New Law Extendeds California Home Foreclosures (again)

Though not widely publicized, the California state legislature passed a new bill which was signed by Gov. Schwarzenegger on February 20.  It's titled the “California foreclosure prevention act, assembly Bill 7” and is designed to address the foreclosure problems in California.

Once again, it seems our elected lawmakers are totally misguided.  All this bill does is extend the normal California foreclosure by an additional 90 days.  Let me clarify this a little.  Back in July of 2008, the California legislature passed a bill that requires lenders, prior to filing a notice of default, to make diligent efforts to contact the homeowner to see if something can be worked out prior to the notice of actual filing of default.  This provision has added at least 30 days to the typical foreclosure process in California.  Normally, in California, the foreclosure process is 90 days, plus 21 days for advertising.  Add the thirty days from the July 2008 provision and we now have a four month process for foreclosure, not counting the required advertising. The newest law will add an additional 90 days on top of that, so what we're talking about now is a seven month foreclosure process in California, not counting the required 21 day advertising period.

I believe this well-intentioned law will just exasperate and extend the California real estate malaise. Plus, it seems to me that our lawmakers didn't consider any of the negative aspects of extending the foreclosure process.

First of all, the last four months of sales in California have been picking up, and quite dramatically in some areas. Of course, the majority of the sales have been foreclosed properties or short sales, but the fact remains that the free market seems to be working quite well without intervention.  Before extending the foreclosure process no one asked “who pays for the additional 90 days?”   If the average monthly mortgage payment was $2000, who is paying for the additional $6000 in missed payments that this extension will possibly generate? Yes, it's the taxpayers who will be paying as the government buys these toxic loans.

Plus, many distressed properties in California are governed by community association groups, condos, planned unit developments and planned residential developments. All of these homeowner associations have monthly dues, which are assessed for maintenance, and in many cases, utilities. Most distressed homeowners who stop paying their mortgage stop paying their HOA at the same time as, or prior to, their nonpayment of their monthly mortgage. Typically, monthly HOA dues can range anywhere from about $80 per month to $1000 per month for a high rise condominium in downtown San Diego.  With this new extension of the time to foreclose, homeowners associations are looking to be out a minimum of three months worth of dues.  Because of this new bill many of these associations, already in poor financial shape due to the number of lost payments and normal foreclosures, are worse off.   In many cases the only recourse these associations have is to raise the monthly dues for existing membership, to cover the loss of non-paying members.

Also, how many California mortgage lenders will want to keep issuing new loans in the state when the ability to cut their losses when things go south is now hindered by the state? At the very least, additional fees will need to be added to all California mortgage loans to compensate lenders for this un-called for interference in the free market process by the California State Legislature.      

                                                                                              San Diego downtown condominiums

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