On January 1, 2011, California Senate Bill SB931 went into effect and stops deficiency judgments on short sales and foreclosures in California on all first mortgages. This means a lender cannot pursue a deficiency judgment whether the loan was purchase money or a refinance.

California Senate Bill SB931 added Section 580e to the California Code of Civil Procedure. The first part of the bill is similar to Code of Civil Procedure Section 580d, which says:“No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or estate for years therein” when the mortgagee or trustee sells the property with the "power of sale" verbiage in the mortgage or deed of trust.

The Legislation applies to any note secured by a first deed of trust or first mortgage for a dwelling of not more than four units. It protects Homeowners as well as Investors, as it is not limited to consumer transactions, nor limited to homeowner occupied dwellings.

Are you a current homeowner facing a Short Sale or Foreclosure?
You need to educate yourself on the option of a Short Sale vs. Foreclosure.

Why? Believe it or not, having a strong credit score is one of best ways to save money, says financial lifestyle expert Denise Winston, founder of Money Start Here, which produces financial seminars and DVDs. "Your credit score can determine if you get your dream job, your auto insurance rates, the cost of future loans, if a landlord will rent you an apartment, and much more," she says.

In order to become a "first class" credit user, start by adopting the strategies of these top-tier score holders.

Credit is No Laughing Matter: Jim Dailakis

Credit Score: 760

New York City-based actor/comedian Jim Dailakis may be a clown on stage, but when it comes to his financial status, he's straight as an arrow. The Australian-born performer owns two homes and pays his bills on time without fail.

His strategy: "I see when the due date is and then put it on my electronic calendar on my computer," Dailakis explains. Then, he says, he makes sure he has enough to pay the total amount, to the penny, every time.

Why you should try it: "It's very liberating not to feel the ‘wolf´ pounding at my door," says Dailakis. "I´ve definitely acquired financial discipline."

Lesson learned: Keeping up with your credit can be a challenge, says credit consultant Wayne Sanford of YourCreditSpecialist.com. He suggests setting up an online auto-pay. "This way, you can have the amount you need transfer directly to your creditor and not pay any extra fees."

Extra Credit: Anna del C. Dye 

Credit Score: 804

Anna del C. Dye, a new-fantasy author from Salt Lake City, UT, is proud of her long-lasting marriage as well as her financial acumen over the years.

Her strategy: "When my husband got a raise 10 years ago, we opted to add it to the principal in our mortgage rather than our monthly expenses," says Dye. "We lived on the same income as before and paid our house faster."

Why you should try it: "Our house is ours and so is everything in it," says Dye. "Now we can eat out more often, help others, go to the movies more often, and travel around the world. We get to play and have fun when we are still young."

Lesson learned: "Our culture´s lenient attitude toward debt is harmful," says Peter Dunn, personal finance expert and author of 60 Days to Change. "If you want great credit, you must develop an urgency to become debt-free."

Divorced from Bad Credit: Tammie Aaron-Barrada 

Credit Score: 789

Tammie Aaron-Barrada´s first husband essentially ruined her credit just by having his name on her cards, and running her into debt. After they broke it off, she was left to claim bankruptcy. The entrepreneur and inventor from Ruffs Dale, PA, has since made rebuilding her credit top priority.

Her strategy: Aaron-Barrada had to make wise decisions to reestablish her credit standing. She took out 90-day same-as-credit accounts to buy new furniture that she could afford, as well as made sure she put utilities in her name and paid those bills on time.

Why you should try it: Aaron-Barrada says having great credit gives her peace of mind, should an emergency ever arise. Building back up to a high credit limit means she won´t be left high and dry ever again, and has a better credit score to show for it.

Lesson learned: "When you make someone a joint-account holder or you co-sign a loan, you become fully responsible," warns Denise Winston. She recommends checking your potential spouse´s credit report and finding out if he or she owes back taxes.

