Wednesday, June 30, 2010

California Legislature Offers Hope to Homeowners Following Foreclosure or Short Sale -- and Added Time to Homeowners in Distress

The state of the state of housing of in the State of California, is, well, dire straits. In May, California was home to six of the top ten metropolitan areas in the nation with the most foreclosure filings (Riverside-San Bernardino, Bakersfield, Merced, Modesto, Stockton and Vallejo-Fairfield.) Not to be forgotten, though, is the situation is improving:

"In May, 23,911 Californians received notices of default — the first step in the foreclosure process — and 27,841 got notices of trustee sale, according to online tracking service Default notices dropped 43% in May compared with May 2009, while trustee sale notices fell 36%." (Los Angeles Times)
Help may be on the way to those who have gone through foreclosure (or are facing foreclosure) in the way of three bills that have been approved by the state Senate and are before the State assembly.

The first bill addresses the issue of deficiency judgment for those who refinanced their home during the time they owned it. Under current law, since the loan is not the original ("purchase money") loan, those foreclosed are liable for the "deficiency" amount (the unpaid principal). The idea is, the collateral is the house -- and even if the owner has a "new" loan, the bank cannot pursue the person's other assets.

The second bill concerns eliminating the deficiency judgments for short sales (read our notes on short sales here).

Both the first and the second bill address the "double whammy" of owners losing their home (presumably under financial stress) and then being served with often outsized bills for unpaid principal.

The third bill will allow more time before homeowners who face foreclosure while they attempt to obtain a loan modification or other work-out.

It's impossible to assign blame for who created the "bubble" real estate market. But the reality is, with so many homeowners "upside down" (owing more on their mortgage than their property is worth), measures must be instituted to prevent the state's citizens from being saddled with loans, for something they no longer own, that are far beyond ability to repay.