California Assembly Passes Foreclosure Reform Bill But More Needed to Protect Future Borrowers from Predatory Loan Practices

[courtesy of California Progress Report]

By Frank D. Russo

Legislation that would reform the foreclosure process in California for the benefit of homeowners trying to hold on to their homes passed the Assembly today on a 55 to 18 vote, just one vote above the two-thirds majority it required. Ten Republican Assemblymembers joined 45 of the 48 Democrats in voting for the bill, while all 18 votes against it came from Republicans.

The bill that passed, SB 1137 is authored by Democratic Senators Don Perata, Ellen Corbett, and Michael Machado, and coauthored by Speaker of the Assembly Karen Bass and principal coauthor Assemblymember Ted Lieu, who presented it on the Assembly floor. It goes beyond federal laws and received broad support from consumer groups. The legislation requires lenders and servicers to: 1) contact borrowers (or engage in a prescribed process to do so) to schedule telephone or in-person meetings on restructuring options before beginning the foreclosure process, 2) requires a 60-day notice to be given to tenants of buildings facing foreclosure before they can be removed from a rental housing unit; and 3) allows fines of up to $1,000 a day for owners of foreclosed properties that fail to adequately maintain them.

“Foreclosures are afflicting thousands of Californians and their communities,” Perata said. “SB 1137 gives homeowners more advanced warning a foreclosure may be coming and provides the tools they need to help avoid it.”

Despite the fact that Perata’s bill has broad support and no known opposition, it was on call after the Assembly debate while the last votes were rounded up. All in all, 18 Republicans voted against the bill and another 4 failed to vote on it along with three Democrats who did not vote.

SB 1137 is an urgency measure that would take effect immediately when signed into law (though the provision requiring servicers to contact borrowers before starting the foreclosure process will have a 60-day implementation period before it goes into effect), and that is why it needed the two-thirds vote to pass. Credit Perata and others for working out a viable bill that has been able to make it this far and that will provide immediate relief. It now returns to the Senate for concurrence in amendments made in the Assembly, which is expected this week. It earlier had passed the Senate with just one vote to spare on a 28 to 10 vote, with all of the dissenting votes coming from Republican Senators.