money (its commission) by landing a tenant who signs a year’s lease. Owners want stable, non-lease-breaking tenants, so it is in their interests to provide, in their contract with their management companies, that if the tenant breaks the lease, the company must repay some or all of the commission. Such an arrangement encourages the company to carefully screen prospects and choose only those who are not likely to skip or otherwise leave. There’s probably nothing wrong or illegal about such a system.

Now, consider what’s in place instead in your situation. You, not the management company, are being asked to reimburse the owner for the commission, which does nothing to incentivize the management company to pick better tenants. Not that your lease-breaking should be without consequences — in most states, the owner is entitled to the benefit of the rest of the year’s rent, minus what he collects after he has rerented the unit. But that should be the limit of your liability — if the owner wants to recoup some of the commission it paid on the grounds that the management company failed to deliver a lease-honoring tenant, it has ample opportunity (in its contract with the company) to do so.

*** Melonas & Associates Comment ***

Melonas & Associates EZ exit lease guarantee

If you lease with Melonas & Associates and decide to purchase a home during your lease period, you have the written guarantee that you will be able to break your lease without any loss of deposit or rent liability for the remainder of the lease term.

another great reason to lease with Melonas & Associates

Renters: Are you prepared for an emergency?
How to shut off water, gas, electricity when disaster strikes

Before calamity strikes, do you know where the gas shutoff valve is? Are you in the dark when you need to locate your breaker box or even the fire extinguisher? As a tenant, you often don’t have any idea where various shutoff equipment is located, and you may not have the tools to do the job. Knowing how and where to shut off water, gas and electricity are basic abilities every tenant should possess. That problem can be handily solved by making a checklist and requesting the landlord provide shutoff information.
In addition, know where to call in case of an electrical outage, gas leak, fire or other natural disaster, both to report and get updates. Most utility companies’ phone numbers are found on the utility bill itself.
What’s first on the safety to-do list? Fire safety — which starts with prevention. Functioning smoke alarms in at least every bedroom and hallways are a must and are usually required by code. Checking smoke alarms is easy and should be done monthly. Use the eraser end of a pencil for hard-to-reach buttons. Some smoke alarms are battery-operated while others are “hard wired” into an electrical source. Newer alarms have both sources to draw on. Whichever combination is used, it’s easy to check and request that the alarm be repaired or replaced if it fails the simple “button push” test.
No smoke alarms? If local codes require it, request alarms be installed by your landlord. Point out they protect their property as well as yours. Keep fire extinguishers handy and show all family members where they are kept. Inexpensive and easy to use, extinguishers are readily available at any hardware store.
More fire safety information can be found at www.firesafety.gov, which according to the site is a “one-stop information resource on the Internet for residential fire safety and prevention information.” Information is courtesy of the federal government. An estimated 4,000 people a year die in home fires in the United States; the agency’s goal is to educate and eliminate residential fire tragedies.
Other fire hazards? According to the American Natural Gas Association, a total of 60 million residential, commercial and industrial customers receive natural gas in the United States. That’s a lot of gas lines, and all it takes is a spark to start a disaster; even a pinhole leak can cause a place to blow in seconds.
Gas appliances, such as stoves, hot water heaters and laundry dryers should have individual shutoff valves located behind them via the incoming gas line. Hot water tanks should be strapped for earthquake safety. Check that all incoming appliance gas lines are the flexible type and not a fixed pipe that can break or rupture more easily. Main gas-shutoff valves are usually located outdoors or under the dwelling close to the gas meters. Individual shutoff handles range in size from a thumb’s width to a larger handle you can get a grip on. For particularly small handles, keep a crescent wrench that’s adjusted to the proper size. Shutoff diagrams are usually available on the gas company Web site. Some main gas lines have automatic shutoff features and should be left alone. Ask your landlord for details.
How can you tell if there’s a gas leak? Sniff it out. Gas companies add a distinctive odor to gas, so that even small leaks can be noticed easily. Only turn off gas lines if you suspect there’s a leak. If you turn the gas off, you’ll need a professional to turn it back on.
What if the power goes out? It depends on why. Calling your local utility should shed light on the problem. Always have at least one non-electrical “land phone line” handy. If it’s just a fuse box problem, know where the box is before the power goes out and save yourself from wandering in the dark.
Need to turn off the water? Main water lines have shutoff valves and piping similar to gas lines so keep your wrench adjusted and nearby. Know which line belongs to which utility. For specific water leaks or flooding, individual shutoff valves can be found behind toilets and under most sinks. Ask your landlord for details.
And last but not least, avoid panic by organizing a plan that all occupants follow when an emergency strikes. Find two escape routes from every room if possible, and decide exactly where to meet outdoors if you’re forced to leave.
Agree on an outside phone number for mutual contact. No one expects a disaster, but it can be a disaster if you don’t know what to expect.

