So Cal Real Estate News

On July 8, 2008, California Governor Schwarzenegger signed S.B. 1137, an emergency bill designed to assist homeowners in foreclosure and tenants in foreclosed property.

At first we thought it would just make lenders more reluctant to lend in California, but on a closer look we now think that, overall, it’s another positive step in the right direction.

Because it was an emergency bill, many of the changes took place immediately. The bill applies only to loans made between 1/1/03 and 12/31/07– which are the loans most likely to go into foreclosure.

60 Days Notice for Tenants in Foreclosed Homes

According to the state legislative counsel,

Until January 1, 2013, this bill would give a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days to remove himself or herself from the property. . . .

From the bill itself:

A tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given 60 days’ written notice to quit pursuant to Section 1162 before the tenant or subtenant may be removed from the property as prescribed in this chapter.

(b) This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.

The above provisions of the law expire 1/1/2013 unless extended by the legislature.

This is a new law, but it appears to give a tenant 60 days from when notice is given after the foreclosure, as long as neither the tenant nor anyone else living in the property was a signer on the loan that foreclosed.  But those 60 cays could become as many as 180 before the tenant is actually out of the property.

Here’s the details, courtesy of the best property manager in Greater Long Beach, Dave Haas:  It would probably take the lender at least a week to prepare and post the notice, often much more.  After the 60 days had elapsed the owner would then have to obtain a court order if the tenant had not vacated.  If the tenant did not vacate after the expiration of the 60 day notice, it would take and additional 30 days minimum if the tenant did not contest the Unlawful Detainer (eviction) proceeding; 60 if he contested it; and 90 if he filed bankruptcy.

About a week after the court order rules the marshall or sheriff  posts the notice to vacate within 7 additional days.   If the tenant hasn’t left by then, the owner and her locksmith meet the sheriff at the property and enforce the order with a “lockout.”

At that point, the tenant would be gone, but would have an additional 15 days to come back and claim any personal property that was left behind.  (Lockouts usually happen early in the morning and generally consist of a brief but professional “Hello, time to go,” from the sheriff followed by a lock change by the owner’s locksmith.)  60 days notice, up to 90 days to get the order to evict, another 14 to the lockout, another 15 to store the tenant’s possessions for a maximum of about 180 days, worst case.  Maybe longer over the holidays.

However, if the tenant stops paying rent during that initial 60 day notice, a 3 day notice would be posted and an eviction would start at the expiration of the 3 days, taking a maximum of another 120 days. This law does not allow for the tenant to stay rent free, nor does it apply to former owners, just renters.

Most tenants do not want a “U.D.” (Unlawful Detainer, or eviction) on their record, and will arrange continue paying rent and move within the 60 day time frame.

The 60 day notice is posted not at the beginning of the foreclosure process, but once the home is either taken back by the lender or sold to a new owner at the Trustee’s Sale on those legendary courthouse steps.   That’s a minimum of 111 days from filing the “Notice of Default” which actually begins the foreclosure process.  In most cases, the borrower has missed several monthly payments before the “N.o.D.” is filed.

The bill also has requirements concerning the lender filing that Notice of Default:

Required Notifications prior to filing a Notice of Default:

At least 30 days prior to filing a N.o.D. the lender or their representative must meet with the borrower either in person or by phone “in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.”   This notification can only be waived if the lender demonstrates “due diligence” by following a number of prescribed steps and still is unable to contact the borrower.

This provision becomes operative 9/6/08, to allow lenders time to set up procedures.  N.o.D.s filed before then apparently are exempt.

Maintenance of Property

This one we think we really like.  As usual, the devil’s in the details, but it’s indended to prevent foreclosures from ruining a neighborhood by requiring the lender or new owner to maintain vacant residential property acquired at a trustee’s sale.  Included are excessive foliage, failure to prevent trespassers and squatters, and other conditions of public nuisance, including standing water and mosquito issues.  Fines of up to $1,000 per day should ensure compliance.  This provision takes effect immediately.

Provisions to Encourage Loan Modifications

This makes it easier for the loan servicer to work out a loan modification if such a modification is expected to ultimately save the lender money.  (Remember, many loans are held in huge consolidated blocks by large investors from pension funds to insurance companies, who pay a servicing company to collect the payments and foreclose if necessary.  You may make payments to Chase, but the Cal State Employees Pension Fund might actually own the loan.  In that  example, this provision give Chase more authority to act to achieve a mutually acceptable resolution on a loan secured by California property.

Three specific requirements must be met:

1. The loan is in payment default, or payment default is reasonably foreseeable:  In other words, the borrower is in trouble.  Quite likely will require a “hardship letter” with supporting evidence.
2. It looks like the lender will lose less money with a workout than with a foreclosure.
3. The loan modification is consistent with the servicer’s contractual or other authority.

These provisions may facilitate workouts under the newly approved federal mortgage relief bill in the state of California.

On the whole, this bill appears better designed up close than we thought when we first read about it.  As with the federal bill, there was give and take and consultation with the various interests involved.

As always, we value your input in the form of comments.

Click here for the text of the bill and the Legislative Counsel’s Digest.

Tags: California Foreclosure Bill, California Real Estate, foreclosure relief, Southern California real estate news

This entry was posted on Tuesday, August 5th, 2008 at 11:37 pm and is filed under The Mortgage Mess. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.