Carly is the first one you see when entering San Carlos City Hall.  She is knowledgeable, friendly and informative.  She also happens to be a computer.  The friendly clerk that was essentially outsourced for a computer no longer occupies that position.  Times have changed in San Carlos, and they are about to change even more.

Whether to outsource a variety of services, including police and fire services, will be up for negotiation before the council next week. From what I have gathered in the community, there are two prevailing opinions forming in San Carlos on this issue:

Opinion #1

Nobody wants to see the outsourcing of our city services, but it is time for San Carlos to get real and deal with its deficit.  Additional tax measures are not the answer.  San Carlos needs to live within its means and keep cutting selectively, until a balanced budget is in place.  If outsourcing is a reasonable alternative, and does not interfere with safety, bring it on.

Opinion #2

Outsourcing is not the answer for San Carlos. San Carlos has built its reputation on being a tight-knit community. Having our city services handled in-town is part of what makes San Carlos special.  The minute we outsource those services, the “community” aspect of San Carlos is suddenly diluted, if even by a little.  Nobody like additional taxes, but we are willing to pay a little more to preserve all that makes San Carlos special.

Some other points to consider:

If the council does decide to outsource some city services, it would be a stretch to say that San Carlos would ever bring those services back under the umbrella of San Carlos.  Once they’re gone…they’re gone.

It would be naive to believe that outsourcing would not have some effect on safety and/or efficiency.  Granted, the level is probably not that far from being negligible, but there is something to be said for “in-town” police and fire departments.

Where does the outsourcing stop? Should other city services be considered for outsourcing?

Conclusion

At this point, nothing should be off the table.  The council should be exploring any and all options to help balance the budget.  My two cents would be to stay away from outsourcing.  I think San Carlos as a whole does take a hit on its “community” reputation and I do think there is some truth in the safety/efficiency arguments.  Nobody wants to see our city departments cut back even more, but it may be a better alternative than outsourcing our services. The end goal is to do what is in the best interest of San Carlos, not a particular department or service provider. However, tough cuts are going to change the landscape in San Carlos.

With all do respect to Carly, I have to believe that outsourcing is one step closer to a distant more robotic approach to city services in a city that prides itself on personal interaction and community.

Love it or hate it, Proposition 13: The People’s Initiative to Limit Property Taxation, is about to go even further under the microscope.  Proposition 13 is directly related to many of the budget shortfalls in San Carlos, from all of the department budgets at City Hall to the San Carlos School District.  Below I have detailed the full history of Proposition 13 as well as its current effect on San Carlos.

Where Proposition 13 came from

Passed by California voters on June 6, 1978, Proposition 13 gained national attention and was a main player in the “taxpayer revolt” of the early 1980s.  Origins of Proposition 13 can be traced back to a 1976 California Supreme Court Case, Serrano v. Priest. This case illuminated California’s inability to abide by its own constitution as well as the 14th Amendment of the U.S. Constitution (which deals with equal protection).  The California Constitution stated that the legislature was to provide a free education for each school district in the state.  The 14^th Amendment states that all have the right to equal protection under the law.  The essence of the court ruling was that the amount of funding going to different districts was inadvertently favoring the more wealthy school districts, and thus other districts were not receiving the same “equal protection” as other school districts in California.

Put more succinctly, districts with higher property valuations were able to fund their schools at a lower percentage of property taxes, than those districts which did not have high property values.

Concurrently, California was experiencing massive growth in all areas, and property values were rising.  Without the cap on property taxes, many retired Californians were subjected to constantly increasing taxes each year.

The combination of the court ruling, a surge in property valuations and palpable public angst over out-of-control taxes, the legislature was forced to come up with a suitable answer to the escalating property tax issue.

Enter Proposition 13

Proposition 13 was the popular answer.  After being placed on the ballot the measure passed with 65% of the vote.  All but three counties in California voted in favor of the measure.

The passage of Proposition 13 meant that:

(1)  The annual real estate tax on a parcel of property was limited to 1% of its value.

