Impact of the California Homeowner Bill of Rights on Foreclosures

By Esther Cho, DSNews.com

The California Homeowner Bill of Rights (HBR) is the main driving force behind the recent slowdown in foreclosure sales and short sales in the Golden State, according to a research report from Barclays. In addition to stalling the foreclosure process, provisions in the new bill, which took effect January 1, 2013, have also led to an increase in litigation risk for servicers, analyst at Barclays found.

According the report, short sale activity and foreclosure sales have been dwindling over the past few months, as indicated by foreclosure-to-REO and foreclosure-to-liquidation roll rates. At the same time, roll rates in other states appear to be steady.

As a result of the HBR, Barclays believes “servicers have become significantly more cautious when carrying out foreclosure sales” in the state. While the bill offers several protections to homeowners, one particular provision that allows borrowers to sue servicers for “material violations” of HBR could result in additional costs for servicers.

Violations of the HBR include dual-tracking, failing to provide a single point-of-contact, and neglecting to deliver proper notice of loss mitigation options.

The report explained that prior to a foreclosure sale, homeowners can seek injunctive relief to halt the foreclosure process. If a homeowner secures an injunction, the borrower can pass all legal costs to the servicer through the HBR, even if no material violation of the HBR is proven later, the report explained.

“Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.

If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.

“Furthermore, borrowers are much more incentivized to demand a copy of the promissory note, the chain of mortgage assignments, and the borrower’s payment history to collect evidence that a breach of HBR occurred, further stalling the foreclosure process,” the report explained.

Even though California is not a judicial state, analysts suspect the increase in litigation risks and the extended foreclosure timelines might cause servicers to pursue more judicial foreclosures, which are exempt from the HBR’s provisions.



Demand Rises, Inventory Falls in Single Family Rental Market

By Krista Franks Brock DSNews.com

Demand in the single-family rental market continues to expand even as inventory tightens, according to the latest MarketPulse report from CoreLogic. Comparing lease rates, supply, pricing, and the ratio between bid prices and asking prices clearly demonstrates an increasingly tightening market.

“[S]ome of the new demand is being driven by former homeowners who have experienced foreclosure,” CoreLogic stated in its report. As a result, markets experiencing the greatest growth in single-family rental demand are the same markets that were hardest hit by the housing crisis, including Florida, California, and Arizona.

Currently, the greatest amount of growth is occurring in North Port, Florida; Cape Coral, Florida; and Honolulu.

Nationally, single-family leases were up 7 percent in August year-over-year and have shown a 12 percent increase year-to-date. The August data is not an anomaly but a growing trend, according to CoreLogic, which reported leasing volumes rising sequentially each month over the last two years.

At the same time, inventory has been decreasing. In August, single-family rental inventory was down 11 percent from a year earlier.

The market held about 2.6 months’ supply in August. A year earlier, supply was at about 3.2 months.

Inventory declined sharply this past summer with a strong rise in closings, according to CoreLogic.

Listings are being rented faster. In August, a listing took about six weeks to rent, down from eight weeks a few years ago in 2009.

After declining for two years, rental prices have been on the rise since 2011, rising 2 percent over the year in 2011 and 1 percent year-to-date in 2012.

CoreLogic expects rental prices to continue to rise throughout the rest of this year and next. Rental prices are generally less volatile than home prices, and home prices have experienced increases of late.

The ratio between listing rent and actual rent paid is another indicator that points to a tightening in the single-family rental market. Two years ago when rental prices were declining and inventory was higher, the spread was about 4 percent. Today it stands at about 2 percent.

“[A] weak labor market, tight underwriting for owner-occupied properties and elevated foreclosures will ensure continued strong demand for single-family rentals,” according to CoreLogic.

California Anti-blight Bill Signed into Law

By: Tory Barringer, DSNews.com

California governor Edmund G. Brown signed into law a bill to help combat neighborhood blight, state attorney general Kamala Harris announced Monday.

The bill—AB 2314—gives new homeowners additional time to fix any code violations in a home before local agencies move in to enforce the codes. It also extends indefinitely an existing provision that requires the owner of a foreclosed property to maintain the property.

“We need solutions to the problem of blight which threatens the health and safety of California communities hit hardest by the mortgage crisis,” said Wilmer Carter (D-Rialto), assemblymember and the bill’s author. “AB 2314 will ensure that local jurisdictions continue to have the tools to prevent and fight neighborhood blight due to foreclosures.”

The new law is part of Harris’ California Homeowners Bill of Rights, a series of bills designed to extend reforms first negotiated in the national mortgage settlement. Two previous bills were signed into law in July.

Other components of the Homeowners Bill of Rights are pending in the legislature. They include provisions that would enhance law enforcement responses to mortgage and foreclosure fraud and grant Harris the ability to convene a special multi-jurisdictional grand jury when necessary.

Another bill that would grant protections to tenants in foreclosed homes is currently awaiting action by the governor.

 

FHFA Significantly Concerned Over Eminent Domain Proposal in California

By: Esther Cho – DSNews.com

FHFA issued a notice Wednesday to warn of the controversial use of eminent domain recently proposed in San Bernardino County.

