Cleanup: Banks must maintain foreclosed homes

News item: A foreclosure-prevention bill headed for the governor's signature in Sacramento requires the owners of foreclosed homes -- banks and lenders -- to maintain the properties. It's not clear that such a law would be enforced (who inspects foreclosed homes?), but this is a start. From today's L.A. Times: The bill "...authorizes local governments to force lenders to maintain property that is sitting empty after a foreclosure.

The headline on the bill -- passed by the Senate and awaiting the governor's signature -- is that it requires earlier notice to homeowners at risk of default: "The legislation, which passed on a 32-8 vote, would require lenders to give homeowners more -- and earlier -- warnings that their home loans were heading toward default."

Presumably, earlier warnings will give homeowners a better chance of working with their lender, or lenders -- remember, many have more than one loan -- to restructure their mortgages.  Related news item: Loan workouts under the government-brokered Hope Now program actually decreased in May: "U.S. mortgage servicing companies helped 170,000 homeowners modify loans or set repayment plans to avert foreclosure in May, a 7% decrease from the previous month, according to an industry survey."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[Michael Snyder]

Why is it California's legislature thinks a warning label is a solution? Is this what we'll see on the doors of foreclosed homes? "Warning: This property contains materials, insects and physical hazards the State of California has found to be potentially harmful to your health."
It's a sad commentary when a business sector has to be legislated into maintaining it's assets. Common sense would dictate maintaining these properties just to preserve their value, but if these lending institutions had used a little common sense, we wouldn't be in this situation today.

[Brad]

Like most knee-jerk legislation, it makes for good sound bites but has no real substance.

Exactly right -- who's going to regulate, inspect, and enforce these "standards"? For that matter, who's going to set them in the first place? An abandoned property in the heart of L.A. is going to have different criteria for maintenance than, say, a lot in Santa Clarita.

As for more notices before beginning foreclosure proceedings, how exactly is that going to help "keep people in their homes"? If you can't (or choose not to) pay the morgage you'll be f/c'd and out the door regardless. Are we supposed to believe that hapless families being pushed out into the street after not paying the mortgage for 9+ months comes as a surprise?

[dclogang]

I don't mind this. Giving a little more notice on NOD.

However, I'm not sure that it will do much good and it looks as though fewer people are doing it with the increase in foreclosures.

I think most people shouldn't have gotten those loans in the first place or used their house as an ATM.

Banks should rent those houses out to people who are waiting to buy or wanting to continue to rent.

That way they lose less money, the property is kept up and neighborhoods don't go to $#!*. Less crime, vandelism etc.. (I know, I know, banks aren't in the business to rent houses but it's a far better solution than the banks losing our money and the afore mentioned neighborhood going to "you know where" senerio).

[pugtv]

ShockG,

Here's the plan to further our agenda. You and I scare these bloggers into buying a house. We tell them to ignore foreclosure data because it's fictitious. Sound good? =)

[ladybug]

earlier notice? you mean the homeowner does not know that they are not making their payments?

[CD]

What do they mean by early warning ? How early ?About before you buy the house when you tell them: you do not make enough money to purchase this home.Would that be early enough? If the banks did not care to ask such questions, do you think they care about mowing the lawn on an empty financially dead house ????
This is just PR BS from the governor's office, where was he for the past years, in his mansion in Brentwood ,commuting, spending $10,000/day on his jet plane, dining with developers and stars in Santa Barbara.
Did he care ???? NO

[Ace]

Anyone catch Dave Ramsey last night? A woman from Florida called in who was 13 months behind on her mortgage payment and the bank is now finally saying they are going to foreclose. So what did she do?

She called a Realtor and listed the house for sale. She said that the house appraised for $795k in 2006.... so she listed the house for $840k!

People in Florida would be lucky to get 50 percent of an 06 appraisal but she thinks she can get more.... despite fighting the clock with the upcoming foreclosure.

Here is the kicker. She owes less than $300k on the mortgage.

[CallMeIshmael]

Fire up that bulldozer!

[Nick]

Seems to be a good bill overall, which is frankly shocking in light of all the other horrible bailout bills being proposed and debated at both the local and national level. As far as I can tell, the basics are:

- More notification for homeowners before foreclosure. This is totally pointless, since most people are defaulting because they were speculating with bad loans and are now underwater, not because they missed the memo to pay. However, it's not really that negative either, since lenders will be backlogged for a while anyway. It increases the lender costs to do business in California, but it shouldn't affect rates more than a small amount, so not too much harm.

- Notification for tenants. This is reasonably good; more notification about the landlord's financial condition should limit scams a bit.

- $1000/day fines for lenders who don't maintain foreclosures. Good or great provision, depending on your perspective. Keeps neighborhoods more maintained, shortens REO time, discourages banks holding properties for market conditions, and increases state revenue. A solid positive.

That's how I see it, anyway.

[TakeFive]

Read somewhere that lenders are going though with the foreclosure, but postponing the final judgement.

This supposedly allows them to claim they don't technically own the property and can therefore avoid bringing the taxes current or assuming responsibility for maintanence.

[Scott McIntosh]

I think you guys are right, who is going to enforce this? And what a noble concept, protect the value of your asset by maintaining it. I have shown several foreclosure homes to clients and they are always a complete mess; broken windows, broken mirrors, missing appliances and cabinets, distroyed kitchens and bathrooms, holes in the walls, outlets removed, lights removed, etc.. Basically people that are being evicted out of their homes destroy them and stop maintaining them during the foreclosure process, so they go to hell. If this ever gets enforced maybe it will motivate these banks to try and just get rid of them as quick as possible so they don't have to spend any money to fix or maintain these places.

http://www.thewestwoodblog.com

[mike]

this is the best news i've ever heard. if they even mildly enforce it, the banks will start dropping these properties like flies and that will kickstart the housing market.

