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Palos Verdes Drive Area Home Sales in 2009

There are more than a dozen sub-areas on the Palos Verdes peninsula and a handful of towns and cities. The Palos Verdes Drive North area straddles Rolling Hills Estates and the town of Palos Verdes Peninsula. The number of single family homes sold here last year increased by close to 30 percent from 2008. However, with a total of 43 home sales, the area remains well below the peak year of 2000 for total sales. Though this recent increase in sales is certainly good news, the median sales price continued its slide last year as home values dropped an additional 15 percent. Interestingly there were no homes sold here for over $2,000,000 last year. In 2008, even though there were fewer overall sales, there were five homes sold above this threshold.

The number of sales looks to continue its climb. There have already been six closings this past month and there are 11 homes in escrow. Of the homes still in escrow, four started the process last year. The median price of the closed sales exceeds the 2009 number, but there are far too few data points to draw any real conclusions from this.

In the last few years, there has only been one sale of a newly built home. In fact, less than five percent of all homes sold here since the beginning of 2005 were built after 2000. This is part of the reason that the home values have not risen here as rapidly as nearby cities over the past decade, but they have done very well, nonetheless. Back in 2000, the median sales price was $720,000 and last year it was over $1,120,000, which just happens to be the lowest value it has had since 2003. Current pricing here, like many areas in the South Bay, appears to be consistent with late 2004 prices.

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If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. For Federal tax purposes, in many instances the debt forgiven on principal residences may be excluded from taxable income. This was discussed by me in a separate blog entry at Debt Forgiveness - Taxable Income for Federal Tax Purposes?.

California law, SB 1055, conforms California Revenue and Tax Code Section 17144.5 with federal law, the Mortgage Forgiveness Debt Relief Act of 2007, with the following exceptions:

(1) The maximum amount of acquisition indebtedness is reduced to $800,000 for couples filing jointly and $400,000 for individual filers;

(2) The maximum amount of debt relief income that can be forgiven is $250,000 for couples filing jointly and $125,000 for individual filers; and

(3) California's debt relief statute applies to property sold on or after January 1, 2007 and before January 1, 2009. At this time, there is no debt forgiveness relief for California taxpayers for property sold or foreclosed on after January 1, 2009 .

In California, purchase money home loans are considered nonrecourse because lenders are prohibited from seeking a deficiency judgment against the borrower after a foreclosure sale of real property that secures a purchase money loan. CCP §580. ( The requirements for a purchase money mortgage are discussed in my blog entry Short Sales and California Anti-Deficiency Laws ). A loan is nonrecourse if the lender's only remedy in case of default is to repossess the secured property (because the lender cannot reach the borrower's other assets to satisfy any shortfall). Under these circumstances, the unpaid principal balance of the mortgage is not seen as being "forgiven" or "cancelled" and does not cause the borrower to have cancellation of indebtedness income. Treas Reg §1.1001-2(a)(4)(i) and (c), Examples 7-8; IRS Letter Ruling 9302001. Thus, there would be no debt foregiveness in California for those who had used purchase money indebtedness to acquire or substantially improve a principal residence. Such homeowners would not have cancellation of indebtedness income to exclude because their loans were considered nonrecourse in the first place. ( Source: http://ceb.com/lawalerts/reflectionsloanforeclosures.asp?WT.mc_id=la_4415 Continuig Education of the Bar website ).

I think that it is completely unfair that California has not passed an extension of the law to conform California tax law with the Federal Debt Forgiveness provisions. It is tragic that a homeowner who does not have a purchase money mortgage and has lost their home through foreclosure or a short sale has not only lost a large amount of money , but may also owe a large amount of state income taxes as well because of debt forgiveness.