"Your credit score has the potential to determine the quality of your life," says Winston. "It can potentially cost you thousands, if not hundreds of thousands, of dollars over your lifetime."

Your Credit Score is calculated using the same kind of information creditors, landlords and employers use when considering their relationship with you, particularly if they want to have one. This can affect the terms or rates you are able to receive. To make sure your Credit Score is all it can be, check and maintain your credit report regularly. Even if it´s just to take advantage of the tools and resources available to help you better understand your credit.

Pay Down Credit Card Debt

If you are like many Americans, reducing credit card debt is a top priority this year. Given that many banks and financial institutions still charge upwards of 14% on their credit cards and less than one percent on a regular savings account, it doesn't take a business school graduate to know that paying down the card debt is a better financial move. What's more, retailers have known for years that Americans are vulnerable to spending their tax refund without much thought or discipline. "Many consumers look forward to tax season, when they know that the government will be padding their pockets with a little extra cash," NRF President and CEO Tracy Mullin said in a statement. "Retailers begin to offer special sales and promotions in early April in anticipation of consumers hitting the stores with extra money in their wallets." Don't cave in. If you haven´t experienced it yet, the exhilaration of eliminating credit card debt is a wonderful thing.

Buy A New Car

If your current vehicle is more than seven years old, has lots of miles on it, or is costing you too much in repairs, now is a great time to buy a new car. You could use your tax refund as a down payment and keep your savings account intact. Despite some recent good news from Detroit, automobile manufacturers are still struggling in today's economy. Price discounts, rebates, low financing deals and a wide selection of vehicles are still the order of the day. Plus, auto loan interest rates are still under 6%, which is still low. Plus, there are lots of good deals on new 2010 vehicles. Dealers are trying to sell their remaining fleet from year-end. You can get a good price and a good loan rate on a brand new 2010 vehicle.

Start a College Fund

Even though the cost of college keeps rising each year, it's still one of the best long-term investments you'll ever find. Why not take your tax refund and get a jump on college expenses for your kids? Many financial professionals suggest a College 529 Savings Account for your child. "A 529 Plan is a vehicle that allows you to save for your child's future education costs," says Natasha Verbsky, a financial advisor with AXA Advisors, based in Dallas, Texas. "It can be used for tuition, room and board, required books and fees associated with undergraduate school, graduate school and technical training." One of the biggest benefits of a 529 plan is that the funds will grow tax-deferred. All withdrawals used for qualified education expenses will be distributed tax-free. Now that's smart investing.

Pay Your Property Taxes

For many homeowners, just keeping up with the monthly mortgage payments can be difficult in these tough economic times, let alone coughing up thousands more for property taxes. But if you use your tax refund to pay your property taxes, the financial hit to your pocketbook is minimal. That is, you probably won't have to take money out of your checking or savings account to pay your taxes. In fact, you might even have some extra money left over to reward yourself. Granted, it's not the most exciting thing you can do with the money, but consider that you'll have to pay your property taxes either way. By handing over your tax refund to your tax assessor, you won't have to hassle with paying your property taxes until next time.

Establish An Emergency Fund

Even though it is hard to resist the temptation of spending "free money" from the IRS, having a "rainy day" cash fund on hand to meet emergencies is a good idea. "The average person that gets a refund, thinks 'oh good,' but doesn't think a whole lot about it," Theodore Sadar, a certified financial planner, said. But while spending those dollars on a lavish vacation or a new TV can be very satisfying, Sadar suggests leaving it in the bank instead.

If you decide to heed our advice with your tax refund, checking your 2011 credit is a smart idea. For example, if you pay down your credit card debt, check your credit report to make sure the payments were applied to your outstanding card balance. Or if you're shopping for a new car, knowing your credit score before you take a test drive is a wise thing to do, since higher credit scores usually mean lower interest rates and more favorable terms on a new loan, which could save you a bundle of money.

