Archive for June, 2014

Recession Amendments to California’s Anti-Deficiency Laws

During the recent recession, California’s legislature has amended the real estate anti-deficiency laws in the Code of Civil Procedure in three important ways:

No Deficiency Judgment for Approved Short Sales: SB 931 added subsection “e” to CCP Section 580, which prohibited any first lender who approved a short sale from obtaining a deficiency judgment against the seller.  Subsequently, the enactment of SB 458 provided that any home mortgage lenders who approved short sale transactions, which closed escrow, thereby released the borrower from any deficiency, for senior and junior trust deeds, purchase money and recourse loans, owner occupied homes, second homes, vacant homes, and investor properties with one to four residential units; and, further, lenders could no longer require sellers to contribute money as a condition for short sale approval.

Purchase Money Loan Protection Extended to Refinance Loans: Prior to January 2013, California law protected borrowers from personal liability at foreclosure for the difference between the principal balance and what a lender receives if the loan was a purchase money loan secured by an owner occupied property with one to four residential units. SB 1069 extended this anti-deficiency protection to include any loan used to refinance the purchase money loan, plus any loan fees, costs and related expenses for the refinance. This anti-deficiency protection does not extend to any cash-out refinance when the lender advances new principal.

No Collection Actions Against the Borrower: Even though lenders could not obtain a deficiency judgment for a purchase money loan under CCP 580b, some lenders made it a practice to report these debts as delinquent on the debtor’s credit reports, and to seek payment on the deficiency from the borrower, or they would sell the debt to a third party who then pursued collection. SB 426 amended CCP 580b and 580d to add that no deficiency “shall be owed or collected” under the circumstances covered by the above statutes. The legislature subsequently clarified the statute does not affect the liability a guarantor might otherwise have with respect to the deficiency, or that might otherwise be satisfied from other collateral pledged to secure the obligation.

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Central Valley Development Opportunities

Regal Properties, and its affiliate, Capital Real Estate Solutions LLC (“CRES”), desire to align with one or more capital partners for the purpose of acquiring completed, partially completed, and in-fill, entitled, detached, single-family home subdivisions.

Our team has a unique ability to find and acquire attractive land opportunities. After acquiring from a local bank a small completed subdivision in Kerman (suburb of Fresno), we began exploring the Central Valley market more thoroughly. We strongly believe the residential market is currently experiencing a solid recovery, and there will be an acceleration of home building in Fresno and the surrounding areas. All of the publicly-held home building companies have already began, or will soon begin, construction in these targeted communities.regal

Our goal is to acquire as many of these projects as possible which fit our specific criteria — projects in a meaningful location, in markets that are already or soon will be emerging, which we can hold for maximum investment returns driven by future market conditions. Our extremely thorough due diligence process ensures all aspects of any given property are fully understood prior to acquisition. The exit strategy will be to sell the homes to consumers or create pools of rental properties which are sold to equity investors. Profit maximization will be the key decision-making criterion.

We have solid banking relationships in this region and have already done multiple transactions with one of these lenders.  Local banks have demonstrated they will provide us with exceptional financing terms, not available to other local builders and developers, on a deal-by-deal basis.

We have already identified several opportunities which we are prepared to acquire when adequately capitalized, and we are currently in the process of moving 3 transactions from agreed Letters of Intent to executed Purchase Agreements.  These off-market opportunities, recently presented to us as a bulk deal by a publicly held home builder, became available due to an unusual internal circumstance. Because of a solid working relationship, and our reputation with this builder, they approached us and we struck a deal.

We have also been offered, with very attractive returns, the opportunity to furnish equity for existing projects which have a need for capital, in the Bakersfield and Fresno areas.  We are currently analyzing these opportunities.

Regal Properties and CRES have assembled residential development opportunities in these Central Valley cities:

Fresno, California

Fresno is the county seat of Fresno County, and one of the fastest growing areas in California.  The Central Valley of California is known as “the breadbasket of America” due to the prodigious output of agricultural products.  Even though California has experienced a significant draught in recent years, the prices for agricultural products have skyrocketed and the local farming community has flourished.  Additionally, the advancement in technology for oil extraction has rekindled the dormant oil industry and created a mini “oil boom” in the Central Valley.

The 2013 census reports Fresno’s population as 509,000, making it the 5th largest city in the state and the 34th largest in the nation.  It is, by far, the largest inland city in the state, and the Fresno Metropolitan population is now 1,107,000.

Fresno proper is home to 5 four-year universities and 2 community colleges and has one of the largest Enterprise Zones in California.

Even though the Central Valley suffered greatly with the economic downturn beginning in 2006, it is currently rebounding at the fastest rate of any area in the state.  Housing prices have increased at an average annual rate of 20% over the last two years.  Every major national home builder is represented in the Valley.

Kerman, California

The City of Kerman California is a bucolic farming community located 15 miles west of downtown Fresno.  The town boasts a beautiful historic main street dating back to the mid-1800’s when the city was a major rail stop.  With a population of only 14,300, Kerman had population growth of 5.6% from April 2010 through April 2012, almost triple the State of California’s growth of 2.0%. Walmart has just opened a Super Store that compliments a full range of services currently offered in the city, along with other major retailers such as CVS and Rite Aid. Currently, there is no residential construction taking place in Kerman, and very little existing home inventory on the market.

Madera, California

Madera, population 62,000, offers an affordable alternative to the cities of Fresno and Clovis.  Located only 23 miles north of Fresno on Highway 99, residents will benefit from ease of access to Fresno’s major employment, airport, hospitals, dining and family entertainment.

Tulare, California

Tulare, population 61,000, is located approximately 30 miles south of Fresno, and is favored by many as a bedroom community.

Sanger, California

Sanger, population 25,000, is located just a few miles east of Fresno.

Los Banos, California

Los Banos, population 36,000, is located northeast of Fresno at the upper end of the Central Valley, within reasonable commuting distance of Silicon Valley.

Bakersfield, California

Bakersfield is located on the southern end of the Central Valley and is the second largest city in the valley after Fresno.  Bakersfield is a fast growing city with a population of 360,000, and is headquarters to the oil boom currently occurring.

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