Rama Mehra
San Ramon Real Estate Specialist
What is the The California Foreclosure Prevention Act?
The California Foreclosure Prevention Act, known as SB 1137 is the first law in the nation to impose a foreclosure moratorium and encourage quality loan modifications. SB 1137, the new California foreclosure prevention act became fully effective on September 6, 2008. This legislation only applies to foreclosures on loans made between January 1, 2003 and December 31, 2007. It sunsets December 31, 2013.
Who’s money is paying for all this?
Not a single dime of taxpayer money will be used to pay for the loan modifications. Rather, Wall Street firms and banks will be the ones that will take the haircut. If enacted into law, this Act would be the first law in the nation to impose a foreclosure moratorium and encourage loan modifications.
What is the purpose of the act and how will it help me?
The California Foreclosure Prevention Act is designed to force Wall Street to help the citizens of “Main Street.”
The Act:
1. Imposes a 90 day foreclosure moratorium to allow distressed homeowners time to work out loan modifications with their lenders.
2. Allows lenders to avoid the moratorium if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation. Loans may be modified several ways, including interest rate reductions, extension of the loan term, or principal reduction.
3. Provides oversight and accountability by requiring regular reports to the legislature on loan modifications and foreclosure reductions, and coordination with appropriate state regulators.
“California’s unprecedented number of foreclosures has crippled our economy,” said Assemblymember Ted Lieu. “This law will help people stay in their homes by adding another incentive for lenders to modify their loan.”
“More foreclosures hurt everyone, not just the struggling families losing their homes,” Assembly Speaker Karen Bass said. “This bill will be an effective tool in helping stem foreclosures and avoiding the lost property values and neighborhood blight that accompany them.”
The California Foreclosure Prevention Act is the first law in the nation to impose a foreclosure moratorium and encourage quality loan modifications.
The Act’s main components are:
1. The lender must contact the borrower that is in default at least 30 days prior to initiating foreclosure proceedings in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. The lender must also inform the homeowner that he or she has a right to an additional meeting that must be scheduled within 14 days, upon request. These requirements effectively increase the advance notice period for a California foreclosure sale from 110 days to 154 days.
2. The lender must provide the borrower with the telephone number of a HUD certified counselor. The Act Authorizes the HUD certified counselor to represent the borrower in subsequent discussions with lenders regarding options to avoid foreclosure.
3. The lender must maintain a toll-free number providing access to a live representative during business hours.
4. The lender must provide any renters on the property with either a 60-day notice to quit or a new lease.
5. An owner of a vacant property acquired through the foreclosure process must maintain the exterior of the property or be subject to a fine (by a local government entity) of up to $1,000 per day.
Probably the most important of these changes from the previous homeowner’s perspective is the requirement that the new owner maintain the exterior of vacant properties to avoid blight. This will likely lead either to quicker evictions by the new owner, or an arrangement with the homeowner under which he or she can remain on the property in exchange for maintaining it.
The new notice and contact obligations placed on the lender may also prove important both to homeowners who want to negotiate with lenders and to homeowners who decide to fight the foreclosure in court (since the greater the number of notice-type requirements placed on a foreclosing lender, the greater the chance that mistakes will be made that justify a court derailing the foreclosure itself).
An ancient proverb states that “If we don’t change the direction we are going, we will end up where we are headed.” We have seen the results of uncontrolled foreclosures: a financial meltdown of historic proportions. It is time we change our direction. It is time we address the root problem of foreclosures.
Link to state website. http://www.dfi.ca.gov/cfpa/default.asp