Create a Winning Streak

If you have sparse credit history, one of the best ways to establish a history and bring up your credit score is to pay your bills on time for many consecutive months, says Wayne Sanford, a credit expert with New Start Financial Corporation in Dallas. "After three payments in a row, you start to establish a payment history," Sanford says.

It's best to have one or two credit card payments in that mix of bills, to show that you can handle debt responsibly. However, charging large sums on the cards isn´t necessary. In fact, you'll probably want to keep the amounts small enough to pay off every month, in order to avoid costly finance charges.

"Say one person charges up their credit card buying furniture for their house, while another just charges $50 a month for gas," Sanford says. "The $50 a month is going to score more favorably on [the credit bureaus'] scoring models, because they're not abusing the card."

Consider Your Long-Term Financial Plan

Retail stores commonly offer customers 10 or 20 percent off their purchases in exchange for applying for a line of store credit. But these accounts can lower your credit score by affecting your "card utilization" - the credit limit on a particular card versus how much is owed on that card. Store credit is usually extended in small amounts - say, $250 - so a purchase of $100 uses almost half of that card's limit, which can negatively affect your credit score.

"Credit bureaus used to look at overall debt utilization, but now they look at the individual cards," says Scott Kuhn, a mortgage banker in Philadelphia who works to improve credit scores for potential clients. "You can have 10 credit cards, nine with no balance, and one with a $100 limit and a $100 balance - just that one card can bring down your score."

To avoid this pitfall, resist the short-term temptation to save a little at the register with a store credit card. Pay cash or use one of your current credit cards. Your long-range strategy will prevail in the end.

Pay Close Attention to Medical Bills

Collection attempts for medical bills can lower your credit score, even if the bills are paid, Kuhn says. Many medical offices will turn accounts over to collection agencies if balances aren't paid - sometimes when they're as little as one month overdue. The agencies then place negative marks on the customers' credit reports, and don't always remove them when the debt is settled.

The solution? Pull your credit report and look for negative entries. If you spot one for a medical bill that's been paid, contact your doctor's office and ask them to send a letter to the credit bureau on company letterhead confirming the payment. "That alone can add as many as 100 points to a person's credit score," Kuhn says.

Don't Dwell on the Past

If you've made mistakes in the past with credit, a good way to bring up your score is to seek out secured credit cards and loans, which are guaranteed with money up front. A secured credit card, for example, may require a deposit of $500 to give you a $500 line of credit. Interest charges may apply to any balance you carry, but the score improvement it provides is often worth the cost.

"You have to do the math and say, 'Is an investment of $100 or so worth me having good credit?'" Sanford says.

Before you open one of these "safe" credit accounts, however, make sure that the lender will report your on-time payments to the three major credit bureaus, and don't close the accounts too quickly.

How you pay your bills today counts more than how you paid them five years ago. Accounts that are currently open and being paid on will score more heavily than ones that are closed.

Finally, know that your credit scores follow you throughout your life. Making winning credit decisions today could help make your financial goals easier to reach in the future.

Home Affordable Foreclosure Alternatives (HAFA)

You may have received a letter from your lender notifying you of a new government programs for homeowner mortgage assistance called “Home Affordable Foreclosure Alternatives (HAFA)."   This program appears to hold some promise for streamlining the lengthy short sale process and also offers incentives for homeowners and lenders to participate.  Here's some of the basics for those currently upside down on their home: 

What is a Short Sale?

A homeowner works with a local realtor to sell their property for a current market rate and the mortgage lender agrees to accept the net proceeds of the sale even if the proceeds are less than the total amount due on the mortgage. 

What is HAFA? –  http://makinghomeaffordable.gov/hafa.html

First, the program promises a speedier, smoother process for processing a short sale.  Through pre-approving HAFA participants, pre-determining listing prices with agents and setting a timeline for the active marketing of homes the program attempt to streamline some of the delays and frustrations for buyers and sellers. 

