State senators Mark Leno (D-San Fransisco) and Darrell Steinberg (D-Sacramento) have once again introduced legislation in the California senate that would, if successful, help prevent foreclosures on homeowners attempting loan modifications[1]. The California Homeowner Protection Act (SB 729) requires that borrowers get a loan modification decision one way or the other before a bank can begin the foreclosure process. This bill is similar to one passed by the California senate in 2010 but then failed in the Assembly. The senators and their supporters hope that “all the recent news of robo-signing, bank errors and wrongful foreclosures will mean another chance at getting real protections for California homeowners.”

While the senators are optimistic, the beleaguered California assembly will also be considering four bills to dismantle homeowner assistance programs at the same time as they consider dramatically lengthening the overall foreclosure process via SB 729[2].  Should the bill pass, borrowers would receive a clear “yes” or “no” on a loan modification before the lender starts the foreclosure process, preventing the “dual track” approach favored by many lenders currently because it enables banks to deal with delinquent homeowners in a faster and more efficient manner. The problem with dual track foreclosures is that homeowners may be trying to qualify for loan modifications – and, in fact, be qualified for them – while at the same time losing their homes. Ultimately, the home usually goes into foreclosure and is repossessed by the bank even if a loan modification agreement is reached due to the complicated process of stopping a foreclosure.

While SB 729 would prolong the repossession process for banks, it could actually help make up for the loss of other homeowner assistance programs by improving odds for loan modifications. Do you think that this is a good bill?

Thank you for reading the Bryan Ellis Real Estate Letter.

Your comments and questions are welcomed below.

[1] http://www.dsnews.com/articles/california-senators-reintroduce-bill-to-prevent-wrongful-foreclosures-2011-03-04

[2] http://www.prnewswire.com/news-releases/sens-leno-steinberg-introduce-california-homeowner-protection-act-117252998.html