‘Intent with this is there will be a traffic signal’
NORTH BAY — A duo of bills passed by California lawmakers and signed by Gov. Jerry Brown this month could assist distressed North Bay residential properties in finding resolution – either refinancing, sale or foreclosure – more smoothly, a development that stands to impact an important hurdle in the overall recovery of the region’s housing market.
The bills – SB 900 and AB 278 – seek to make permanent many of the terms included in California’s portion of the $25 billion foreclosure settlement reached by 49 states and the District of Columbia and five of the nation’s largest mortgage lenders in February.
Those terms are slated to become law in California on Jan. 1, 2013, applying to many mortgage lenders and with some provisions set to sunset in 2018.
Among the tenets to the so-called “Homeowner Bill of Rights” is an end to “dual tracking,” a practice where lenders would work to refinance a mortgage while simultaneously pursuing foreclosure. Lenders would also need to provide a single point of contact for foreclosure and refinance matters, provide further notification of loan modification or foreclosure, and borrowers would be given greater power to sue for improper practices.
North Bay real estate leaders said that a definitive impact of the initial settlement on regional housing markets has yet to be determined, but the changes stand to coordinate many parties involved in negotiations for a property facing foreclosure.
“One of my clients went to go sign the documents for their short sale, and they were told by the title company the following day that the lender foreclosed on them,” said Jeremy Olsan, an attorney practicing real estate law at the Santa Rosa law firm, Perry, Johnson, Anderson, Miller & Moskowitz, LLP.
In addition, it was not unheard of for buyers of foreclosed properties to discover that the previous owner still claimed rights to the home due to improper foreclosure procedures. Buyers without robust title protection stood to lose in the debacle, along with lenders and plaintiffs who carried associated legal and administrative costs.
With the changes, Mr. Olsan and others said that there would be increased clarity across the board, with the potential to reduce those hang-ups.
The bills did not pass through the legislature without opposition, with some of the strongest protest coming from the California Mortgage Bankers Association. The association joined with the California Bankers Association, California Credit Union League and a handful of other industry groups to commission a study on the bills, which concluded that the restrictions on lenders would slow the housing recovery by limiting their ability to act on nonperforming loans.
Yet nationally, foreclosure data compiler RealtyTrac attributed an increase in foreclosures early this year to the legislative certainty brought by the settlement. Despite a general downward trend nationally, the firm contended that the resolution of terms helped move more distressed properties through the process.
“The law doesn’t say that a lender has to approve a loan modification,” Mr. Olsan said. “What it says is, ‘We’re going to change how you process all this paper.’”
Both the North Bay Association of Realtors, which represents Sonoma, Napa Lake and parts of Mendocino County, and the Marin Association of Realtors have taken no official position on the proposed law.
However, NorBAR Director of Government Affairs Ezrah Chaaban noted that the California Association of Realtors, which operates independent of the North Bay groups, has opposed the bills, citing a pathway for “bad faith lawsuits, which would ultimately increase costs on qualified homeowners and hamper the housing recovery.”
“The bills are much improved over their initial version, and there are several provisions NorBAR supports in the bill, such as the provision guaranteeing a single point of contact for struggling homeowners,” Mr. Chaaban said.
“I think the real intent with this is – there will sort of be a traffic signal,” said Steve Herndon, coordinator of the real estate program at Santa Rosa Junior College. “What it will end up doing is providing the borrower with a more clear idea of what will happen when they enter the default track.”
Foreclosures rates have trended downward in the North Bay for the past year and, for the first time in three years, Mr. Herndon said that conversations are now shifting towards an insufficient inventory to meet rising demand.
Still, removing short sale and foreclosed homes, often sold below market value, remains an important hurdle in allowing home values to recover across the North Bay.
“When you have the banks, the homeowners and the Realtors working together, you have a much better chance of getting a near-market value for the house,” said David Smadbeck, president of the Marin association. “There’s an historic moment where lenders and Realtors are coming together. It’s good on both sides.”
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