**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**

Advantages of a Short Sale versus a foreclosure are as follows:

1 )Impact on Credit Score Less: This option usually results in less impact to the borrowers credit rating than a foreclosure, as it demonstrates that the financial difficulties were primarily due to a loss in value of the property, and not to factors in control of the borrower. Only late payments will be recorded by the credit companies and the short sale will normailly be reported as paid or negotiated. The effect of a short sale on your credit may be limited to only 12 to 18 months or as little as 50 points if payments stay current. In a foreclosure, the credit score is typically lowered from 250 to over 300 points and could affect your credit score for over 3 years.

2) Credit History: Foreclosures will remain on a credit history for 10 years or more. Short sales, however, are not reported on a credit history and are typically reported as "paid in full, settled"

3) Future Loan from Fannie Mae for Principal Reidence: A borrower will normally be able to get another Fannie Mae loan after only 2 years after a short sale. After a foreclosure, a borrower is ineligible for a Fannie Mae loan for 5 years

4) Future Loan from another mortgage company for conventional financing: On the form 1003 Credit Application required by lenders, a borrower must answer yes to question G in Section VIII of form 1003 that asks "have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years", which will affect the borrowers approval probability or the interest rate to be paid. There is no similar question dealing with a short sale.

5) Security Clearances: If a person has a foreclosure and is a police officer, in the military, in the CIA or any other position that requires a security clearance, the clearance will be revoked and employment will be terminated. A short sale on its own does not challenge most security clearances.

Why would a lender agree to a short-sale instead of a foreclosure action?

1) The lender could become responsible for many unpaid fees related to the property upon foreclosure, including unpaid HOA fees, property taxes, utilities, etc.
2) The lender avoids the time delays and uncertainty involved in marketing the property after foreclosure. They also avoid such costs of marketing the property as advertising.
3) The lender avoids the extensive costs of the foreclosure process including attorney's fees, possible delays due to bankruptcy filings, as well as possible deterioration of the property during the period it is owned by the lender after foreclosure.
4) if the property contains hazardous materials, particularly asbestos, lenders are often reluctant to take title to property with such materials as it puts them on the "chain of title" in case liability claims are raised due to the presence of asbestos.

The major disadvantage to a borrower relating to a short sale is the very time consuming and complex process of completing a short sale.

Deed in lieu of Foreclosure: This option is where the borrower executes a grant deed to the lender instead of the lender going through the expense and delay of the foreclosure process. This process, however, has risks for the lender as they accept title to the property, including liability for other junior liens on the property, including mechanics liens, etc. that otherwise would have been extinguished and removed during the foreclosure process. This option is also preferable than a foreclosure process for a borrowers credit rating, however has a greater impact on the borrowers credit rating than a short sale.

I have had several issues arise recently in several short sale transactions where the potential liability to our clients for a deficiency judgment was in question. The following comments relate to the anti-deficiency statutes in the State of California CCP § 580b thru (d) relating to purchase money mortgages. A deficiency is the difference between the amount owed and what the lender was able to recover through foreclosure. These issues were discussed with an attorney with the California Association of Realtors on their legal hotline.

1. If a mortgage satisfies the conditions of a purchase money mortgage under these statutes at the time the mortgage is made, then if the property is later converted to an investment property and rented out, the status of the mortgage as a purchase money mortgage is not changed. To qualify as a purchase money mortgage in California, the loan must be obtained at the time of purchase of the borrowers principal residence. This can include a second mortgage obtained at the time of purchase. Although the legal issue as to whether a home equity line of credit used to purchase a home would qualify as a purchase money mortgage has not yet been fully addressed through case law, most attorneys believe that if the loan was only used to purchase the property and additional draws for other purposes were not taken, the home equity line should qualify as a purchase money mortgage. If the initial loan was refinanced, even if no additional proceeds were drawn and the refinance was only a change in interest rate or terms, the new loan would not qualify as a purchase money mortgage and would be recourse. This is a major issue with those borrowers who have recently modified their loans which are in default, because they may have unknowingly converted their purchase money non-recourse loan to a fully recourse loan, and exposed themselvers to a potential large deficiency judgment.

