Protecting California Homeowners Avoid Foreclosure
The numbers don’t lie. California has been hard hit by the housing crisis that started in 2007. From 2007-2011, there were more than 900,000 foreclosure sales. California has 38 of the 100 hardest hit zip codes.
However, beyond those numbers there are the personal stories of homeowners struggling to maintain their mortgage payments and save their homes and equity that they have paid into their homes.
The California legislature became the first state legislature that passed a bill, SB 900 and AB 278, to deal with the unfair practices relating to foreclosures. The bill applies to first mortgages for property used as a primary residency. The law was passed in early July 2012 and will soon come before Gov. Brown, who is expected to approve the law.
The California foreclosure protection law comes in the wake of the national mortgage settlement. On February 9 2012 by the Attorney General, Sec of HUD and others announced a national mortgage settlement with the five biggest lenders. In order to help you understand the new law and ways to deal with foreclosure learn about:
- The main points of the California Foreclosure Protection Law
- Ways to deal with foreclosure
Main Points of the California Foreclosure Protection Law
The California Legislature passed a law to protect homeowners from being unfairly treated by mortgage servicers. This includes creating an easier and more transparent process for homeowners to communicate with their mortgage servicers and a way for individuals to receive compensation when their mortgage servicer doesn’t follow the new law. The law paves the way for compensation for those who were unfairly treated in the foreclosure process. It also creates stricter requirements and controls over the banks. The major issues raised are:
Lenders commonly pursue loan modifications and foreclosures at the same time. Often, the loan modification department will give one set of information, at the same time that the foreclosure department proceeds, disregarding a borrower’s earnest attempt to catch up with their mortgage and create a workable loan. The law will not make a modification mandatory, however lenders will be prohibited from negotiating modifications with the borrower and at the same time proceed with foreclosures.
Single point of contact
The law requires large lenders to set up a contact person for a borrower seeking a loan modification or “foreclosure alternative.” According to the Legislative Digest: “The bill would require, upon request from a borrower who requests a foreclosure prevention alternative, a mortgage servicer who conducts more than 175 foreclosure sales per year or annual reporting period to establish a single point of contact and provide the borrower with one or more direct means of communication with the single point of contact. The bill would specify various responsibilities of the single point of contact. The bill would define single point of contact for these purposes.”
In an attempt to speed up the mortgage foreclosure process, many lenders used improper procedures to process the foreclosure documents. The law allows for civil suits against lenders who do not fix their documentation and/or procedures and violate the law in an intentional manner.
All mortgage servicers
Whereas the national mortgage settlement dealt with the top five banks, the California law applies to all mortgage servicers.
California Foreclosure: Avoiding Foreclosure
If you are facing problems making your mortgage payments, then the best thing you can do is to stay on top of the problem. Avoiding the lender will not make your problem go away. The best solution depends on your financial situation (do you have a hardship or not?), the amount of equity in your property (are you underwater or not?), and the type of deficiency balance laws in your state (is your loan non-recourse or not?).
California, for example, has non-recourse laws for mortgages used to purchase your primary residency. Whether your loan is a recourse or non-recourse loan has major implications for how you choose to resolve your situation. Make sure that you know if your loan is a recourse or non-recourse loan, even if it means checking with an experienced real estate lawyer in your state.
There are basically two tracks to avoid foreclosure:
Negotiate New Terms
- Speak to your lender about a loan modification. There are government programs, including the HAMP loan modification program. A modification is an agreement between you and your current lender, which adjusts your current loan, usually decreasing your monthly payment. The loan modification can include lengthening your payback period, lowering your interest rate and/or a principal reduction. Even if you are not eligible for a government modification program, you should see if your lender offers its own modification program.
- Seek a refinance. Even if your house is underwater, there are government programs to help you refinance your home. You must be current on your mortgage payments to qualify, including no late payments in the last 6 months. The major programs are the HARP refinance mortgage and the FHA streamline refinance. Although these programs have less strict credit requirements than those for a standard refinance, many lenders apply stricter requirements than the government programs mandate.
Sell Your Property
- Attempt to sell the property on your own, if you have sufficient equity.
- If you are underwater then consider a short sale or deed-in-lieu of foreclosure. You will need the permission of the lender to complete these foreclosure alternatives. Many lenders will prefer a short sell or deed-in-lieu of foreclosure. Either of these solutions can leave you on the hook for a deficiency balance. Protect yourself, as best as possible, regarding any deficiency balance. Speak with a lawyer, before signing a new agreement, to ensure that you clearly understand your financial responsibilities.