In San Bernardino County, officials are considering the use of eminent domain to seize underwater mortgages. The mortgages would be taken at fair market value, and then restructured into new loans with terms reflecting the current market. Chicago and Berkeley are also exploring the proposed use of eminent domain.

In the notice, which was sent to the Federal Register, FHFA stated it had “significant concerns about the use of eminent domain to revise existing financial contracts and the alteration of the value of Enterprise or Bank securities holdings.”

FHFA said that in relation to the Fannie Mae and Freddie Mac, the use of an eminent domain program could result in a cost to taxpayers.

FHFA also stated it had significant concerns regarding a “chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.”

As conservator for the GSEs and as a regulator for Federal Home Loan Banks, FHFA stated it may need to take action “to avoid a risk to safe and sound operations and to avoid taxpayer expense.”

Along with concerns, the agency also raised several questions, including the constitutionality of the proposed use of eminent domain; the effects on holders of existing securities; and the impact on millions of negotiated and performing mortgage contracts.

FHFA said it is accepting input on topic through its Office of General Counsel (OGC) no later than September 7, 2012.

Views on the topic may be emailed to eminentdomainOGC@fhfa.gov or sent to FHFA OGC, 400 Seventh Street SW., Eighth Floor, Washington, D.C. 20024. Input may be made public.

Outdated Laws are Causing Second Foreclosure Crisis

Outdated state laws are fueling a second foreclosure crisis-this one affecting the elderly and the disabled, according to a report from the National Consumer Law Center (NCLC).

The report, titled The Other Foreclosure Crisis: Property Tax Lien Sales, reveals that laws in many states allow local governments to sell property through a tax lien foreclosure process if the owner falls behind on property taxes. In some cases, owners owing as little as $400 lose their homes.

A tax lien may be started over nonpayment of a small delinquent tax bill and then sold at a tax lien sale for the back taxes owed on the property. If the homeowner fails to buy back the property, the purchaser may acquire the home for very little and then resell it for a huge profit.

Currently, tax lien sales total approximately $15 billion annually, and they are increasing due to a weak job market, depressed home values, and an increase in mortgage foreclosures. Florida had nearly $2 billion in back tax liens and sold $1.8 billion of them in 2009, and a Mississippi county doubled the number of properties in its annual tax sale in recent years. Other states identified in the report as “especially at risk” are Illinois, Iowa, New Jersey, New York, and Texas.

The report noted that homeowners most vulnerable are those who have fallen into default because they are incapable of managing their financial affairs. These people include those who suffer from Alzheimer’s, dementia, or other cognitive disorders.

“Homeowners throughout the nation, particularly elderly and people with cognitive challenges, have lost or stand to lose family homes along with long-term equity which may represent their sole savings and security for retirement,” said John Rao, NCLC attorney and author of the report. “Our report is a wake-up call for states to reform tax sale laws to keep speculators from reaping huge windfalls at the expense of fragile citizens while still ensuring local governments receive much-needed tax revenue.”

In addition, a government study found that property tax foreclosures in New York City in 2011 were highly concentrated among low-income communities with large black and Latino populations. These groups are also targeted often by subprime mortgage lenders. Tax lien sales may increase the number of vacant and neglected properties, bringing down tax revenue further and destabilizing communities.

The report noted that many individual tax sale purchases and investment companies such as Bank of America and JPMorgan Chase have used the tax sale process as a profit center. Tax liens can yield a rate of return as high as 50 percent, and many state laws permit lien purchasers to charge homeowners high interest rates and fees to redeem their property. In states like Georgia, Iowa, Mississippi, New Jersey, and Texas, these fees exceed 20 percent.

Often, investors take advantage of the fact that the tax sale process is not largely understood by homeowners. Furthermore, most states do little to inform homeowners about what they can do to avoid foreclosure. Almost no states have updated tax lien laws to reflect current economic conditions or to ensure that there are safeguards to protect homeownership.

Based on these findings, NCLC recommended steps for states to adopt which would reflect the goal of preserving homeownership while ensuring payment of local taxes: Firstly, state laws should be reformed to limit the maximum interest or penalty rate on redemption amounts. Secondly, states should not permit investors to increase their profits by charging unreasonable fees to redeem after the foreclosure process has started. Finally, establish a tax sale procedure that involves court supervision to ensure that the sale price is fair and that surplus funds go to the homeowner.

The report also suggested steps that cities and towns could take, including the implementation of redemption payment programs, arrangement of adequate notice at every stage of the tax sale process, and greater effort to provide information on redemption rights.

While some states have adopted improved laws to protect homeowners, NCLC said these measures aren’t enough.

“The consequences of homeowners not understanding their rights or the process of a tax lien sale is devastating for individuals, families, and communities,” says Rao. “To date, states have done very little. Will legislators and policymakers now reform their laws to help keep elderly and other homeowners from losing their homes due to a small property tax delinquency? We certainly hope so, and the sooner they act to head off this swelling problem, the better.”

By: Tory Barringer