Forgiveness of Debt and Capital Gains on Distress Sales

Forgiveness of Debt On Short Sales & Capital Gains on Trustee Sales:

This topic is so important today because of the number of homeowners receiving Notices of Default and the value of their property is less than their loans. These people need as much information as possible when they are evaluating short sale versus foreclosure, etc. Anyone who is not a tax professional should not offer tax or legal advice. I am not giving you tax or legal advice. I am giving you sources of information that can be given to friends and associates to help them.

Just Off the Press:
The IRS homepage at www.irs.gov has a new section heading, “Questions & Answers in Home Foreclosure and Debt Cancellation”. Tell everyone about this section, it will help someone, somehow, somewhere.

A Quick Summary of Foreclosure:
When a taxpayer loses a home at a Trustee Sale, the bid amount at the sale is considered their sales price and gain is calculated as in a normal sale (Sales price – Basis). If the property is a home, any capital gain can be excluded under the provisions of the $250K/$500K rules of Section 121. For more information on this calculation download page 4 from Publication 523 on the IRS website. Second thought, download all of Pub 523. It will answer many of your future questions. Short Sales & Forgiveness of Debt: Many ex-homeowners who sell their home under a lender-approved short sale are surprised when they receive a Form 1099 listing the amount forgiven as ordinary income. In my research I am amazed at the different opinions given about this situation by pundits, columnists and other experts. I strongly believe that anyone can have their own opinion but they cannot have their own set of facts. Accountants use a phrase “Safe Harbors.” My opinion is that if I see something on the IRS website it is safer to follow the IRS than some civilian’s opinion.

Is Cancellation of Debt Always Taxable:
What does IRS say? Not always. There are some exceptions. The most common situation when cancellation of debt income is not taxable involve:
•
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
•
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

California Law: A debt is considered “nonrecourse” when a loan is made under either one of the following two circumstances:

---When the loan is made to purchase a one-to-four unit property and the borrower intends to occupy at least one of the units, or

---When the seller carries back financing for all or a portion of the purchase price of any real property. (Cal. Code Civ. Proc. §580b.)

Another Info Sources: On September 24th CAR published an outstanding new Q & A, "Taxation of Foreclosures, Deeds in Lieu of Foreclosure and Short Sales". Ask me about getting a copy of this publication.

Finally: According to Inman News, a bill in Congress, HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate a provision of the tax code that allows the IRS to tax debt that's forgiven as ordinary income. To balance the loss of tax dollars IRS would tighten the rules for counting a second home, vacation or rental property as a primary resident for tax exclusion. Let's keep an eye on this bill that recently received unanimous approval from the House Committee on Ways and Means and has the support of NAR and the National Association of Homebuilders.

Assistance for Area Fire Victims Offered

Updated Thursday, October 25th at 6:45pm

Fire Update

Current containment numbers on the Ranch (Castaic) Fire:

55,756 acres burned, 70% containment.

Residents may see smoke in the Santa Clarita area as a result of interior burning happening on the Buckweed fire. This is intentional, as the Fire Department continues to clear out the aftermath of the Buckweed fire. Please do not be alarmed.

Vasquez Bridge is closed due to fires : The County is estimating that the bridge will be re-opened by November 12th.

BE AWARE OF SCAMS- Some people are taking advantage of our residents by offering services for a large deposit to clean up debris but are not performing any services. If you are offered any home improvement services and are asked to receive the permit yourself by the contractor beware; that could mean the contractor is not licensed.

Assistance Agencies

FEMA:

A local assistance center will be established by FEMA from Oct 26th - Nov 8th (M-F) 8am- 6pm (Sat- Sun) 8am- 3pm at the City of Santa Clarita Sports Complex in the Activities Center

Please pre-register by telephone (800) 621-FEMA (3362) or TTY (800) 462-7585 or online at fema.gov

American Red Cross

The Red Cross has been working hard to assist those impacted by this disaster here in Santa Clarita. If you, or someone you know lost their home or needs Red Cross Disaster assistance, you can call their temporary family services number at 661-222-3191. Their permanent main office line is 661-259-1805. The ARC is located in the Atrium Building at 23838 Valencia Blvd, Valencia.