Second, HAFA provides incentives for borrowers and banks to proceed with a short sale.  Borrowers who participate will receive $3000 in relocation expenses at the close of escrow and assurance that they are not responsible for any remaining debt or obligations on their first mortgage.   Lenders such as Freddie Mac also states that your home cannot be foreclosed upon if you are actively complying with the HAFA short sale program. 

If the short sale does not succeed (no offers submitted for an acceptable amount with 120 days) then the homeowner can obtain a Deed-in-Lieu instead of foreclosure proceedings.  A Deed-in-Lieu is where a homeowner voluntarily transfers ownership of the property to the lender instead of the lender legally seizing the property through foreclosure.

Is My Lender a Participant in HAFA?

View comprehensive list at:  http://makinghomeaffordable.gov/contact_servicer.html

What about Freddie Mac and Fannie Mae Loans?

Yes, as of August 5, 2010, Freddie Mac and Fannie Mae federally backed mortgages.  If you're not sure if you have a Freddie Mac or Fannie Mae loan, you can check at the links below.  Either way, you would call the number on your loan statement to start the prequalification process:

Do you have a Freddie Mac Loan?  - http://www.freddiemac.com/mymortgage/
Do you have a Fannie Mae Loan?   -  http://www.fanniemae.com/loanlookup/

Do I Qualify for HAFA?

The first step for qualifying is to first request a “loan modification” to determine if it is possible to adjust your current loan to make it more affordable.  This program allows homeowners to continue to own their home at lower monthly payments.  You would call your lender and ask if you qualify for the “Home Affordable Modification Program” (HAMP).

If you find that you do not qualify for HAMP, here are the  HAFA requirements: 

• Be the owner-occupant of a one- to four-unit home. Exception - If the homeowner relocated more than 100 miles from the property AND has not purchased a one- to four-unit property within 90 days prior to the date of a HAFA Agreement.
• Have an unpaid principal balance that is equal to or less than: 
  o 1 Unit: $729,750 
  o 2 Units: $934,200 
  o 3 Units: $1,129,250 
  o 4 Units: $1,403,400
• Have a first lien mortgage that was originated on or before January 1, 2009.
• Have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of your monthly gross (pre-tax) income.
• Have a mortgage payment that is not affordable due to a financial hardship that can be documented.

If you answered “Yes” to these questions then you passed the basic requirements and you should contact your lender to dive into more of the details on your loan. 

If I Don’t Qualify for HAFA does that mean a short sale is not an option?

A short sale is still an option for anyone that owes more on their home than it is currently worth.  Not qualifying for HAFA simply means the additional government incentives such as the relocation reimbursement are not available.

Does HAFA work?

Now, that's the big question.  There is certainly a need to streamline the short sale process.  As of today (August 13, 2010) in the Fresno County local market, there are 1,354 active short sale properties for sale.  Those homes have lingered on the market for an average of 137 days.  This past month, a whopping 42% of all sold short sales sold in July (121 properties) had been on the market longer than 120 days before selling.

I’ve listed and closed nearly 50 short sales in the past two years and the review process by lenders, investors and mortgage insurance providers has stretched from 30 days to over a year.   So, consequently I’m skeptical of improvement until I see this program in action. 

So far, I have two HAFA qualified short sales actively on the market with Bank of America and Wells Fargo.   Wells Fargo’s HAFA program currently appears much more automated.  We were able to obtain HAFA pre-qualification for our client by emailing documents on their behalf.  Bank of America, on the other hand, required communication directly with our client through a separate HAFA phone number and could only send documents through US Mail.  In that specific case, the documents never arrived and our client had difficulty understanding the requirement complexities by phone.  So, the frustration of not being able to communicate directly with Bank of America on our client’s behalf is complicating any pre-qualification.  In the midst of those delays, the buyer found another home and we are back to the starting point.

So, no successful HAFA short sales to date, but the program is new.  I would still encourage anyone who believes they qualify to consult their lender and start the process.

Interested in a Free Assessment of Your Home for a Short Sale?