(2)  The assessed value could only be increased by a maximum of 2% per year, until a change of ownership exists.

How Proposition 13 has affected San Carlos schools:

To say that San Carlos schools have been crushed by the ramification of Proposition 13 is an understatement.  When Proposition 13 passed, the local revenue that was once plentiful was cut by over 57%.  As a result, the State of California had to step in and start to take over more of the funding of items such as San Carlos schools.  The irony of this situation is that San Carlos thought it was doing its citizens a favor in the late 1970s by lowering the amount of its local property taxes that were to be earmarked for public schools.  When San Carlos lowered this amount, the State froze that percentage and has made San Carlos exist on that low percentage ever since.  In the late 1970s, supporters of Proposition 13 assured everyone that the State of California would make up the difference with any budget shortfalls to the schools.  Obviously, this never happened.  Not only did the State not make up the difference, the State instead started to raid the low levels of funding for other needs.  Throughout the last 12 years San Carlos has been asked to do more with less money.  Our schools switched over to a charter system as a way of attracting out of district students and maximizing its funding.  The schools are essentially on life support and depend on parcel taxes, volunteerism, fundraising and the herculean efforts of the San Carlos Education Foundation, just to keep its head above water and keep the programs that have made it a wonderful educational experience for so many.

How Proposition 13 has affected the City of San Carlos:

Proposition 13 drastically cut the amount of local property taxes received by the City of San Carlos.  In addition, State of California has been consistently taking a larger piece of the pie which is used to fund the city.  The result is a fiscal emergency.

What’s being done?

The obvious answer is to modify the strict guidelines of Proposition 13.  The problem is that most politicians will not venture near the topic for fear of the massive political clout and money behind the supporters of Proposition 13.  As many baby boomers continue to retire in California and depend on the benefits of Proposition 13, you can expect even more pushback against any talk of modification.

Many cities similar to San Carlos have added parcel taxes, utilities taxes, transfer taxes, increased sales taxes….basically anything that would give them an additional revenue stream.  San Carlos sent Measure U (sales tax increase) to defeat in November which would have helped close the current budget shortfall from 3.5M to 1.5M.

Summary

Proposition 13 is not solely to blame for the current crisis in our schools and city, but it is a significant contributor.  Something has to give.  After internal budget cuts are made and tax increases are voted down, we need to find a way to keep more of our local property taxes.

Click here to view the full KPIX Report on the San Carlos Fire Department and possible outsourcing.

There is a lot of confusion over short sales.  They are a bit of a mystery to the general public and many agents struggle with them as well.  Before we go into the wonderful world of short sales, I believe that I should explain why I believe San Carlos may start to see more and more of them on the horizon.

Why will Short Sales become more common in San Carlos?

Anyone currently looking for a home in San Carlos will tell you just how awful the inventory situation has become.  Here we are in March and we only have 30 homes on the market.  Not much to choose from and those homes that are attractive to buyers are receiving multiple bids.  Why is inventory so low?  Quite frankly, sellers are not selling unless (1) they absolutely have to; (2) there is a job transfer (3) they are secure enough with their job and finances that they can take advantage of the move-up market; and finally (4) the home is the product of a probate or trust sale.  The result….very little inventory, as these are not groups that typically produce decent levels of inventory in a down economy.  So what would lead to a sudden change in short sale activity?  The answer lies with (1) above….people not selling unless they absolutely have to.  Based on my recent experience of meeting with sellers in San Carlos over the last six months, I think it is safe to say that we have a number of families just barely hanging on.

Many of these families who bought in the last two years with a lower than 20% down payment may not be able to sell their home and get out of the transaction without having to come to the table with a check to cover the deficiency.    Once all other options are exhausted, the families will have two choices (1) Foreclosure; and (2) a Short Sale.