(Original article By Helene Lesel Inman News)

PRIVATE OWNER LEASES HOUSE PRIOR TO FORECLOSURE AND CAUSES PROBLEMS FOR TENANT.

Q: A year ago, my family and I leased a home for two years. We questioned the owner closely about whether he expected to encounter problems with his mortgage, and he assured us that he had favorable terms and no problems. We chose schools and a particular family car based on our assurance that we’d be in this house, near good schools and convenient public transport, for two years. Now, we’ve learned that the property has been foreclosed, and we’ve been advised that we must leave in 30 days. This is causing all sorts of upheaval and distress. Do we have any recourse? –Stacy W.

A: In most states, when a landlord defaults on a mortgage that was recorded before the tenant’s lease was signed, the owner’s default and subsequent foreclosure will wipe out the lease. Since most leases are for a year or two, and many mortgages pre-date those leases, most tenants get shafted when the owners default. Lucky are the tenants in New Hampshire, Massachusetts, New Jersey, the District of Columbia, and tenants who rent under the federal “Section 8″ program — when their owners default, their leases will survive. Tenants who live in cities with rent control and “just cause” eviction protection may also be protected.

The foreclosing bank has the right to continue to honor your lease, but typically the bank will want the property vacant, in order to sell it easier. That’s why you’re being given a termination notice. While there’s nothing you can do to reverse the result of the foreclosure, you do have recourse against the original owner. It’s really very simple: Having promised to lease you the house for two years, the owner has failed to make that house available to you. Your damages are the expense of finding new housing and the difference, if any, between the rent for your eventual new home and the rent you expected to pay under the first lease. You can bring a lawsuit like this in small claims court, where procedures are simple and designed for nonlawyers. And while your original landlord may not be flush with cash (after all, he couldn’t pay the mortgage), if you win you’ll end up with a judgment that will be enforceable for many years. With patience, you can probably collect.

Original Article written By Janet Portman from Inman News

ADDED COMMENTS BY KEVIN MELONAS

In California landlords that have done this have been prosecuted under the RENT SKIMMING LAWS and will face fines and possible jail time up to five years. This is why it is always best to lease from a professional property management company that has verified their landlords and properties to be secure.

Craigslist and other sites that host lease by owners also host many scams by knowing and experience scam artist that will lease a property with the sole intention of rent skimming.

Q: My roommates and I are buying a lot of things for our house, and we’re splitting the costs. We want to get renters’ insurance, but don’t want to buy individual policies. Do you think we can purchase just one policy — and will it cover our individual property, too? –Marie R.

A: You’re wise to be thinking of one policy. You’ll be dealing with just one premium and one deductible. Here’s how a joint policy will work:

Loss to a roommate’s personal property. Suppose your bike is stolen, but nothing else. The insurance company will write a check for the value of the bike, payable to all three of you (minus the deductible), and it will be up to you and your roommates to make sure the check goes to you.

Loss to jointly owned property. Suppose there’s a burglary and the stereo and television that all of you own are taken, along with some personal property belonging to each of you. Again, you will receive one check made out to all of you, and will have to do the math to make sure that the proceeds are divided according to who owned what, and in what measure.

Q: The rental market is really tight in our area, and I’ve been having a hard time getting a place. Landlords are asking for more than just a lot of rent — the one I talked to today wants a security deposit that she knows is higher than the legal limit (two month’s rent). I’m tempted to go along, but I’m worried. What are the risks? –Sam P.

A: It’s never a good idea to do business with someone who is consciously breaking the law. By going along, you’re sending a signal to this landlord that she may be successful in getting you to give up other important tenant protections later, such as your right to repairs. Rather than extort more money from applicants, this landlord should use the occasion of a hot market to be especially picky and choose the best — not necessarily the wealthiest — applicant. That’s someone with good references from prior landlords and employers, sufficient income to pay the rent, and a credit report that shows no overwhelming debt. A landlord who passes up the chance to find a good tenant (which translates to no damage, low turnover and steady rent payments) and goes instead for quick cash via an inflated security deposit is one to avoid if at all possible.