Other Assistance:
The SCV Disaster Coalition is now prepared to accept donations that will go to help the families who were impacted by this disaster. Here's how you can help:

They are asking for donations of either gift cards or money. There are three drop off locations here in town, or you can mail your donation. You may also donate online at scvcoalition.com.

If you would like to mail your donation, please mail it to:
(make sure to make the check out to the SCV Disaster Coalition...not KHTS. )


SCV Disaster Coalition
Care Of KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351

Or you can drop a donation off at one of these locations:

Santa Clarita Senior Center
22900 Market Street
Santa Clarita, CA 91321
(661) 259-9444


Santa Clarita City Hall
23920 Valencia Boulevard,
Santa Clarita, California 91355


KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351

Statewide California Home Sales Hit 20-Year Low In September

Statewide California Home Sales Hit 20-Year Low In September

DOW JONES NEWSWIRES
October 18, 2007 5:26 p.m.

LOS ANGELES (AP)--September home sales throughout California sank to their lowest level in two decades as mortgages became harder to get, a real estate research firm said Thursday.

A total of 24,460 new and resale houses and condos were sold statewide last month. That was down 45.2% from September of 2006 and 26.8% from August, according to DataQuick Information Systems.

How to lose your home in a few easy steps

San Diego woman chased American dream, now lives in a garage

By Helen Kaiao Chang
MSNBC contributor
Updated: 5:04 p.m. PT Oct 9, 2007

SAN DIEGO - Delia Toothman once pursued the American dream of owning her own home.

Now, she is living the American nightmare.

In just three years Toothman, 30, a former Navy officer and bioscience technician in San Diego, went from $18,000 in savings to $16,000 in credit-card debt. She once lived in a home she co-owned; now she lives in her father's garage.

Toothman is just one of thousands or even hundreds of thousands of Americans who find themselves homeless and broke in the aftermath of the housing bust. Hers is a cautionary tale of hard-working and well-intentioned young woman who got swept up in the real estate madness of Southern California, helped along by what she describes as bad advice from industry professionals.

“I feel like my life is ruined,” she said in an interview, wiping away tears. “I only wanted a house. I wanted my own property."

Toothman's story began when she left the Navy in 2004 and returned to San Diego at what turned out to be the peak of the city's real estate boom. By mid-2004 the median price of a home in the metro area had risen to $520,000, up 30 percent from a year earlier. Condo prices also were up 30 percent year-over-year to a median of $368,000.

Fearful of missing out, she and her younger sister decided to buy a home together. “We just wanted to get a piece of land, something we could own, so we weren’t paying rent; we were buying,” said Toothman.

While Toothman was only qualified to buy a $360,000 home, Toothman's agent showed her properties in the $400,000 range. Her mortgage broker urged her to finance 100 percent of the purchase price with interest-only loans that would adjust in two years.

Any talk of a housing bubble was dismissed.

“I got pressure from the real estate agent and officer,” Toothman said. “The loan officer was saying, 'Oh, prices always rise on houses.' ... The thing, is get into the house and I can always refinance you after that into another loan."

“I was like, ‘I don’t know,’ but he kept on saying, ‘If you’re renting, you’re losing this much money, but the way housing prices are going up, it’s really a good investment and you get your money back in taxes,’” recalls Toothman. “I was convinced it was a good thing.”
Toothman was hardly alone.

“It’s the American dream and they got caught up in it,” said Gary Aguilar, a vice president at Springboard Non-profit Consumer Credit Management, an advisory agency based in Riverside, Calif. “Even if it didn’t make sense, a lot of people just passed ‘Go’ and went straight to the dream home.”

Now Springboard and similar agencies are being deluged with phone calls from desperate owners trying to save their homes or stave off bankruptcy.

At Springboard, representatives handled 11,000 phone calls in August, up from about 2,000 a month last year, said Aguilar.

Toothman ended up buying a $415,000 condo in June 2004. The mortgage was entirely under her name, since her sister could not qualify. But the two agreed to split the monthly payments of $2,400.