Why Short Sales are more attractive for sellers

The thought of having to leave a home for financial reasons is perhaps one of the most difficult decisions a family can make.  Most families in this situation are aware of letting the home go to foreclosure as a possible option.  The problem with this route is that a foreclosure will typically remain on the seller’s credit report for 7-10 years and greatly reduce their credit score. Additionally, if any of the loans on the property are non-purchase money loans, the lender can foreclose and possibly institute a legal action to recover the deficiency.

If a short sale is completed, and completed correctly, all of the loan balances will be satisfied.  Whether they are a purchase money loan or a non-purchase money loan is irrelevant.  A short sale will lower your credit score as well, but it is not nearly as devastating as a foreclosure would be.  Most short sales show up on a credit report as something similar to “debtor and creditor reached an agreement to settle for less than the amount owed”.

How exactly does a Short Sale work?

The mechanics of a short sale are as follows:  The seller puts the home on the market, as they would do if they were attempting a regular sale.  The fact that it is a short sale must be declared on the MLS and to prospective buyers.  Once the sellers find an offer they would like to accept, they can do so.  However, the seller’s agent will have the buyers and sellers sign a Short Sale Addendum, which essentially states that the seller will only be obligated to sell the house to the buyer when and if all current lien holders reduce their balances owed in a manner that would allow the prospective purchase price to satisfy all outstanding balances.  Next, the bank or banks, depending on the number of loans on the property, are informed that the seller is in financial trouble and attempting a short sale.

The next step is tricky, and it is where most short sales fall apart. The bank will then ask for a Short Sale Package to be sent in to their loss mitigation department.  The Short Sale Package differs slightly from bank to bank, but basically consists of the following:  A hardship letter from the sellers, a completed financial package from the sellers, bank statements from the sellers and a copy of the proposed purchase agreement.  The goal of the seller’s agent is to get the Short Sale Package in front of a negotiator at the bank who will make two determinations: (1) whether the hardship actually exists; and (2) try to determine if the price offered by the buyer is the fair market value of the home.  If the answer to both of these questions is answered in the affirmative, the short sale moves forward to be negotiated by all parties.  Most short sales tend to fall apart at this juncture because they never get in front of the negotiator, or at least in front of a negotiator that does not re-assign the file.

Why do the majority of Short Sales fail?

Most agents have not completed short sales.  They are a relatively new phenomenon to the peninsula.  Consequently, many buyers and sellers do not have their expectations set correctly and end up getting frustrated and abandon the process. Here are two more reasons why short sales generally fail:

(1) Just getting the short sale package to the bank is difficult.  As mentioned in a previous short sale post, we once spent 40+ days trying to fax in the Short Sale Package.  Quite simply, the loss mitigation departments in the big banks are completely overwhelmed and understaffed.

(2) If a seller is not organized or not thorough with record keeping and information gathering, the transaction will be over before it begins.  Banks have no patience to keep after the seller for incomplete items in the Short Sale Package.  If something is missing or out of place, it will be given back to the seller’s agent and the file will go right to the bottom of the file and the process will start over again.

(3) Often sellers wait until it is too late to start a proper short sale and the prospective short sale is pre-empted by foreclosure.

The benefits of Short Sales

The seller gets out from under the home and does so without a foreclosure on their record.  The benefit for the buyer is that they generally purchase a home for slightly under fair market value.  Homes that are short sales are generally priced a little under fair market value for two reasons: (1) the seller’s agent should understand that they are going to need to give some incentive for the buyer to stick with a process that could take six months and has no assurance of actually closing; and (2) the bank may come back and ask for more money from the seller when negotiating the short sale.

If you are considering a Short Sale, be aware of the following

These are complex transactions and should only be attempted after advice from an accountant (for any tax ramifications), a legal consultation and the input of an agent experienced in short sales.

You will need to exercise a good deal of patience and understand that the process is long and frustrating at times.

Summary

Short sales will be appearing more frequently in San Carlos in the months to come.  Buyers and sellers should educate themselves on the process so that they can make the right call when the time comes.  If executed correctly, a short sale can be a life-saver for a seller and a true bargain for a buyer.

