Sunday, July 20, 2008 at 07:18AM
Some "Relief" Bill
FORECLOSURE RELIEF BILL BECOMES LAW
This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013.
Highlights of the new law are as follows:
- Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower's financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender's declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or 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.
- Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.
- 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant's right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address.
Still waiting to see or hear about the first former owner to receive a three-day notice - guessing that the lenders/eviction attoreys either can't process them that fast, or they don't want to risk bad publicity.
Jim the Realtor
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Reader Comments (22)
Hurrrayyy! Real Estate is saved!!...
Not.
Yea! Extra squatting time for all!
From my pov, the only useful part of this is the requirement for maintenance of foreclosed properties. We saw a few REOs during our househunt last year that had not been maintained at all, and they tended to make their entire neighborhoods look like slums.
Better still might be a new law to just launch eminent domain on foreclosed homes after some specified period and demolish them to create little neighborhood parks. :)
This only prolongs the agony. Nothing the goverment has done thusfar has worked.
Let these greedy fools crash and burn.
This is important legislation that serves the valuable purpose of letting the politicians claim they are addressing the problem without actually doing anything useful.
What does this do? NOTHING!!!!!!!!!
People will STILL dump their stucco boxes when they owe more than it's worth PERIOD!
Guaranteed to make the problem deeper and last longer. The underlying rule that seems to be ignored is that if you find yourself in a hole, stop digging!!
More time for some of the soon to be ex-homeowners to vandalize the property(I mean recoup some of their money). More time that a loan is non-performing. More time until the property is on the market.. causing the banks to be chasing the market down even further!
I wonder how this effects business contracts and law? This is a third party changing terms on a business contract after the contract has been written and signed. I suspect we Kalifornians are all going to be paying for this in terms of higher rates. If the legislature does something that costs the banking business, it comes back as higher rates to offset the cost.
Who are the politicians listening to? Is it the majority of the voters that want these laws passed? I don't think so. Has anybody heard if there are any groups cheering this new law? This may slightly benefit a few homeowners who made bad purchases. Thats it.
Sounds like a lot of Realtors are going to become full time REO gardeners to avoid fines for failing to keep up bank owned properties. Given the sorry state of many REOs today, this should be an immediate boon to the sod industry.
Like most legislation of this kind, its about feeling good but accomplishes nothing. Lenders will just of through the motions to satisfy the law,like the first part: "Contact Between Lender and Borrower". I imagine the phone call going something like this:
Lender: Yes, we notice you haven't made your payment in 3 months, we like to explore options to avoid foreclosure
Borrower: Well I'm a manager at Taco Bell making 32K (and do drywall on the side) but I have this 400K 100% financed no-doc loan that just reset. Can we rework my loan based on the principal amount of I home I can really afford, like around 100K?
Lender: Uh, I dont think so
*Click*
Borrower to self: Ok, fullfilled our part of this stupid law...check. Now lets throw the bum out.
Jim, do you remember the name of this legislation? Without looking it up, I'd guess that it was entitled "The Dumbass and Douchebag Protection Act of 2008".
Ivan, you are dead on with your victitious phone call. I am tracking a short sale - preforeclosure and was just told the bank is seeking a "work-out" solution with the defaulting borrower. Did the bank offer reduction of principal? Nope. They're offering a new 40-year fixed interest loan with a reduced rate for the entire bloated balance. Yippie! Now the borrower can be married to his financial mistake for the rest of his life and then some. If they sign up for that, I'd be surprised. But it sure satisfies the requirement for the law.
My favorite part is the lender needs to contact the borrower before the NOD is filed. Can soemone please tell me which lender is not sending out multiple letters and not calling the customer prior to the expense of a NOD?
This law is absolutely necessary. We can only imagine how byzantine the process must be for a borrower who is attempting to contact their lender to work out a practical solution. Consider what we hear about short sales on this blog. And, haven't we all heard that there is a gulf between servicers and the creditors?
This is a good law for more reasons than I mention above.
