The deadline for introducing a new bill in the California Legislature recently expired, on February 22.  As expected, a veritable avalanche of mortgage-related bills were introduced.  It appears that approximately three dozen new ideas for responding to the “mortgage meltdown” were proposed, including what might be termed “product regulation”, “provider regulation”, and, most significant for UTA, “foreclosure regulation”.

In a state with a full-time, year-round legislature like California’s, it simply is impossible to imagine a scenario where legislators do not attempt to jump in and respond to the rise in defaults and foreclosures.  Legislators respond to crises, real or imagined, and the daily, hourly even, media focus on home prices and foreclosures is absolutely irresistible.  This year, the legislative focus on the problem began even before the introduction of new bills: on January 7, the very day the Legislature returned to session for the year, a carry-over bill from 2007 was amended.  And it was a doozy.

SB 926 would have prevented the recordation of a notice of default until at least 30 days after a required in-person meeting between the lender and borrower.  The author of the bill was seen on television news programs promoting a beguilingly simple idea: shouldn’t lenders at least meet with borrowers before taking their homes away?  UTA and others attempted to explain some of the practical realities of foreclosures, including the difficulty of getting in touch with borrowers, not to mention getting them to in-person meetings.  Multiple borrowers, borrowers living abroad who would want their travel expenses paid, borrowers who promise to attend meetings but later postpone, were all cited as problems with what seems to the uninitiated like a simple idea.

The bill had a host of other problems.  For example, every real estate-secured loan in California was covered, including all commercial loans.  The bill would have required new notices to borrowers and lenders, often in six languages, on the envelope.  Failure to maintain properties after foreclosure, including permitting “excessive foliage growth” or “permitting mosquito larva to grow in standing water”, would have subjected the new owner to penalties of up to $1000 per day.

SB 926 ultimately failed passage on the Senate floor by one vote, when Republican Senator Jeff Denham from Salinas refused to support the measure.  Mr. Denham explained that he felt the bill would make the default and foreclosure problem worse, not better.  This vote was cited within days after the vote, when Democrats announced that they had obtained enough signatures to force a recall election against the Senator.  The election will be held in June.  Obviously the foreclosure situation is creating intense passions on all sides.

The proponents of SB 926 have introduced a new bill on the subject for 2008, SB 1137.  In meetings with UTA and other real estate groups, potential amendments narrowing the original bill have been discussed, including permitting the meeting to be conducted by telephone, narrowing the “workout” obligations during the meeting, shortening the required notices, and others.  It is fair to say that the proponents are very determined to enact legislation this year.

Other legislators are equally determined to enact their own solutions to the problem.  In addition to a large number of bills proposing various restrictions on nontraditional and subprime loans, for example, AB 2161 would require lenders to establish a grievance system to resolve grievances within 30 days of receipt.  AB 2187 would require that a copy of the notice of default be mailed to “a licensed credit counseling agency located in the county in which the borrower maintains his or her primary place of residence”.  AB 2460 would require credit counseling if the borrower is 65 years of age or older.  AB 2586 would require special foreclosure notices to tenants, and AB 2450 would permit tenants to remain in the property for 90 days following the foreclosure sale.  And the list goes on and on.

In the coming weeks and months, UTA Legislative Chair Ron Roup and his committee will be working hard to respond to the various proposals.  A strong coalition of real estate groups is meeting and attempting to respond with one voice to the bills.  If ever there was cause to support UTA and its mission of fair and predictable foreclosure legislation, it is this year.

For previous articles by Michael Belote, click here.