For a year, Toothman struggled with her half of the payment. Her monthly take-home pay was $2,000. She started eating at her savings to pay the mortgage.
Toothman tried to refinance the loan to lower the monthly payment, but she was unable to qualify.

In late 2005, Toothman decided to sell. But prices were already falling, and by early 2006, the condo was worth less than the outstanding balance of the mortgage, putting her "under water." Toothman’s real estate agent found a buyer who offered $350,000 – $65,000 less than what was owed.

The only way she could sell was if the two lenders agreed to a "short sale" — taking less money than what they were owed. The principal lender, Countrywide, agreed, but Wells Fargo, which held a second loan worth $82,000 rejected the terms because the lender would have gotten only $10,000.

Then the agent found another buyer, who also offered $350,000. This time, Countrywide said yes if Toothman would come up with another $10,000 to pay Wells Fargo more. But Wells Fargo declined the offer.

“They figured I would make more money eventually, and they could take it out of me,” said Toothman, “because if they agreed to a short sale, then they had no (legal) recourse to come after me for the $82,000.”

Executives from Wells Fargo and Countrywide did not return several messages seeking comment.

Toothman’s nightmare got worse. In July 2006, the monthly payment on the two loans jumped nearly 50 percent to $3,600. For two months, Toothman maxed out her credit cards to meet the payments. The sisters planned to keep making the monthly payments until a sale went through.

But after two months, “I couldn’t pay my bills,” said Toothman. “I’m like, ‘Do I stop paying my other loans, my other credit cards, everything else?’ I just started paying my other bills instead of my mortgage, because it was impossible, it was just too much.”

In March of this year, Toothman lost the house in foreclosure, and, like many others, she now is considering bankruptcy.

Pacific Law Center, one of the biggest bankruptcy law firms in San Diego, handled almost 1,000 such cases in the first eight months of the year, up from 626 in all of 2006.

Danielle Donovan, a broker at Clarion Mortgage who has been in the industry for 27 years, said attitudes changed around 2000 when mortgage lenders began offering "subprime" loans to borrowers with less-than-stellar credit as home prices were soaring. “People stopped being interested in buying homes and more in having an investment,” she said.

Now thousands of Americans are facing the same nightmare as Toothman.

“If they don’t have the wherewithal to keep the home, it’s a matter of how are you going to support the family,” said credit counselor Aguilar.

Many are simply choosing to walk out on their mortgages. More people filing bankruptcy these days have perfect credit, zero consumer debt and no missed house payments, said Don Bokovoy, supervising attorney of Pacific Law Center. They are filing bankruptcy because they cannot afford impending higher payments on adjustable mortgages.

For many homeowners, said mortgage broker Donovan, “The question is ‘How far do I wreck myself? Do I make myself penniless and then lose the house? Or do I just walk away now and have something to start over?’”

For Toothman, the nightmare continues. She cannot qualify for a car loan. Her credit card interest rates jumped from 5 percent to 22 percent, due to missed payments while juggling mortgage bills. She wonders who will date a woman with $82,000 in debt.

“I feel burned,” she said. “I’ve always been one who paid the bills on time. I always did things the right way. If they had counseled me (correctly), I could’ve made my payments.”

Helen Kaiao Chang is a freelance business journalist. She can be reached at hchangwriter@gmail.com.

Profile of Buyer Home Feature Preferences from NAR

by Paul C. Bishop, Ph.D
Harika “Anna” Barlett
Jessica Lautz
National Association of Realtors®

Purchasing a home involves countless decisions about financing, options, where to buy, and the specific features and amenities buyers value most in a home. Many of the preferences are related to the buyer’s age and income —
younger buyers just purchasing their first home or older buyers looking to trade down perhaps in anticipation of retirement. Other features in a home are embraced by most home buyers of all ages, while still other preferences depend on how long the buyer expects to remain in their home.

The desirability of some features is also reflected in the buyer’s choice of a new or previously owned home.