And, can anyone tell me why lending standards became so lax in the run-up to this bubble? Seems the rules of the game changed sometime around 2002. Hmmm...
There have been a number of stories about banks sending NOD borrowers over a dozen letters about working to prevent foreclosure and not getting a single reply, and so far I've not seen a single story about a bank that foreclosed on a home used as a rental and tried to rush the tenant out the door. So from what I can see, the people most likely to benefit from this are those living in otherwise nice neighborhoods where some REOs have been left unmaintained to become weedy, dumps with algae-infested swimming pools.
The history of subprime begins in the 1980's, when the repeal of the usury laws made it legal to issue high-rate loans to people with poor credit. Initially, banks mostly limited this practice to credit cards and other "personal line of credit loans." Then, in the late 1990's, non-bank businesses like insurance and securities companies were allowed to get into the mortgage business. Finally, when the recession of 2001-2002 hit, the Federal Reserve cut the funds rate to 1%, the government started blathering on about how it was "patriotic" to "spend our way out of recession" and essentially stopped using its authority to control how the money it loaned to institutions was re-loaned.
There are three groups of forclosees:
1) People who can't save their homes under any circumstances short of a check with 4 or 5 zeroes.
2) Liars who lied on their loans and bought their house on fraud and are intentionally dragging out foreclosure for free rent as they save up money that would have gone towards their contractual obligations.
3) People who are too ignorant to save their house when it's somehow possible.
The government must think group 3 is big and bigger than 1 and 2.
GeneK,
I'm familiar with the timeline but there's something strange about how all of a sudden it was okay for unqualified buyers to buy homes.
I'm not so interested in the blame-game but more so in the question of what were the regulations previously, and, why did it change? We all know that bundling loans into securitized bonds sold to Wall Street was the prime vehicle allowing more lending. But, was this previously regulated? Also, why was it okay for banks to not hold their loans?
Something had to have changed besides just a low rate from the fed.
I'm guessing industry self-regulation was allowed.
What changed was that in 1999 Congress passed and the President signed legislation that allowed finance companies other than banks to write and buy/sell mortgages, and that in 2001 the Fed lowered the rates enough for those companies to be able to offer absurdly low intro rates and didn't enforce any lending rules such as the ones it recently announced. Prior to that, it was possible since the 80's to write loans with high rates to people with bad credit, but the mortgage banks were sensible enough not to be willing to write such loans except for credit cards, car loans and various other relatively small transactions.
That's what changed. Why it changed depends on peoples' politics. Conservatives blame liberals for loosening up loan standards to help "minorities" buy homes they couldn't afford, liberals blame conservatives for manipulating the fed funds rate and opening up the standards to help conceal the lack of economic growth under their watch. IMO, both arguments are a smokescreen and what really happened was that the finance industry bought themselves a bunch of politicians of all persuasions who passed laws and relaxed standards to enable them to run a pyramid scheme with taxpayer money.
As far as who is to blame for the subprime mess, that's easy. Anybody who voted for or signed any of these laws, or ran the Federal Reserve during the past 10 years, or took out a subprime loan, wrote one, bought one or sold one.
GeneK, great points. I also felt that allowing anyone to write loans would cause hyper-competition where banks that would never make a risky loan feels it has to in order to compete with crazy Al's mortgage factory.
Think the Wendy's commercial where everybody is running urgently into a big hole.
That was why the banks eventually joined the rush, but it wasn't why the loans caused the bubble. What lit the fire was the lowering of the fed rate to under 2% in 2002, which made it possible for lenders to issue (and qualify borrowers to) absurdly low intro rates. When the non-banks were first allowed to enter the mortgage business the fed rate averaged around 5%, and the prime 30-yr conventional rate was in the 7% range. Subprime mortgage rates would have been 10%+, and the number of subprime mortgages isued at that rate would have been negligible.
So much for my conspiracy theory. Thank you GeneK for clarifying the two-step process that set the stage for this mess.
I'm sure there's still room in all of that for a conspiracy somewhere...