2. In obtaining a release from the lien of either a first or second lender in a short sale, even if the loans are purchase money mortgages, it is imperative that a full release from both the mortgage lien as well as the promissory note is obtained, otherwise the lender may pursue a deficiency judgment since the lender did not go through foreclosure. Releasing the lien on the property is not enough since the property just serves as security for the promissory note. You must get a full release on the note as well. Often times a second mortgagee will negotiate with the borrower as to what they will require to be paid, either from the sale proceeds ( as allowed by the first mortgagee) or from the seller contribution, but this may be just for obtaining their release of the lien, and you need to make sure they will also give a full release of the promissory note, otherwise they could pursue a deficiency judgment after the short sale is closed.

3. If a second mortgage is a purchase money mortgage, and the first mortgage forecloses out the second mortgage, the second mortgage is precluded from pursuing a deficiency judgment as the borrower is protected by California anti-deficiency laws. Under Code Civ Proc, § 580b, the holder of a note secured by a purchase money second trust deed may not recover even though the second trust deed had become worthless by reason of a sale conducted under the senior first deed of trust. Barash v. Wood (1969, Cal App 2d Dist) 3 Cal App 3d 248, 83 Cal Rptr 153, 1969 Cal App LEXIS 1377.

4. If the first and second mortgages are recourse and not purchase money mortgages, and the property is foreclosed on, it is important as to who initiated the foreclosure. If the first forecloses on the property and wipes out the second mortgage, the second mortgage holder can pursue a deficiency judgment against the borrower. If the second mortgage holder forecloses on the property and takes over the property, they would not be able to pursue a deficiency judgment. In California, this is known as the "one-action" rule. A lender can not both go through a non-judicial foreclosure ( foreclose on the deed of trust )and then sue to collect a deficiency judgment, however they could choose to go through a judicial foreclosure where they are not simply foreclosing on the deed of trust through a trustees sale, but instead are suing the borrower for title as well as a deficiency judgment. This is not often done as it is much more expensive and time consuming to go through a judicial foreclosure.

The above information is provided for educational purposes only and is not intended to be definitive legal advice. The specific facts of a case can have significant impact . Anyone going through a short sale or foreclosure should obtain legal counsel from a licensed real estate attorney.

The real estate market for the Palos Verdes Peninsula and Beach Cities picked up substantially in the fourth quarter 2009. Both buyers and sellers stepped up to buy and sell. Properties that were sitting for many months sold at all levels of the market. High end properties are selling as jumbo loans have become more available. Buyers who can get financing are actively looking and aggressively offering where they see a deal. Sellers who are motivated to move are pricing their homes to sell.

News reports are mixing in some good economic news in addition to the doomsday reports favored by the media. Lower priced homes are moving briskly with buyers taking advantage of significant discounts and record low interest rates. New tax credits are also giving great incentives to new buyers.

PRICE CHANGES - Properties on average, in the South Bay are selling for approx. 96% of list price. The average price per sq. ft. for homes sold in the fourth quarter 2009 compared to the fourth quarter 2008, has fallen much less in the South Bay Beach Cities than in most markets in Southern California. Recent news reports have indicated that prices may be stabilizing in Southern California. The median price of homes in Los Angeles County has also been increasing lately due to an increase in the number of more expensive homes being sold because of the improving market for jumbo loans.

Quarterly changes in sales volumes in the beach cities compared to last year varied widely, with some strong increases in sales volumes on the Palos Verdes Peninsula, Manhattan Beach/Hermosa Beach, and Redondo Beach, but flat sales in Torrance and San Pedro.