The previous post from today regarding the police message has been deleted because of conflicting information.  I spoke with the San Carlos Police Department this afternoon and they do not have any record of the message regarding a carjacking in nearby towns under the scenario which was described.  Whether the message is a fraud or just someone (falsely claiming to be from the police department) floating incorrect information is unclear. We are continuing to ascertain the origin.

Thanks for your patience and I will update you as soon as we have more.

Bob Bredel

Everything from an intro to rock band, to medieval adventures, to gifted programs.  San Carlos has a lot to offer students of all ages for Summer of 2010. Please see below:

Move over Brad Lewis….you have company.  San Carlos native Kathryn Bigelow made history last night when she became the first female to win an Oscar in the category of “Best Director” for her film “The Hurt Locker.”  She now joins Dana Carvey & Barry Bonds as the most famous native San Carlans.

>>>To read the complete press release, click here.

A well organized and passionate group of San Carlos residents are doing everything possible to communicate their desire to keep our parks open.  Last month, the San Carlos Parks and Recreation Department announced that they would be recommending the closure of Crestview Park, Arguello Park, Laureola Park and the Youth Center, as part of their mandatory budget cutbacks.  Their recommendations are scheduled to be discussed by the San Carlos City Council.

A group going by the name “Keep San Carlos Parks Open” has their own blog dedicated to the effort to save our parks from closure.  A link to that site can be found by clicking here. Additionally, you can join their Facebook group by clicking here. As of the Friday morning, the group has already assembled 723 members. Finally, the group has a specific “call to action” that can be found in the PDF below as well as on their blog and Facebook group page.  Please consider joining this worthwhile cause.

Remember why you moved here.

With all that is going on in our town recently it is easy to get caught up in an avalanche of negativity.  Lost somewhere between budget deficits, school boundaries, synthetic fields and tax increases, are the reasons many of us moved here in the first place.

Over the past three years I have occasionally posted articles that asked San Carlans what they liked best about San Carlos.  The following is a compilation of what your neighbors had to say when asked:

Words you think of to describe San Carlos:

Progressive

Community oriented

Volunteerism

Generous

Educated

Proud

Active

Family-friendly

Tolerant

The best parts about San Carlos:

San Carlos Schools

Laurel Street

Hometown Days

Art and Wine Festival

Music in the Park

San Carlos Educational Foundation

Chicken’s Ball

Burton Park

Week of the Family

Eucalyptus during Christmas

Hiller Aviation Museum

I have a lot of confidence in San Carlos. Times are tough and it is easy to dwell on all that is currently wrong with San Carlos.  However, my personal belief is that everything which makes San Carlos unique is still here and will continue to make San Carlos a special place to live.  I want say thank you to San Carlos Blog reader, Dave M., for his contributions to this post.

If you have other items that you would like to add to this list, please do so below.  If you have your own story of why you chose to live in San Carlos and would like to share it below, please feel free to do so….and remember why you moved here.

The recent loan modification programs for most big banks were set into motion as a part of the Obama Stimulus Plan.  75 Billion dollars was set aside to help homeowners who found themselves in over their head on their loan payments.  The reality of the situation is that less than 4% of those who apply for a loan modification are actually given a modification.  Furthermore, for those with a Bank of America mortgage, those odds are even worse with less than 1% actually receiving a modification.  Both of these statistics provided by cnnmoney.com.

In the previous three months I have met with five families in San Carlos who have applied for a mortgage modification.  All five have either been denied or wrapped up in so much red tape that they have simply given up hope after many months of jumping through hoops.  A few of these families encouraged me to write a blog article on the matter to let other San Carlos homeowners know more about the realities of the world of loan modifications.