INCREASING CONFORMING LOAN LIMITS PART OF STIMULUS PACKAGE
The U.S. House of Representatives unanimously approved a measure Tuesday that includes an increase in the conforming loan limits as part of a larger economic stimulus package. The measure would allow the Federal Housing Administration and Fannie Mae and Freddie Mac to issue mortgages above the current $417,000 level. Raising the conforming loan limits to more accurately reflect the cost of housing in California and other high-costs areas of the nation has long been an objective of C.A.R.

“While this measure is expected to face an uphill battle in the Senate, Tuesday’s action by the House represents a huge win for Californians and for C.A.R., which has fought aggressively for the increases for several years,” said C.A.R. President William E. Brown.

“For years, Chairman Barney Frank and I have worked to create affordable housing opportunities for families across the country by increasing the FHA and GSE conforming loan limits,” said Congressman Gary G. Miller, who has worked closely with C.A.R. to push for the reforms. “With the average home price in high-cost areas like California exceeding the current loan limit, homeowners and homebuyers in these areas have been unable to utilize these important federal housing programs. The loan limit increases included in the economic stimulus package will make safe, conforming mortgage loans available for homebuyers in all areas of the country.”

Fed slashes short-term rates again
50-basis-point cut follows Jan. 22 emergency move

In an indication that the Federal Reserve sees an increased risk of recession, a committee that sets monetary policy cut two key short-term interest rates today by half a percentage point.

The Federal Open Market Committee’s decision to slash its target for the federal funds overnight rate to 3 percent, and the discount rate to 3.5 percent, was not unexpected.

But coming on the heels of an unscheduled 75-basis-point cut in both rates Jan. 22, the 1.25 percent reduction the Fed has undertaken in just eight days surpasses short-term interest-rate cuts made in all of 2007.

“Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” members of the committee said in a statement. “Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.”

After the breakdown of credit markets in August, the Fed cut 50 basis points off the federal funds and discount rates. Those reductions were followed by 25-basis-point reductions in both rates on Oct. 31 and Dec. 11.

With today’s action, the Fed has reduced its target for the federal funds rate from 5.25 percent, where it had stood since 2006, by 2.25 percent.

The federal funds rate is the rate banks charge each other for overnight loans, which the Fed can influence by easing or constricting the supply of money. The discount rate — what the Federal Reserve charges banks for short-term loans — is set directly by the Fed.

Slashing short-term interest rates can stimulate economic growth by reducing the cost of borrowing, and also provides relief for holders of adjustable-rate mortgages tied to the federal funds rate.

The Dow Jones Industrial Average initially soared 200 points in reaction to today’s decision to cut short-term rates again for the second time in little more than a week.

But some critics have said that lowering short-term rates could create inflationary pressures, and send long-term rates — like those for 30-year-fixed mortgages — in the other direction.

Only one of the committee’s 10 members opposed today’s decision to cut the target for the federal funds rate by 50 basis points. Member Richard W. Fisher advocated no change in the target for the federal funds rate.

Reducing the discount rate is intended to provide liquidity to strapped credit markets. But because of the stigma attached to borrowing at the discount window, banks have been reluctant to do so. The Federal Reserve also made $60 billion in short-term funding available to banks through two auctions this month, a practice that it plans to continue as needed (see Inman News story).

Congress and the Bush administration are also working out the details of a proposed economic stimulus package that would provide $150 billion in tax rebates and incentives, and raise the conforming loan limit in high-cost markets to $729,750, or 125 percent of the median home price, whichever is less (see story).

Original Article posted on Inman News

The original Headline in the 1992 Los Angeles Business Journel Reads ” Short Pay New Term in Real Estate”

The real estate industry in the state of California is suffering from a near depression. The first dilemma is that a tremendous number of people have been unemployed or underemployed and forced to take positions that do not generate the income they once had. A supplemental complication to the industry is the declining value of housing which is assumed to be based on oversupply and poor economic conditions. Properties which have deficient equity and are delinquent in payments leave most homeowners assuming they have only one solution — foreclosure. Wrong!

“Short pay/sale” is the latest vogue term in real estate. Lenders may refer to the idea as a “discounted payoff.” The latter basically entails a financial institution accepting less than what is owed in lieu of foreclosure. With an uncertain housing market it behooves an institution to try to sell a property at a mitigated loss rather than prolong the inevitable foreclosure process. The foreclosure process is not only a costly procedure the lending institution will have to endure, but it doesn’t guarantee an expedient repossession of the property in question because of the possibility of the borrower filing bankruptcy. Even if repossession were to take place, an institution is faced with assuming carrying costs for months until the property finally sells.

