Today, the California State Assembly blocked legislation proposed by the State Senate that would protect homeowners against foreclosure while pursuing a loan modification. The legislation was heavily supported by consumer interest groups and opposed by the California banking industry and business interests.
The Assembly rejected SB1275 towards the end of their daily session. If passed by the Assembly and signed by Governor Schwarzenegger, the Bill would have required institutional lenders to consider a loan modification on all distressed homeowners before making the decision to foreclose on the property. SB1275 differs from federal legislation because it creates a cause of action against the lender if they fail to consider a loan modification before the decision to foreclose. At this point federal legislation requires a bank who participates in Obama’s Mortgage Protection Plan to refrain from foreclosing against a homeowner who is attempting to negotiate a loan modification. Unfortunately, these rules are voluntary and have no ramifications if the bank decides to foreclose.
Statistical data show that 10% of California homeowners are 60 or more days behind on their mortgage payments. This number is almost 4% higher than the data compiled for the entire country. More than a third of California’s mortgage holders owe more on their homes than the market value of the house itself.
The spokesman for the California Mortgage Bankers Association, which opposed the law along with several other powerful business interest groups, was pleased that the bill did not pass. The vote boiled down to traditional party lines, with nine Democrats voting no and 12 Democrats who abstained. Sen. Mark Leno, D-San Francisco, plans to propose similar legislation in next year’s legislative session.
The battle between consumer advocates and business interests remains fierce in this troubled economy. Each side has legitimate concerns. Those who support this type of legislation note the unfairness of the scenario where the lender decides to foreclose against the homeowner while he or she is in the process of renegotiating the loan. On the other hand, the banking industry argues against this type of legislation because it overregulates the industry and would allow lawsuits to be brought against lenders for technical violations that would delay the foreclosure process even further against homeowners who are ineligible for a loan modification. These opponents also note the law could potentially conflict with federal regulations that would make the foreclosure process even more complicated.
If you are a Sacramento area resident facing Chapter 7 or Chapter 13 bankruptcy, and have considered a home loan modification as an alternative to losing your home, you must keep these types of issues in mind. Be aware that help and information is available to you from a variety of resources. As a Sacramento bankruptcy attorney I recommend you always consult with someone familiar with these particular topics if you are considering any of these options before making any decision.