Why the world of loan modifications is so frustrating

The first obstacle to dodge when seeking a loan modification is the hundreds, if not thousands, of scams.  Unfortunately, there are many looking to capitalize on the fear and misfortune of others. Be aware of any loan modification firm asking for a substantial amount of money up front.  Reputable loan modification firms will be paid after the modification takes place.  Next, many of the bigger banks will blame the consumer for the lack of organization when submitting their paperwork, and thus the reason for the low conversion rates on loan modifications.  While I am sure that there are a high number of individuals who have applied for a loan modification and not been organized, I can tell you that there is an equally high number of folks who are very organized and done everything asked of them without so much as a return phone call from the bank.

Here’s an example:  I recently had a client trying to procure a short sale with Bank of America.  The documents to be submitted for a short sale are very similar to that of a loan modification and the process is very similar as well.  We had all documents perfectly organized and were told to fax them to a particular Bank of America number, which we did…..about 187 times without success.  For one and a half months we tried to fax the documents hourly, every day, at all times of day, only to receive a busy signal.  The bank would not give us another number to fax to and we had to continue to fax to that particular number.  We tried all hours of the day, even a 2:00 am and 5:00 faxing, which still received busy signals.  Finally, on about the 45th day, it went through.  We called three days later to confirm receipt and they claimed we did not fax all of the documents necessary (even though we had) and that we needed to resubmit the entire fax again, as one.  We were successful the following week, only to be told three weeks later that Bank of America was switching the doc gathering process to a new online system which would require us to forget everything we had done the previous three months and start the process all over again on their new system.  You can see where the frustration begins to overtake the situation and borrowers simply throw their hands up.

The process is set up to fail, both on the loan modification side and usually on the short sale side as well.  Regardless of what they may say publicly, I find it impossible to believe that banks are  making the best and most efficient use of the stimulus money intended to help buyers in a loan modification situation.

The Incentive

The process is set up to fail.  I have nothing to base this on other than common sense, but at a certain point you have to wonder why the process is so badly flawed.  Is there an incentive for these banks to foreclose on the property rather than work with the borrower on either modifying the loan or allowing a short sale?  That depends on who you believe.  This much is true, if a bank cuts the value of a property either through a loan modification or short sale, the bank needs to record the new, lower value on their balance sheet.  However, the longer they stall the loan modification or short sale, the longer they get to keep the higher home value on their books.  Complicating matters is the fact that most mortgages are securitized and then sliced and diced among many different investors, many of whom are from far away places such as China and Europe.  All of these investors will want some say in the matter as well, which further complicates the process.

When to pull the plug

If you are organized and have done everything possible to obtain a loan modification and not had success, be prepared to move on.  Too many times homeowners wait until the home modification process has taken them into the start of the foreclosure process. If the home modification option does not pan out, homeowners should at least explore the option of a short sale.  However, you need to make sure that you have enough time to make a proper run at a short sale, which takes time. Homeowners need to do everything possible to avoid foreclosure.

The truth about foreclosure

The truth is that foreclosure will devastate your credit for the next 7 to 10 years.  Additionally, many do not understand the rules in California regarding a deficiency judgment.  Thankfully, California has what are called “anti-deficiency judgment statutes,” which protect home borrowers from the bank claiming a deficiency judgment against them if the proceeds from the foreclosure are not adequate to cover the balance due. In other words, if a homeowner owes $800,000 on their mortgage and the house goes into foreclosure and only nets $700,000 on the sale, the bank is prohibited from chasing down the owner for the remaining $100,000.  However, there are exceptions to the anti-deficiency judgment statutes.  The statutes only apply to what are called, “purchase money loans.”  In other words, it only applies to loans on the property that were used to purchase the home.  If a homeowner purchases a home and takes cash out through a refinance or adds a credit line against the property, those amounts are most likely not subject to the protection of the anti-deficiency judgment statutes.  Theoretically, a homeowner with a non-purchase money loan on the property could be foreclosed upon and end up owing the balance due on the loan, plus fees, on the uncovered balance of the loan(s).  This fact should add more fuel to the fire for homeowners to examine a short sale after attempting a loan modification.