Once a home purchase is completed, many buyers invest in their home by upgrading kitchens and bathrooms, replacing appliances or adding landscaping. Differences in the types of improvements are evident between those buyers who purchased newer and older homes or those that expect to own their home for a number of years or only a short period of time. Home improvements not only add value to the home that can often be recaptured upon sale, but also enhance the desirability of the home for the new owner.

To more accurately assess these variations in preferences for home features and the types of home improvements buyers undertake, the National Association of Realtors® conducted a survey of home buyers who purchased a home in the period from late 2005 to early 2007. The survey gathered information about those features that buyers considered very important when searching for a home and whether or not these features were present in the home they purchased. The survey also queried recent buyers about the home improvements that they undertook during the first three months following the purchase.

The information gathered from this survey confirms many of the observations that real estate professionals make each day when working with home buyers. More importantly, however, the information gleaned from this survey provides insights into the priorities of home buyers. This information can be used by Realtors® to assist home buyers who are searching for a home, including first-time buyers or buyers transitioning to a new location. The analysis in this report will also help home sellers and real estate professionals evaluate the desirability of various features when marketing a home for sale.

CHARACTERISTICS OF HOMES PURCHASED
• The typical home purchased during the survey period was 12 years old, 1,840 square feet in size, and had three bedrooms and two bathrooms.
• First-time buyers typically purchased smaller and older homes than repeat buyers and were more likely to purchase a home in an urban/central city area.
• More than 80 percent of homes purchased had central air conditioning and garages, and less than half had basements.
• More than 90 percent of home buyers were satisfied with the home they purchased, and nearly two-thirds of all buyers were very satisfied.

SEARCHING FOR A HOME
• Nearly four out of five home buyers worked with a real estate agent to purchase their home.
• When searching for a home, the most desired features were central air conditioning, an oversized garage, a walk-in closet, and a backyard or play area.
• The most desired rooms/spaces were garages, living rooms and laundry rooms.
• Repeat buyers placed more importance than first-time buyers on almost all home features.
• Home buyers that purchased a home without a desired feature or room would be willing to pay extra for central air conditioning (typically $1,880), two or more full bathrooms (typically $2,040) and hardwood floors (typically $1,900). [Remember, these are national averages, not SoCal numbers.]
• Over 90 percent of recent home buyers thought energy efficiency was an important consideration when searching for a home to purchase.
• When comparing the home they recently purchased to their ideal or preferred home, most home buyers were satisfied with regard to their home’s age, overall size, size of the kitchen, number of bedrooms and bathrooms, and closet and storage space.

HOME IMPROVEMENT AND REMODELING
• About six-in-ten recent home buyers took on remodeling or home improvement projects within three months of their home purchase.
• The typical buyer spent $4,350 on home improvement projects within the first three months of buying their home. Repeat buyers spent more than first-time buyers.
• Nearly half of home buyers remodeled or made improvements to their kitchen, and close to half remodeled or improved a bathroom in the first three months following the home purchase.

HOME PURCHASE, INVESTMENT, AND FINANCING
• The median home price was $205,000, and over 90 percent of home buyers used a mortgage to finance their home purchase. [Again, this is a national average not SoCal]
• Over half of home buyers believe their home has high investment potential.
• Older buyers are more optimistic about their home’s investment potential; more than 60 percent of buyers 55 or older rate their home’s investment potential as high.

Beware Legislative 'Fixes' to Housing

Some of the so-called 'reforms' being proposed will create worse problems for the housing market.

Democrats Move to Further Destabilize Housing
Friday, October 05, 2007 - By Staff Writer, National Realty News

WASHINGTON, D.C. – This week the House Judiciary Committee's Subcommittee on Commercial and Administrative Law passed HR 3609, by a party-line vote of 5-4. The legislation would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings. While the sponsors of the bill claim that it would help up to 600,000 people from losing their homes, opponents of the legislation claim that the legislation as written would drive interest rates up for everyone seeking a home loan.

According to their press release, Rep. Brad Miller (D-NC) and Rep. Linda Sánchez (D-CA) who introduced the bill said the legislation “will treat home mortgages the same as mortgages on investment properties and family farms. The bill repeals a provision that prohibits a bankruptcy court from modifying a home mortgage, but allows a bankruptcy court to modify any other secured debt, including mortgages on other properties.”

