Sunshine and a Year of FREE Living

by Bob Schwartz, San Diego real estate broker, Certified Residential Specialist

The state of California has more than doubled the normal foreclosure time by an additional 90 days for homeowners with troubled mortgages.  This is on top of the 30 day extension put in to place in 2008.  Is this the state where living is free or are these actions only prolonging the pain?

Sen. Ellen Corbett (D-San Leandro) introduced a bill as an add-on to the California “budget” package to add a 90-day moratorium on California home foreclosures.  Gov. Arnold Schwarzenegger signed into the bill on 2/20/09.  It applies to owner-occupied homes and first-mortgages made from 2003 to 2007.  See my earlier post: ‘New Law Extends California Home Foreclosures (again) ‘published on March 12, 2009.

State regulators can grant loan servicers and lenders exemptions, if they have a mortgage modification program in place that meets certain criteria. These include programs that defer a portion of the principal, lower interest rates for at least five years, or extend loan terms.

In 2008, the state of California extended the foreclosure process by approximately 30 days by adding a requirement that lenders document their efforts to contact the delinquent homeowner.

So, now for 2009, the state of California has more than doubled the normal foreclosure time periods by extending the normal California foreclosure for an additional 90 days. This is after the 30 day extension applied in 2008. Instead of helping these actions are only prolonging the pain.  Perhaps the state should stay out of the mortgage business.

The market can’t recover until all these foreclosures get flushed through the system. Delaying the inevitable will not change the end result; it will probably only make it worse. In a declining market, the lenders will recover even less when the property eventually sells.

Personally, I’m not aware of one mortgage lender that starts the foreclosure process as soon as the homeowner is late one month. In the vast majority of cases, the lender does not start the process for four months or more.  Do the math:  Four months slow motion by the lender, the original 90 day foreclosure process (plus a 21 day advertising period), the 2008 delay of 30 days, and now the 90 day moratorium passed in February 2009.  That’s a potential of free living for almost a year!

Who is really paying for this ‘free California living?’ With a lot of these toxic loans being purchased by the federal government, it’s the U.S. taxpayer who is paying.

Other fallout resulting from the state’s legislated moratorium on foreclosures is the many homeowner associations adversely affected by a delay in collecting normal monthly maintenance dues. It’s a sure bet homeowners are not paying their monthly maintenance fees when they aren’t making their mortgage payments. Most San Diego monthly homeowner fees run over $250 per month.  Who ultimately pays for the additional $1,000 in delinquent dues? It’s the existing association homeowners. HOAs will either have to increase the dues, or require special assessments from the owners who are left. Once a property has been foreclosed, the lenders are responsible for paying the dues on the property.  All outstanding balances prior to the foreclosure date are wiped out! The “moratorium penalty” can be especially devastating for small condo complexes with six to twelve units, like those which dominate the North Park/Normal Heights neighborhoods in San Diego.

The California legislature continues to amaze … but not impress … with stupid ideas put into law.

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