California Foreclosure Relief Bill Passed and Governor Indicates He Will Sign It

[courtesy of California Progress Report]

Many Provisions Take Effect Immediately—More Action on Predatory Lending Needed as Loan Modifications Increase in State

By Frank D. Russo

Yesterday was a busy news day for homeowners with failing subprime mortgages. The legislature, the Department of Corporations, and consumer groups were all out in front with newsworthy items.

The California Senate sent Senator Don Perata's foreclosure legislation (SB 1137), coauthored by Assembly Speaker Karen Bass and other Democrats, to Governor Schwarzenegger on a 32-8 vote with all Democrats in support, joined by 7 Senate Republicans. All eight votes in the Senate against it were cast by Republicans.

On Tuesday, it passed the California State Assembly 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 Republican Assemblymembers. All the no votes were cast despite the fact that the bill has enjoyed broad support and has no known opposition.

The bill would reform the foreclosure process in California, requiring servicers to 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, giving tenants living in foreclosed properties additional time before eviction and requires foreclosed properties to be properly maintained. The legislation will take effect immediately upon the governor’s signature, though provisions requiring servicers to contact borrowers before starting the foreclosure process will have a 60-day implementation period before it goes into effect.

SB 1137 also mandates maintenance of foreclosed properties to diminish the impact on the value of neighboring homes. The legislation is an urgency measure, meaning it will become law once the Governor signs it, and that is why a two-thirds vote was needed in each house.

This is an important and much needed step to helping borrowers, renters and communities.

Governor Arnold Schwarzenegger immediately issued the following statement, reflecting that he is going to sign SB 1137:

“We need many tools to help Californians through this housing crisis, and this bipartisan legislation provides one more tool by giving borrowers the critical time needed before a foreclosure begins to work with their lenders and stay in their homes. We all benefit when families are able to remain in their homes, so I continue to encourage both borrowers and lenders to communicate and work together because it allows Californians to hold on to the American Dream of owning a home.”