California's Homeowner Bill of Rights: What We Can Learn

california homeowners bill of rightsBy Barry Paperno

Last week, the California legislature passed the Homeowner Bill of Rights, a series of bills enacted to protect California homeowners during the mortgage modification and foreclosure process.

This landmark law builds upon and extends reforms negotiated in the recent national mortgage settlement between 49 states and the nation's five largest loan servicers, a case brought over the practice of "robosigning" documents: Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo. But unlike that settlement, this new legislation applies to all banks, although those that process fewer than 175 foreclosures a year would be exempt from some procedural requirements.

The Homeowner Bill of Rights takes effect Jan. 1, 2013, and imposes the following requirements on lenders and loan servicers:
  • Prohibits "dual track" foreclosures, where the servicer continues with the foreclosure process while at the same time negotiating a loan modification with the borrower.
  • Guarantees a single point of contact provided by the lender/servicer for a borrower with a loan modification application pending.
  • Requires banks to clearly explain to borrowers why they are rejected for a loan modification.
  • Gives borrowers the right to sue lenders for "significant, material violations" of the law.
  • Requires that servicers document their right to foreclose and imposes fines of $7,500 per loan on fraudulently signed mortgage documents.
Consumer-advocate critics of the bill have charged that:
  • Only first-lien mortgages for owner-occupants apply.
  • By not taking effect until 2013, hundreds of thousands of troubled homeowners won't benefit from these protections.
  • Servicers aren't obligated to consider applications for loan modifications or appeals before Jan. 1, 2013.

Similar measures to help homeowners have repeatedly failed in California over the past four years, after lobbying by banks and other lenders, but California Attorney General Kamala Harris is being credited with shifting the political landscape following her involvement in the national mortgage settlement. In announcing the bill, Harris said: "The California Homeowner Bill of Rights will give struggling homeowners a fighting shot to keep their home."

While most smaller banks and credit unions remained neutral, opposition to the Homeowner Bill of Rights was mounted by the large banks, the California Chamber of Commerce, title companies, real estate agents, trustees and securities industry representatives.

Rodney K. Brown, president and CEO of the California Bankers Association, stated in a response to a recent Sacramento Bee editorial: "Our industry cannot support legislation that promotes meritless litigation, particularly in an environment where our court system is already overburdened, that will ultimately have no impact on the underlying financial condition of the borrower who cannot afford to stay in their home." However, Brown agreed with some of the bill's provisions, such as borrowers being entitled to an answer regarding their loan modification before being foreclosed upon and eligible loan modification applicants having a consistent point-of-contact.

Will other states follow California's lead by enacting similar homeowner protection legislation? While perhaps a little too early to tell, if this victory for troubled California homeowners last week is any indication, the odds are looking better and better that some relief is on the horizon.

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California's Homeowner Bill of Rights: What We Can Learn

Current price: $310,000
Peak sale price: $610,000 (Oct. 2005)
Beds/baths: 5/3.5
Square feet: 4,198

In the past several months, many small- to mid-size homes have sold in the Phoenix area, freeing up sellers who wanted to trade up, explained Marci Burgoyne, a broker with Crown Key Homes in Phoenix.

And many are finding huge bargains. This Spanish Colonial last sold in late 2005 for $610,000. The current asking price is almost half that.

Inside the home, there are five bedrooms (all with walk-in closets), an expansive foyer, vaulted ceilings, tiled floors, balconies and an up-to-date kitchen.

Outside, there are fruit trees, an automatic watering system and a swimming pool. And the garage has room for four cars.

Current price: $396,000
Peak sale price: $990,000 (Sept. 2007)
Beds/baths: 5/3
Square feet: 4,304

It's not every day you get to buy a place with its own pond, or an acre of land in Pinellas County, Fla., for under $400,000, for that matter. But this huge place -- just a 24-mile drive from Tampa -- offers both.

According to listing agent John Rurkowski, it's a rarity. "We just don't make land like that in Pinellas County," he said.

Located within walking distance from Lake Seminole State Park, it's now being offered at a 60 percent discount to its sale price of $990,000 five years ago.

