California Attempts to Solve the Foreclosure Crisis

 By: Marc Fischer

Californians are suffering as the already miserable condition of the collapsing housing market worsens. The State now accounts for 40% of all foreclosure filings in the United States. Data Quick, a real estate research firm reports that in Southern California, foreclosure resales made up 45.5% of all sales in July, the highest rate being in Riverside County, at 65.2%. In response, on July 8, 2008, the state legislature aggressively moved to fight back against the foreclosure crisis, passing Senate Bill 1137.

This became the first major bill in California to address the current foreclosure crisis. Quickly passing through both houses of the state legislature it was then signed into law by Governor Schwarzenegger. The bill compels lenders to contact borrowers in mortgage trouble.

Lenders are now required to work out a solution prior to beginning the process as well as delivering formalized warnings of an impending foreclosure to the borrower. Supporters of this bill expect that it will provide a much needed measure of foreclosure relief and lead to a faster recovery in the housing market.

In addition to slowing foreclosure filings, this bill allocates time for tenants facing foreclosure to find a new residence. Moreover, this legislation encourages lenders to maintain vacated properties throughout the foreclosure process to address the negative affects a foreclosed home can have on a neighborhood, namely property values.

Eli Tene, CEO of I Short Sale, Inc. a foreclosure prevention firm headquartered in Woodland Hills, California, states, “Californian’s need a break. This foreclosure debacle has gone on long enough and I’m glad to see the State Government taking a proactive stance. What we need to do now, is perform loan modifications or short sale distressed properties in order to stop any foreclosure from occurring.”

While it does provide a measure of relief for borrowers, the bill does not discourage real estate investment or arbitrarily limit credit access for investors.

Consequently, California’s housing market can benefit from added liquidity. Additional legislation to address sub-prime loans in California may be on the horizon as California legislators look for solutions to the State’s foreclosure problems.

Tene adds, “We need to actively get home buyers back into market in order to set a floor on house prices. There is an oversupply of homes on the market and once we cut down the inventory of unsold properties, then home values can start to rise again.”