By repealing the current provision for owner occupied loans, proponents to the bill claim the legislation will push interest rates on owner occupied properties significantly higher. Currently, typically investment loans carry a higher interest rate to offset the losses sustained by lenders caused by the treatment of these type of loans during a bankruptcy proceeding. Typical investment loans can be up to 1 percent higher than an owner occupied loan.

"Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage," said Kurt Pfotenhauer, Senior Vice President for Government Affairs and Public Policy for Mortgage Bankers Association (MBA). "The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts."

By allowing judges to rewrite loan contracts and provide whatever relief they individually deem appropriate, HR 3609 would cast doubt on the value of the asset against which the mortgage loan is secured. As a result, lenders and investors would likely demand a higher premium for offering these loans. This premium could come in the form of higher fees, a higher interest rate or the requirement for a larger downpayment, all of which would serve to make the American dream of homeownership less attainable for many Americans, said the MBA

"The reason you only pay six percent on a mortgage loan, where another type of consumer loan may cost ten percent or more, is that the mortgage loan is secured by an asset - the home," explained Pfotenhauer. "When a judge can unilaterally reduce the amount that the lender can get when the home is sold, it devalues the asset securing the loan and the lender and investor will either not fund a loan, or will increase the cost of the loan. Either way, consumers are the ones who pay the price."

Major Discount Broker Calls It Quits

[Shades of the early 1990's! This is exactly what happened then, both nationally and locally. If you are a struggling small broker or franchise that just isn't making it in this market, we invite you to give us a call at 661-287-9164 and we can help get you going again with Keller Williams Realty, a national real estate company with over 70,000 agents. Each office is independently owned and operated.]

Friday, October 05, 2007 - By Staff Writer, National Realty News

WEST LONG BRANCH, NJ - Discount brokerage firm Foxtons announced on October 2nd that it will liquidate its business and file for bankruptcy. After 7 years in the real estate business serving the tri-state New York City area, vice president of sales, Mark Horvat, stated that “this action is a direct result of the down turn in residential real estate.”

While many full service brokers welcome the news, it does illustrate the continued difficulty for the industry. The National Association of Realtors’ (NAR) September 2007 outlook predicts continued softness into the 3rd quarter of this year with a 10% decline in year over year sales of existing homes. NAR’s outlook for the 4th quarter of 2007 is only marginally better with a 6% decline in year over year sales.

Foxtons was considered one of the leading discount brokerage firms in the United States. The company started in New Jersey with 40 employees and 2000 square feet of office space and grew to 500 employees and 50,000 square feet in just over 7 years. Until the shut down, the company had planned to expand to major markets around the US but fell well short of that lofty goal.

Industry experts say that discount brokerages are the most vulnerable during a downturn since they operate on smaller margins.


A press release on their website stated that Foxtons is going to ask the bankruptcy court to allow them to authorize the assumption and assignment of their current inventory of listings. This means if the request is granted current customers of Foxtons would be bound by the terms in their listing agreements, regardless of the broker that assumes the listings.

While their listings are still under contract, many clients are asking themselves - What now? For those in the real estate business the real question is who’s next?

Housing-market recovery still several years away

Housing-market recovery still several years away

By Glenn Roberts Jr.
Inman News


While several economists maintained in the early descent from the real estate boom that a "soft landing" was in store, the latest UCLA Anderson Forecast predicts a very bumpy ride for the housing market and a near-miss with a recession.

David Shulman, senior economist for the quarterly University of California, Los Angeles, forecast, stated in his outlook that the nation's economic performance is expected to be "almost as close as you can get to avoid the technical definition of a recession." That means low growth in the nation's gross domestic product -- about 1 percent in fourth-quarter 2007 and in first-quarter 2008, according to Shulman's "A Near Recession Experience" report.

There are dangers, too, that things could get worse. "When the economy slows to a 1 percent pace, it runs the risk of falling into an actual recession just as when an airplane's velocity dips down to its 'stall speed' and falls out of the sky," Shulman states in the report. "In that sense our forecast can be viewed as somewhat optimistic."

