New California Law Offers Free Living for Many Homeowners
Sacramento California
On 2/20/09, Gov. Arnold Schwarzenegger signed into law a 90-day moratorium on California home foreclosures. The bill was introduced by Sen. Ellen Corbett (D-San Leandro) as an add-on to the California ‘budget’ package. It covers owner-occupied homes and first-mortgages made from 2003 to 2007. My first post about this was ‘New Law Extendeds California Home Foreclosures (again)‘ published on March 12, 2009.
However, 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 apprx. 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 (extending the normal California foreclosure by an additional 90 days. this is in addition to the 2008 30 day extension) the normal foreclosure time periods. Instead of helping (the state should stay out of the mortgage business) these actions are only prolonging the pain.
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.
So, now we have a number of California homeowners living (mortgage/tax/home insurance/HOA fee) cost free for easily a year or longer!
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.
Also, homeowner associations are in trouble because of the state’s legislated additional four month moratorium on foreclosures. With most San Diego monthly homeowner fees running over $250, who pays for the additional state mandated $1,000 in delinquent dues? It’s the existing association homeowners. HOAs now 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 to pay the dues on those properties, but all outstanding balances prior to the foreclosure date gets wiped out! This HOA moratorium penalty is can be especially devastating for the many small (six to twelve units) condo developments like those which dominate the North Park/Normal Heights neighborhoods
So, let’s all give our California legislature shout out for another stupid idea put into law.