Location	2009 4th Qtr. Sales	% Change 4th Qtr. 2008	Days on Market	Months Inventory
	Sales Price Per Sq. Ft.	# of Houses	Sales Price Per Sq. Ft.	Sales Volume
Palos Verdes Estates	$572	30	4%	200%	153	6
RPV, RHE, & PVP	455	109	3%	70%	80	4
Rolling Hills	627	5	(3%)	NA	82	5
Manhattan Beach/Hermosa	634	108	(13%)	83%	84	3
Redondo Beach	427	92	( 5% )	18%	62	3
Torrance	370	199	5%	3%	47	2
San Pedro	309	78	( 4% )	(4% )	68	3

I have also posted below detailed market reports for each of the neighborhoods on the Palos Verdes Peninsula which lists the homes sold in each neighborhood during the 4th Quarter of 2009.

INVENTORY - The total inventory of single family homes for sale in the cities listed above has decreased significantly during the last quarter. For most of the last two decades, L.A. County has averaged an 8 month inventory. The number of months of inventory of homes in the South Bay has shrunk significantly in the last year. Homes in the lower end of the price range in the higher priced market of the Palos Verdes Peninsula and Manhattan Beach have been also selling faster than the higher priced homes.

What is a Short Sale?

CDPE - Certified Distressed Property Expert

Short Sales are a sale of a property where the sale proceeds are not adequate to pay off the existing loans, requiring the lender to agree to accept less than full payment of their loan. At this time, the fastest growing segment of the distressed property market is the luxury market. I am a Certified Distressed Property Expert, and those realtors that have this designation have a success rate of 85-90% closing short sales, compared to a national average of 8-10% successful closings. Whether it is caused by relocation, loss of a job or increased mortgage payments, everyone at some point has been touched by the worldwide economic downturn. If you know someone who may need some help lease don't hesitate to call or refer our services.

IT'S ALL ABOUT THE INTERNET. We invite you to visit our award winning website at www.maureenmegowan.com. Our website achieves extremely high placement on search engine results, such as "Palos Verdes Real Estate" and "South Bay Real Estate" on Google, for people using the internet to buy a home in Palos Verdes or the South Bay beach communities. This has made us a leader in serving relocation clients.

TAX INCENTIVES: The Federal government's $8,000 tax credit for first time home buyers was extended for homes purchased through 4/30/2010 with a purchase price of $800,000 or less, with a new $6,500 home buyer's credit for existing homeowners. There are also substantial tax credits for qualifying energy saving expenditures. For more info, visit the following link on my website: Income Tax Issues

FINANCING (See our web blog for rate updates):

BUYERS AND SELLERS TAKE HEART! There is financing available for well qualified buyers due to the Federal Reserve's aggressive action in purchasing Fannie Mae and Freddie Mac securities. Extension of this loan funding program is not certain at this time. Funds for this program may run out by the end of the 1^st quarter of 2010 and interest rates may move up by upwards of a half point in the early part of this year. There are new guidelines for Fannie Mae and Freddie Mac loans, and 3.5% down payment loans are available with tight restrictions.

BUYERS with good credit ( FICO scores above 740), an adequate down payment of 20% or more and 2 years or more employment history will qualify for Full Documentation loans. There are no Stated Loans (no documentation) offered now. If the property will be your home, not a speculative investment, you should be buying for the long term. Today's market gives buyers and sellers the opportunity to negotiate a reasonable deal for both parties.

Conforming Loans ($417,000 and below) are at approx. 4.75 %. Rates for loans between $417,000 and $729,750 (conforming jumbos) are about one-eighth to one quarter of a percentage point higher. Conforming loans generally require a 20% down payment (less for FHA or VA loans)

Interest rates on Jumbo 30 year fixed rate mortgages (loans in excess of $729,750) have decreased substantially over the last several quarters to an average rate of approx. 5.75-6.25%. The interest rate spread between 30 year fixed rate conforming loans and Jumbo 30 year fixed rate loans is approx. 75 % to 1.25 %. Jumbo loans also require a higher down payment of 25 to 30%. 7 year variable rate loans are available for jumbo loans at rates of approx. 5.25%.

All rates quoted above are as of 1/18/2010 with usually FICO Scores of at least 740.