California Foreclosure Prevention Initiative Defeated

California ranks fourth in the nation in foreclosure rate, and has had more than 340,000 foreclosures so far this year.  In response to this crisis, a bill (SB 1275) designed to prevent further foreclosures was introduced in the California General Assembly earlier in the summer.  Yesterday, the bill was defeated in the California Assembly by a vote of 29-36.

The bill would have required lenders to take four action steps before they could serve a borrower with a Notice of Default.  In brief, the steps would have been:

• Mail a notice to the borrower that would advise them of their rights during the foreclosure process.
• Mail the borrower applications for loan modification or foreclosure alternative programs.
• Evaluate all requests for loan modification.
• Mail those who are denied modification a detailed explanation for the denial

The bill would also allow borrowers some form of legal recourse if they felt they had been unfairly foreclosed upon.  Borrowers would be able to seek injunctions against foreclosure and sue for damages if they were unjustly foreclosed upon.

The language of the bill was written by the staffers at Housing and Economic Rights Advocates (HERA), a non-profit group in California in response to many of the problems they saw borrowers dealing with during foreclosure and in loan modification programs.  From the bill analysis:

“In the vast majority of cases, borrowers and their advocates are confronted with an overwhelming lack of information and communication from the servicer – about the status of their applications, the documentation they need to provide, and, in the event a borrower is notified that an application has been denied, about the reasons for the denial.  This lack of transparency makes it nearly impossible for borrowers to figure out where they are in the review process or assess whether a denial is erroneous.”

The bill was opposed by the California Banker’s Association and the California Chamber of Commerce among other groups.  The lobbyists for the banking industry argued that the bill would make the foreclosure process more complex and time-consuming than it already is, and would open up the banks to increased litigation.

Personally I like the bill because many borrowers are not aware of all the nuances of the various foreclosure prevention programs and are not always aware of their rights during the foreclosure process.  Many of foreclosure prevention programs introduced up to this point have been largely ineffective, so I think novel ideas should be lauded.  Almost anything is worth a flier at this point to see if it works.  What do you think?  Let me know in the comments section below.