The enactment of the California Homeowners Bill of Rights...while far from perfect....is a very significant step forward for consumers in our State. I personally know people who lost their home to foreclosure while in the midst of working on a modification. Presumably, this will no longer happen. Let's just hope there is enough "teeth" in the body of the bill to keep the banks accountable.
The new California Homeowner Bill of Rights becomes law today. If you're not familiar with this measure, it was a bill carried on behalf of California Attorney General Kamala Harris last year that sought to codify some of the measures set forth in the national mortgage settlement deal struck in early 2012.
Initially opposed by the California Association of Realtors as well as the California Bankers Association and the California Mortgage Bankers Association, the bill was pushed through the legislature by a closed joint committee of both houses so when the bill eventually reached the floor, it was voted on immediately and passed to the Governor. Total time in committee, floor and signature was measured in hours rather than days, months or years, as is typical for most bills.
Due to the secretive nature of the committee structure, there was little opportunity for interest groups to provide input and there was great concern that what emerged would be a very flawed effort reflecting an over reaction to purported lender wrongdoing. However, CAR did have an opportunity to work with the committee to effect some modifications to the final version that removed our opposition to the bill. CAR was not supportive of the bill in its final version but adopted a neutral position, although banking groups remained steadfast in their opposition due to to concerns about meritless litigation that the bill opens up for aggreaved homeowners.
Here's what the bill does:
- Stops dual tracking. Once the process has started for either a loan modification or short sale by the lender, the foreclosure process must be stopped. This is in response to cases where the property proceeds along multiple courses at the same time only to have the foreclosure process conclude days ahead of a short sale approval by another arm of the bank. As pointed out, this frequently resulted in the bank taking the property back and ultimately receiving thousands less in the foreclosure sale than they would have in a short sale. Of course we know the banks are covered either way and really don't care but ultimately this should result in more short sales and fewer foreclosures, which is better for the recovering market.
- Under the dual tracking provisions, banks must give an applicant a response to their loan modification before they can start the foreclosure process. If a homeowner has not applied for a loan modification, the bank must inform them of their right to do so before starting the foreclosure process.
- No more robo signing.
- Banks must provide a single point of contact to borrowers trying for a loan modification or short sale. Homeowners and Realtors are often frustrated by multiple points of contact and the handoff from one agent to another within a bank frequently resulting in the loss of paperwork sending the process back to square one while the foreclosure process continues apace in another department.
- Allows the borrower to sue loan servicers if the borrower thinks they have violated any foreclosure laws. This is one of the most worrisome components of the bill in that it may open the door to frivolous lawsuits resulting in increased costs and unnecessary delays in an already costly and time consuming process.
With nearly 1 million foreclosures recorded in the state since 2007, California remains one of the hardest hit areas of the country. However, foreclosures are down in most areas by 30% or more in the past year and with prices starting to climb across the state, the hope is that fewer and fewer people will be pushed into foreclosure anyway. Some 30% of state homeowners remain underwater in their loans but the combination of improving employment statistics and home price increases has decreased that by more than 5% in the past year.
The Homeowners Bill of Rights may well provide some relief for harried homeowners and produce further delays to the process, but it will do little to change the underlying ability of a homeowner to ultimately afford their home and will, in most cases, only delay the inevitable. If Sacramento and DC don't screw it up, an improving economy will do more to aid homeowners than the HBR will ever accomplish - and ultimately that's the best news for everybody.