On NOVEMBER 30, 2009, a mere 9 months after the passage of the California Foreclosure Prevention Act (on February 20, 2009 for those of you keeping track), the California Department of Corporations (“DOC”) finally got around to releasing its related regulations (we lawyers like to call these “regs” for short).
It was the 3rd agency to promulgate its own regs, behind the Department of Financial Institutions and the Department of Real Estate, making it late to the “look like we in government are doing something for the beleaguered homeowners” party.
But of course, looks and sounds can be deceiving. Take the name of this Act passed in California – the Foreclosure Prevention Act. Sounds nice, but the title is very misleading. Ok, it’s not misleading, but it is in fact deceptive. If this was a business peddling this law, it would be labeled false advertising.
This Act does not prevent ANY foreclosure. Let me say that again: this law does not stop, prohibit, hinder, terminate or PREVENT ANY FORECLOSURE. Just wanted to clarify.
When this Act was first passed last February, I had many realtor and loan officer friends of mine calling me up excitedly to talk about the “moratorium” on foreclosures due to this Act. It was all over the news, in the newspapers (‘what are these?’ my kids ask), on the internet, the cable news shows, and as comments on Facebook and MySpace. Well, a moratorium is simply a postponement before certain obligations are met – so this Act is not really a prevention of foreclosures, but more like a postponement on foreclosures.
So this postponement almost doubles the time it takes a bank to foreclose using the nonjudicial process against a homeowner. Before this Act, a bank would often record and serve a very official-looking Notice of Default after the homeowner stopped making her monthly payments on the mortgage loan. This Notice would inform the homeowner that the bank was serious, and starting the foreclosure process to ultimately sell the home. The homeowner then had 90 days to “cure” the default by repaying the amount in arrears. At some point shortly after the 90 days, the bank would then serve, record and post (usually on the front door) a Notice of Trustee Sale which told the borrower the day, time and location the bank would be selling the home at a “Trustee Sale” auction-style. This Notice has to give the homeowner 20 days notice of the sale.
Whew! You’re certainly getting quite a legal lesson here today. So this Foreclosure Prevention Act extends this 90-day period to 180 days between the Notice of Default and the Notice of Trustee Sale. The problem is that this Act doesn’t even do a good job postponing the sale of the home. Did I mention that it fails to prevent an actual foreclosure despite its name??
Naturally, this Act has many exceptions to this expansion to a 180-day period, because, well, it was written by politicians with the help of lobbyists and lawyers. I will just concentrate on 2 exceptions:
1. A homeowner only gets the original 90-day period if the bank involved has a “comprehensive loan modification program.” This simply means that the bank talks a good game about trying to help homeowners get loan modifications. Before this Act was effective back in February 2009, most of the major banks and loan servicers had already been approved by the State of California for this exception.
2. A homeowner also gets the shaft if the homeowner “contracted with an organization regarding extension of the foreclosure process.” So, if the homeowner hired an attorney or other professional to negotiate with the bank, the homeowner gets the shorter foreclosure process. So the more help you get, the faster your home will sell.
And for this, we sent representatives to Sacramento?!? Sheesh!!
So in summary, this Foreclosure Prevention Act does not prevent or really postpone anything, and it seems we have sent the foxes to Sacramento to guard the henhouse, er, homes.
Good luck – you’ll need it (or a good lawyer).
