Information on the California “Foreclosure Moratorium”

Is this moratorium any good for you?  Here are the features involved:  If you need to talk to someone, you may contact me, and I will try to help you.

Recent news headlines have caused confusion by mischaracterizing the new California Foreclosure Prevention Act as a “90-day moratorium” and incorrectly stating that the lender must modify delinquent loans before it begins foreclosure. In reality, the foreclosure process for certain owner-occupied residential first trust deeds has been extended by 90 days, effective June 15, but an exemption is available for lenders with comprehensive loan modification programs as defined by the Act.
Under pre-existing law, a lender must wait three months after filing a notice of default before it can file a notice of sale. The new California Foreclosure Prevention Act extends that time frame by another 90 days. However, there are some notable exceptions:

Most notably, a loan servicer is exempt from the 90-day extension to the foreclosure process if the loan servicer has obtained an order of exemption based on the implementation of a comprehensive loan modification program (Cal. Civil Code § 2923.53(a)) (see Questions 89 to 94).  The order of exemption must be current and valid at the time the notice of sale is given (Cal. Civil Code § 2923.52(b)).

Other exceptions to the 90-day extension (“extension” in this case means the lender has to “extend” the foreclosure process to give the borrower more time) include the following:

•  Certain state or local public housing agency loans (Cal. Civil Code § 2923.52(c)).

•  When a borrower has surrendered the property as evidenced by a letter confirming the surrender or delivery of the keys to the property to the lender or authorized agent (Cal. Civil Code § 2923.55(a)).

•  When a borrower has contracted with any person or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to the lenders (Cal. Civil Code § 2923.55(b)).

•  When a borrower has filed a bankruptcy case and the court has not entered an order closing or dismissing the case or granting relief from a stay of foreclosure (Cal. Civil Code § 2923.55(c)).

In order to qualify, a servicer (collection agent) /lender must have a program in place that includes the following:

A comprehensive loan modification program that may exempt the loan servicer from the 90-day extension to the foreclosure process includes all of the following features:

•  The loan modification program is intended to keep borrowers whose principal residences are located in California in those homes when the anticipated recovery under loan modification exceeds the anticipated recovery through foreclosure on a net present value basis (Cal. Civil Code § 2923.53(a)).

•  It targets a 38 percent or less ratio of the borrower’s housing-related debt to the borrower’s gross income (Cal. Civil Code § 2923.53(a)).  Housing-related debt is debt that includes loan principal, interest, property taxes, hazard insurance, flood insurance, mortgage insurance and homeowner association fees (Cal. Civil Code § 2923.53(k)(2)).

•  It includes some combination of loan modifications terms as specified (Cal. Civil Code § 2923.53(a)) (see Question 91).

•  The loan servicer seeks long-term sustainability for the borrower (Cal. Civil Code § 2923.53(a)).

A comprehensive loan modification program that may qualify for exemption from the new law extending the foreclosure process by 90 days must include some combination of the following features:

•  An interest rate reduction, as needed, for a fixed term of at least five years;

•  An extension of the amortization period for the loan term to no more than 40 years from the original date of the loan;

•  Deferral of some portion of the unpaid principal balance until loan maturity;

•  Principal reduction;

•  Compliance with a federally mandated loan modification program; or

•  Other factors that the appropriate commissioner determines.

(Cal. Civil Code § 2923.53(a)(3).)

I’ve taken this information from the California Association of Realtors’ website.  if you want more comprehensive information, I suggest you call me, or log on to their website at www.car.org