A lender will not take less on a loan simply because the home has devalued and the borrower doesn’t like owing more on the home than it’s worth. A lender will consider short pay as a last resort, to avoid the tremendous cost to itself if it has to foreclose on the property.

Typically, a homeowner finds the economy has forced circumstances upon them that do not allow them to keep the loan current on the home. If the loan is low enough that the homeowner can sell the home and pay off the loan, fees, taxes, etc., the lender will not consider a short payoff. If the owner chooses to allow foreclosure in this instance they’re making a grave mistake. If they hope to negotiate with the bank on the amount of the deed owed, though having enough equity in the home to pay off all of the encumbrances, again a mistake. A short pay is not a way to protect equity and strongarm a bank. It is solely a mutual business arrangement between lender and borrower to avoid the expense of foreclosure to the bank and the impact of destroyed credit to the homeowner.

WHO SHOULD CONSIDER A SHORT PAY?

Only those in the most desperate situations should consider it. Anyone who can not afford to make payments on their home but has equity should sell the home outright and pay off the debts against it. Those who owe too much to sell must communicate with their lender and ask for the short pay, so they can sell the home and pay off what’s owed against the home to avoid foreclosure. Some homeowners feel they can ask a bank to take less, sell the home, then pull money out of savings and buy a bigger house. An act of God to pull off, though it’s been done.

WHAT TO DO?

First, how many loans are there against the property? The most senior loan usually won’t negotiate the amount owed if they feel they can foreclose on the home, sell the property and recover the loan debt and costs. If there is a second or third, etc., deed of trust recorded against the home, whichever serves to gain the most through foreclosure will be the least helpful to the borrower. If someone has a second deed of trust, the latter will usually negotiate the loss, realizing if the first trust deed forecloses, the second deed will realize nothing as a return. The second may negotiate if they feel they can have a reasonable return on the money they have loaned. If they will ultimately receive nothing, they’ll usually allow foreclosure to take place to spite the borrower and the first trust deed. The same attitude exists for any lien against the property which would realize nothing (third trust deeds, mechanics liens, etc.). However, each lending entity must be negotiated with independently.

Realizing a short pay may be the only way to avoid foreclosure; what does a bank usually require to initiate proceedings? To begin with, a purchase contract from a buyer, then verbal communication and a lot of time, often many weeks of waiting. Then the bank will want a volume of information of the homeowner and the property. Different banks require different documentation, based upon who the true owner of the note is. Keep in mind that the majority of banks “sell off” their loans on the secondary mortgage market and are reimbursed their funds loaned by either a quasi-government institution, or an investor of some kind. In turn, the funds borrowed and reimbursed by the latter are insured by private mortgage insurance (PMI) if the loan is secured by less than 20% of the property’s value as a down payment. Often, though the loan may have been sold to another institution, the original lender may remain the “servicer” of the note, or the buyer of the file may contract with a servicing company to collect payments on the loan. In all cases this adds another bureaucratic layer to the negotiation process.

If the file is owned by Fannie Mae or Freddie Mac (the government), each has requirements which must be met in order to negotiate the short pay. Usually these notes are in amounts called “conforming” funds, less than $203,000.00. However, if the loan figures are in excess of the latter then the file is privately held either by the institution which originated the loan or an investor (i.e. an insurance company, etc.) which purchased the note. In the latter case the individual investor sets the requirements for the short pay. Nevertheless, if private mortgage insurance is involved (PMI) they become a responsible party to the negotiations as they will be reimbursing the loss to the parties at hand. Then PMI too becomes a principal and requires its own documentation to insure the file and reimburse the loss to the bank, investor, et al.. Basically the concept the lender/servicer is trying to communicate is demonstration of how the borrower can “unqualify” for the original loan made them in order to qualify for the short pay agreement.

What’s the damage done to the borrower after a successful short pay has been granted and the loan is paid off? Sometimes the borrower receives a 1099 from the bank (note holder’s) loss on the loan. However, amazingly a short pay usually does not reflect poorly on a credit report. Eighty percent of the time the institution/lender will show the loan “paid in full.” Nevertheless, if the lending entity has sustained a severe loss it may report the note as “settled.” There is no code or law governing the means by which a bank settles its debts with borrowers or the means by which the former may report the settlement to the various credit bureaus in the case of a short pay. Nevertheless, though short payoffs are complicated and time consuming, their successful outcome certainly is superior to a foreclosure on one’s credit record.

Original article written by Los Angeles Business Journal, August 2, 1993 by Mike Lebecki