California Fails To Pass New Foreclosure Law

Posted on February 11th, 2008 by saman

The Democrat Senate Leader of California Mr Don Perata was the sponsor for a bill aimed at reducing the numbers of vacant houses resulting from foreclosure. This bill was narrowly defeated but has raised heated debate on both sides of politics.

California foreclosure rate is among the top five in the country, and the actual number of foreclosures is the largest in the country. The high foreclosure rate has led to many houses being abandoned and sitting vacant for extended periods of time which in turn attracts squatters and vandals and reduces the property values of the surrounding properties.

Mr Perata is quoted as saying “The purpose of this bill is very simple: To keep people in their homes. It’s not unheard of to see three to four houses going to seed in a neighbourhood, which affects everyone else.”

The bill if passed would have seen lenders being fined $1000 a day if they did not maintain the vacant properties and would have required them to give at least four month’s notice to borrowers before increasing mortgage payments by ten percent or more.

The bill which was submitted as urgency legislation would have needed a two thirds majority to pass. The bill failed to reach this majority and narrowly failed with a vote of 26 for and 14 against.

Republican opponents of the bill stated that it may actually worsen the current housing market situation by scaring lenders away from California. Other Republican opposition stated that the Legislators should focus on predatory lenders who enticed buyers to take out loans that they could not reasonably be expected to afford and also on those borrowers who fraudulenty lied about their incomes in order to qualify for and obtain larger loans than they were reasonably entitled to.

Mr Perata did agree that these forms of fraudulent activity and unrealistic financial planning did play a role in the foreclosure rates, but he went on to argue that consumers affected by the subprime mortgage market melt down need protection from factors such as the constantly rising interest on adjustable rate loans and from balloon payments.

Democrat Senator Mike Machado from Sacramento Valley which has been severely affected by these problems plans to rework the bill and reintroduce it. He hopes to be able to remove the legal hurdles the bill created for the banks. Even if these measures appease the objections from the other side of the political spectrum and the reintroduced bill passes with the cooperation of the Assembly the bill would not reach the Governor before fall.

Last week parallel legislation was introduced into the state Assembly, this legislation if passed would mandate that potential borrowers are able to afford the mortgage, along with property taxes and insurance.