Commentary
On July 8, 2008, California Governor Schwarzenegger signed Senate Bill 1137 into law. Commonly known as the Mortgage Relief or Foreclosure Reform Bill, it addresses a variety of issues in an attempt to mend the current foreclosure “crisis”. One of the new requirements placed on lenders, loan servicers, and/or their agents is to prove that they have attempted to communicate directly with delinquent borrowers about their financial situation, and have considered potential arrangements to avoid foreclosure. The proof of this activity must be filed with the recorded documents – typically an affidavit attached to the Notice of Default or Notice of Trustee’s Sale.
This new requirement went into effect on 9/8/2008.
The CA foreclosure process is managed by trustees who were already processing volumes well above their capacity. Clearly, they are now scrambling to set up the processes that this change requires. As a result, we have seen the recent volume of filings decline significantly. In some counties, we've seen declines of 80% or more in the number of filings beginning on Monday 9/8/2008.
What you need to know:
- There isn’t a data problem! The declines are an expected part of this transition.
- Be carefully withdrawing any conclusions from the declines. Even national reports may be impacted as CA represents one-third of nationwide foreclosure activity. The reality is that this only delays the process, and unless lenders radically change their position on loan modifications with principal balance reductions, it will likely have little impact other than a delay of the inevitable.
