On February 20, 2009, California enacted the California Foreclosure Prevention Act (SBX2 7), adding 90 days to the 3-month period currently required in Civil Code §2924 between the notice of default and the notice of sale for a nonjudicial foreclosure. The Act is applicable to loans recorded between January 1, 2003, and January 1, 2008, that are first liens on owner-occupied principal residences. Depending on the date of implementing regulations, the Act will take effect in early June 2009. Consumer advocates argue that wide loopholes will prevent the legislation from significantly slowing foreclosures. State regulators must grant an exemption from the extended foreclosure period if the lender has put a mortgage modification program in place that meets a satisfactory combination of specified features, including deferral of a portion of the principal, a reduced interest rate for at least 5 years, or an extended amortization period. To be exempt, the modification program must additionally include an adjustment in monthly mortgage payments so that these do not exceed 38 percent of the borrower's gross income-a ratio more favorable to the lender than the 31 percent ratio of the federal Homeowner Affordability and Stability Plan. Significantly, SBX2 7 does not require the lender to actually grant the loan modification to in order to be exempt from the additional 90-day period, but only to put a complying program in place.
On July 8, 2008, California signed into law SB 1137 as urgency legislation, effective immediately. The new law (1) establishes detailed procedures as part of the foreclosure process requiring lenders to contact homeowners in default on their mortgages to assess the homeowner's financial situation and explore options for avoiding foreclosure; (2) requires a purchaser to maintain under the building codes vacant residential property purchased at a foreclosure sale and authorizes local governmental entities to impose civil fines and penalties for violations of up to $1000 per day; and (3) gives a tenant or subtenant, in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days instead of 30 days to vacate the unit.
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