Among the amenities: a two-story entryway, a great room with a sweeping staircase, a swimming pool, plenty of outdoor entertaining spaces and a master suite with a fireplace and den.

According to Rurkowski, deals like this may not last long. The local market for large homes is gaining steam, he said. During the two months through April, home prices on all types of homes in the Tampa-metro area were on the rise, according to the S&P/Case-Shiller home price index.

Current price: $260,000
Peak sale price: $435,665 (Feb. 2005)
Beds/baths: 4/3.5
Square feet: 4,036

Until recently, smaller homes were pretty much the only real estate selling in the greater St. Louis area, according to real estate agent Lucinda Seymour.

Now, she said, "There are buyers at all price points. Buyers are finally feeling more optimistic."

Demand for homes like this one has picked up, she said.

Located in a residential community just 20 miles south of St. Louis, the four-bedroom home has a huge great room with a fireplace and floor-to-ceiling windows looking out onto a community lake. The big kitchen boasts a center island, double-oven and breakfast room.

The home is being sold in a short sale, however. And it's being sold "as-is," meaning the current owner won't be making any repairs for the buyers.

Current price: $250,000
Peak sale price: $576,000 (Aug. 2009)
Beds/baths: 4/3.5
Square feet: 4,063

For the past several years, Las Vegas has been the poster child for the foreclosure mess, but recently the market has started to stabilize and demand for homes has been on the upswing.

That has opened up the market for existing homeowners to sell their homes and trade up to bigger ones, said Bill Jenkins, an agent with Keller Williams Realty. And many of them are taking advantage of the deep discounts in the area to get the home of their dreams.

This house, which was built in 2007, is in "immaculate condition," he said and selling at 57  percent discount to its last sale price three years ago. It features a columned portico, a balcony and an attached three-car garage. Inside, there's a large kitchen with hardwood cabinets, granite countertops, tile floors and lots of built-ins.

Current price: $350,000
Peak sale price: $550,000 (May 2009)
Beds/baths: 5/4
Square feet: 5,936

In early 2005, this huge, modern house had an estimated value of more than $1 million, according to real estate web site Zillow. The value had dropped to $550,000 when it sold three years ago. Now it's being sold for almost half that price.

Part of that price cut reflects the collapse in home prices in the Cape Coral/Fort Myers metro area, but part of it is due to the fact that this home is in need of some serious TLC.

The 6,000-square-foot home, which is being sold in a short sale, was damaged and stripped by a previous occupant.

Those willing to put in some elbow grease will get plenty of space and amenities in return, including five bedrooms and 4 bathrooms, in which there are two Jacuzzi tubs and three saunas. Outside is a huge pool.

Aaron Eyerman of Blue Water Realty said he has seen a pick-up in demand for larger homes in the area. "On our website, we've definitely noticed a surge in interest in four-bedroom homes and up," he said. "[P]eople figure 'Why not get more for your money.'"

Current price: $299,000
Peak sale price: $569,000 (March 2006)
Beds/baths: 5/3
Square feet: 4,304

Miami's once beaten-down market is starting to make a comeback. And those looking for the really big deals will have to act fast.

"While there are still some real bargains in the area, it's no longer a buyer's market," said listing agent Justin Willard.

Willard has already fielded more than 10 bids on this 4,300-square-foot Mediterranean-style home since it went on the market in mid-June.

It offers tile floors, a large backyard, a basketball court, a swimming pool and a three-car garage.

Whoever buys the place will likely feel pretty good about the price tag: The home is selling for a fraction of what it last sold for in March 2006.

Current price: $310,000
Peak sale price: $659,000 (Feb. 2007)
Beds/baths: 6/4.5
Square feet: 4,065

Located in a suburb 80 miles southeast of Los Angeles, this 4,000-square-foot home has lost more than half of its value since it was last purchased in February 2007.

But big houses like this may not stay this cheap for long. Demand for big homes is picking up in the area and there isn't a lot of supply, said agent Richard Knapp.

"There are 30 buyers for every house," he said.

This home is nicely appointed with plantation shutters, a fireplace and an open floor plan. It has a three-car garage and even has parking for an RV. Knapp said there's shopping, medical facilities and parks close by.


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