[Last Laugh]

I think is will add more downpressure for banks to quickly unload their REOs. I agree that it would be hard to enforce, but this open the door for potential lawsuits from neighbours of REO properties. Banks would need to take care of obvious things like mosquitoes infested pools, brown lawns, houses with grafitti or squatters.

[adoptivefather]

Want to understand CA economic problems? Look no further than example below. Inmates in charge.

"..........You may have heard the story. Rather than turn over juvenile Honduran drug dealers to federal authorities for deportation, the City of San Francisco escorted them out of the country. When then was found to be illegal, San Francisco housed them in a low-security facility in San Bernardino County, at a cost of $7,000 per month per person. All of the Hondurans have since escaped from the housing.

_

CAPS has requested that Governor Arnold Schwarzenegger and California Attorney General Jerry Brown investigate San Francisco and its Juvenile Probation Department. The U.S. Attorney has said he is "monitoring the situation." It is necessary to ascertain whether other criminal activity, such as payoffs by the drug cartels, has occurred............."

[smellbo]

This is a way around the eminent domain requirements. Cities will start charging $10,000 per day penalties for "failure to maintain" the properties. By the time the lender realizes it, the city will "own" the property, then re-sell it as affordable housing.

[adoptivefather]

Every new regulation further raises the cost of business and strangles the mortgage market making it LESS likely someone can borrow. This idiotic bill will only drive prices lower than otherwise.

SMART MOVE!!

[adoptivefather]

"........Exactly right -- who's going to regulate, inspect, and enforce these "standards"? For that matter, who's going to set them in the first place? An abandoned property in the heart of L.A. is going to have different criteria for maintenance than, say, a lot in Santa Clarita..........."

The answer to this question is: the lawyers will. With gotcha lawsuits capturing millions in legal fees when they sue unsuspecting lenders. Lawyers write thiese BS laws to set themselves up for future paydays.

Meanwhile the economy dies for the average person trying to make a buck to feed their family.

[campechano]

I think it's a good bill. If they're able to enforce it and hold banks, etc accountable that would mean that banks would have to stop sitting on these houses and start selling them at LOWER prices in order to avoid penalties and other losses stemming from the market's downward spiral.

[MyLessThanPrimeBeef]

I like it!

I would like it more if the government can make banks think clean thoughts as well.

Why?

Sanitation and sanity probably derive from the same Latin or maybe Sanskrit root, 'sane' - if you think cleanly, you are less liable to go insane, i.e. not clean.

So, think clean thoughts. Avoid Hollywood. And you will be sane.

BTW, I wish the government will also make banks clean up their cellars where all those toxic Level 3 assets are hidden.

Speaking of Floridian real estate, there was a story last week about a woman there offering 'love' to the beau who will take over her mortgage. I wonder if good ol' Mel has a similar offer to any lady who will just take over the loan(s) on his Malibu house and saves himself half million in commission.

[E]

If the dumb-ass banks didn't dilly dally with their prices maybe more of those heaps-O-dung would sell. The banks are just as wishful as the pie in the sky homeowners.

[Todd in WeHo]

If this is actually enforced, talk about the banks being motivated to sell...Sell...SELL!

[Dougmc]

Several questions about the "lender obligation to maintain" portion of this law.

1. Does the lender have to fix damage done by the prior owner and vandals BEFORE the lender takes title or does the lender merely have to maintain the property in its condition at the time the lender takes title? Exposing the lender to liability for the borrower's conduct might be a real damper for lending in certain areas.

2. If a federal agency takes over bad loans under the Dodd-Frank bill, will we be treated to one governmental body suing another? Is the federal government immune?

3. How will this and other laws affecting lender remedies for default affect mortgage securitization? I don't know how loans are selected for packaging, but I thought they had to be more or less uniform. Will California loans have to be placed in separate securities or will they be put in a separate, lower quality tranche (and be priced accordingly)?

[PeonInChief]

The three important provisions of this bill for tenants:
1. It requires that a copy of the Notice of Trustee Sale be mailed to the occupants of the soon-to-be-foreclosed house, thus letting them know that there's are serious problem. (Amazingly--well, not so amazingly-- the Legislature caved on requiring that tenants be notified when a Notice of Default was filed. The mortgage bankers and their ilk claimed that it would be an invasion of privacy--even though the Notice of Default is a public record.) So the tenant will have some small advance warning.

2. It extends the current notice to vacate for tenants from 30 to 60 days. And 60-days notice would be required for ALL tenants, not just those who have lived in the foreclosed property for a year or more.

3. It specifically states that local rent control/just cause eviction ordinances are controlling in foreclosures. The landlord interests had tried to argue that state law overrode local ordinances. This legislation says it just ain't so.

[diogenes]

adoptivefather wrote:
Every new regulation further raises the cost of business and strangles the mortgage market making it LESS likely someone can borrow. This idiotic bill will only drive prices lower than otherwise.

Amen! Anyone think that a bank on this planet is going to lend money to deadbeats in the "Peoples DemoKratic Republic of Kalifornia with bills like this?

[syscom3]

Making banks keep up their foreclosed properties is a great idea for me. Theres nothing sophisticated in having someone water the lawn or painting over graffiti. Who cares whats the condition of the interior. Its the exterior portion visible to the public and the neighbors that count.

As for being required to notify people well in advance of possible problems ..... how can that be a business burden? Are you telling me the cost of a certified letter will bankrupt a bank?