Foreclosure Buzz

Today we got another lesson on how powerful the banking lobby is or how pathetic borrower advocates have become.  Faced with record foreclosures, abusive lending practices, and unconscionable lending products, California enacted a dud of a law today (SB 1187).  While the original bill might have made a difference, the bill that ultimately passed was watered down to the point of drowning. (See the downward spiral of amendments to the bill here.)  Of course, the federal government will not fare much better (see Federal Housing Bill Rescues Banks More Than Borrowers ), but let’s look at this “new” California law:

It requires lenders to contact borrowers by phone prior to going forward with foreclosure.

Lenders don’t just call, they hound borrowers for information when the first payment is late.  The new law does not dictate much other than a conversation, or the lender’s attempt to have a conversation.  The lenders can use an ”automated system to dial borrowers” so long as a real telemarketer picks up if the call is answered.  At least during the call borrowers are to be given the number to a HUD-certified housing counseling agency: 800-569-4287.  (You can also search for them online here.)  Lenders, or in reality their loan servicers, are not going to change their foreclosure playbooks at all, and thus, this new law will have little impact on the crisis. See Why Calling the Lender Does Not Work.  As originally filed, the bill required a sit down face-to-face meeting.  This would have been a bit more significant.  Another call by a telemarketer telling a borrower to payup is worthless.

The exceptions to the call provision are significant:

1. It only applies to residential loans made in 2003-2007.
2. It is automatically eliminated at the end of 2012. 
3. It does not apply if the borrower surrenders the property, files bankruptcy, or has contracted with an entity “whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations… .”
4. It does not apply where the lender has already filed a notice of default (prior to July 8, 2008).

The exceptions swallow a good part of the rule.  It only applies to recent loans, and does not apply if a notice of default has already been sent.  Hmmm.  And it automatically disappears off the books in four years because we will never have this problem again I suppose.

Tenants of Foreclosure Properties: they get 60 days to move instead of 30, and the foreclosure posting notice must be posted at the property and mailed to the address of the property up for sale.

So tenants that put up deposits and spent money on moving to a house, get 60 days to do it again, as opposed to 30.  Not exactly something to cheer a lot about.  Families may have a year left on their leases, and while adding 30 days is an improvement, it falls woefully short of meaningful change.  And this does nothing to prevent foreclosures from occurring or detering abusive loans or lending practices.  The requirement of posting the foreclosure notice at the property and mailing it to the occupants is probably another improvement, but it will undoubtedly lead to rent disputes when tenants refuse to pay, even if a landlord manages to cure the default.  Well-intentioned, but will have to be revisited.  But, California should do it soon because this law also disappears in four years.  In 2013, tenants will be better equipped to move in 30 days again I feel certain.

New owners must maintain properties or face penalties.

I was unaware that cities in California gave exceptions to owners of foreclosed properties.  Okay, they probably don’t have exceptions for these owners.  My point is that it is unclear what the new law really does with regard to code enforcement powers that governments did not have already.

There are many that are supporting this new law (e.g., ACORN article here, Consumer Federation of CA release here, California Bankers Association, California Mortgage Bankers Association, etc. see list here).  However, the lenders are not just supporting this law, they are undoubtedly cheering that they dodged another bullet.  And rather than admit defeat and keep the political fight alive, borrower advocates appear to claim victory and push the attention back to the price of oil.  It is always hard to know where the line is — whether to accept a tiny improvement or reject it and keep fighting — but this California dud and the federal government bailout are easy rejects.

Filed under: Advice for Borrowers, California, State Foreclosure News