California considers foreclosure protection
Tuesday, January 29, 2008
SACRAMENTO, CA – On Wednesday (1/30), lawmakers in the California Senate will vote on SB 926, a bill that provides much needed protection to homeowners in danger of losing their homes as a result of the serious mortgage loan foreclosure crisis facing the state.
“The mortgage foreclosure situation in California is dire and requires immediate action,” said Norma Garcia, Senior Staff Attorney for Consumers Union’s West Coast Office. “This bill will help prevent unnecessary foreclosures and safeguard our economy against lost property values and shrinking tax revenues.”
Last December, the Center for Responsible Lending estimated that 2.2 million families nationwide—and nearly 500,000 in California—would lose their homes to foreclosure due to reckless lending practices in the subprime market. The US Conference of Mayors estimates that California cities may lose nearly $4 billion in property, sales, and transfer taxes as a result of mortgage foreclosures.
These foreclosures are already are occurring in record numbers. Unfortunately, the worst is still ahead. Based on the timing of rate resets for subprime adjustable rate mortgages, the highest volume of resets and likely foreclosures is expected this Spring and again in October 2008.
SB 926 encourages early contact and communication between borrowers and lenders to protect against unnecessary mortgage loan foreclosures. It does so at multiple stages of the lending process. First, SB 926 requires lenders to notify borrowers 120, 90, and 45 days prior to any projected increase of 10 percent or more in the mortgage payment. This provision applies to loans made on or before December 31, 2007 for owner-occupied properties.
“By requiring notices beginning 120 days before the loan resets, borrowers will be given time to weigh their options before they must make higher payments,” said Garcia. “Early and repeated notifications will serve to alert borrowers to act so they may avert foreclosure.”
SB 926 requires that notices be written in plain language to ensure they are more easily understood by borrowers so they may take steps to avoid defaulting on the loan. Similarly, the bill requires that the notice be provided in the language in which the loan was negotiated to increase the likelihood that borrowers will act promptly and appropriately to protect themselves from a loan default.
SB 926 also requires that prior to filing a notice of default, the lender must conduct an in-person meeting with the borrower to assess the borrower’s financial situation and offer important resources. The lender must wait at least 30 days after the in-person meeting to file a notice of default, which gives the borrower time to act on any helpful information provided at the in-person meeting.
SB 926 will help protect properties neighboring foreclosed homes by requiring the foreclosing entity to maintain the property and by making owners of these properties liable for fines if they fail to do so. This provision aims to protect communities affected by foreclosures and to guard against potential public safety concerns such as squatting and the prospect that abandoned properties become havens for illegal activities.
Finally, SB 926 will help protect innocent tenants who are in danger of losing their homes as a result of a landlord’s failure to pay the mortgage on the property. The bill requires that tenants be notified when the property is threatened with foreclosure and given 60 days written notice before they may be evicted. The bill would not interfere with additional protections currently provided to tenants by some California communities.
Norma Garcia or Michael McCauley: 415-431-6747