As you may or may not have heard, the State of California is currently working on passing a Homeowner Bill of Rights. Monday 7/2/2012 the State Senate and Assembly took a big step towards getting this passed as a bill. “The Assembly, by a vote of 53 to 25, and Senate, 24 to 13, approved the Foreclosure Reduction Act” as noted in the article from The Housingwire.
This Act aims to help homeowners who are still struggling with homeownership. One of the most impactful things the act does is to limit the bank/lender options of foreclosure while they are exploring options such as principal reductions or loan modifications. The act forbids foreclosures and notices of default and even trustee sales while they are negotiating a short sale or modification with the homeowner.
In recent history many people have been negotiating with the banks to do a short sale or a modification. The banks had been making a business decision to continue to move forward with foreclosures while they are in such negotiations. Banks do this so that if the modification or short sale falls apart, they haven’t lost as much time on their foreclosure process. The last thing they want to happen would be for them to get 3 months into a short sale, have it fall apart, and then be 3 months behind on the foreclosure process. Homeowners would be negotiating in good faith and then find out that a foreclosure went through and that a trustee sale is coming in the immediate future.
This Act, which now must be signed by the Governor, will provide additional safety for homeowners who are struggling with their mortgages. Unfortunately, it does not mean the banks will elect to negotiate short sales or modifications; they could still decide to foreclose. It just means that once a bank starts to negotiate short sales or mods, they must halt the foreclosure proceedings.
With the markets starting to steadily increase, now is a great time to buy a home. We should expect the number of short sales to increase, which means the number of foreclosures will decrease. With an expected rise in short sales, this is a great time for a consumer protection act like this one.
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