While an earlier Anderson Forecast called for housing starts to bottom-out at an annual rate of 1.2 million to 1.3 million, the forecast report released today expects a range of 1 million to 1.1 million for housing starts "and perhaps more importantly we now believe that the recovery will be far more tepid with starts barely recovering to a 1.4-million-unit annual rate by the end of 2009."

Housing starts are projected to experience a 55 to 60 percent peak-to-trough decline, Shulman said, with home prices falling 10 percent to 15 percent. The decline in housing starts would resemble a similar drop-off in 1986-91, he said. "I hope we're done lowering our numbers," he said.

Home-price declines are expected to drop through the end of 2009 and perhaps further out, Shulman said. Florida, California, Arizona, Nevada and parts of the Northeast are probably most susceptible to larger price drops, he said.

Credit tightening in the mortgage market has complicated property purchases in high-priced states such as California, he said, and the mortgage industry is moving toward "more full documentation, real cash down payments and more serious income standards -- and that's going to take a lot of people out of the market at the current price structure." The problems in the mortgage market could lead to some painful adjustments in home prices, he said.

"I don't think lending standards were ever as lax ... and that's the cause of the problems," Shulman said.

The national scope of the real estate foreclosure problem in some ways resembles the Great Depression, he said.

Consumer spending is projected to drop, and auto sales, for example, are expected to hit the lowest level next year since 1998.

"Although it has taken longer than what we had previously forecast, the effect of housing weakness has finally spilled over into consumer spending on durable goods," the report states. "Nevertheless, we are still sticking to our story that we will not have a classic recession."

Shulman's report notes that the nation's trade sector is improving and a strong global economy should increase exports.

But he also states that "'Star Wars' buffs would characterize the August seizing up of financial markets as 'a disturbance in the force,' " and mortgage defaults have spread to Alt-A and prime home loans.

The Federal Reserve has taken steps to patch up the market, Shulman states in his report. "It seems to us that what the Fed is trying to accomplish is simultaneously restore liquidity to the financial markets without reinforcing the notion of what was called the 'Greenspan put' where aggressive market participants can lay off their pain on to the Federal Reserve. Simply put, the Fed wants to avoid the problem of what economists call 'moral hazard' by putting risk back into the system where risk takers are both rewarded and punished for their actions."

The Anderson Forecast expects the Fed to cut the federal funds rate from 5.25 percent to 4.5 percent by the end of this year. "The cuts will be undertaken to support the economy, not specifically to bail out the financial [or housing]markets," the report states.

While some people are comparing the mess in the financial markets in August to the 1987 stock market crash or the 1998 Long Term Capital Management crisis, Shulman states in his report that "both analogies are wrong ... the economy in both 1987 and 1998 was much stronger than it is today." And because the crisis this time around has its origins in the domestic mortgage market, "we believe the impact on the real economy will be far greater this time than the prior two events."

Given the approaching presidential election year, Shulman said the mortgage crisis will provide some high theater, including "clear heroes, clear villains and ... ritual sacrifices." He said, "A lot of people are going to be very embarrassed before this is over."

And with all of the legislation in process now to address the mortgage problems, it's possible that the country will get "a whole new mortgage finance system when it's all over," he said.

Shulman's report concludes, "We forecast that it will take years for the housing market to recover to 'normal,' and the situation will be exacerbated in the short-run by changes in legislation affecting the mortgage industry."

A separate Anderson Forecast report focusing on California's economy predicts that the state is also expected to escape a recession, though the report's author states that the difference between a sluggish economy and a recessionary economy "is getting smaller all the time."

That report also notes that mortgage defaults and foreclosures "continue to occupy center stage in any discussion of local housing markets," and that most mortgage defaults have occurred in owner-occupied homes. The California counties with the highest foreclosure rates are those with "middle-of-the-pack home prices, but extremely high usage of adjustable-rate mortgages -- exactly the combination we'd expect when working families stretch beyond their means to buy a home," the report states.