Californians get 90-day foreclosure moratorium

June 24, 5:10 PMReal Estate News ExaminerBroderick Perkins

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Struggling Californian homeowners can breath a sigh of relief -- if only for three months.

A 90-day foreclosure moratorium is underway in the Golden State.

The law, effective June 15, 2009, is designed to get lenders to try harder to keep borrowers in their homes.

The Golden State is ground zero in sheer foreclosure numbers -- up to 90,000 combined default notices, scheduled auctions and bank repossessions are filed every month, more than any other state. The number represents nearly one in three foreclosure filings nationwide.

The moratorium applies to owner-occupied households; first mortgages or deeds of trust; loans recorded between Jan. 1, 2003 to Jan. 1, 2008; and mortgages that have no Notice of Default (NOD) recorded against the property.

Under the new law, loan companies have to prove they tried to modify loans of struggling homeowners before they can begin foreclosing. Otherwise, lenders must give homeowners the three month reprieve before they begin foreclosure.

In California, a loan modification program is one that modifies a borrower's loan terms by changing the interest rate, amortization schedule, principal loan amount, or other appropriate factors that results in achieving a 38 percent debt-to-income ratio for the borrower.

The California Foreclosure Prevention Act is somewhat compatible with efforts under the Obama Administration's MakingHomeAffordable.gov effort. The federal effort does, however, have provisions for modifying second mortgages.

Unfortunately for some homeowners, the law also comes with many exemptions, including:

• Lenders who have a mortgage modification program in place that meets state requirements for modifications aren't required to comply with the law.

• Lenders who can document that a modification will result in a greater loss than a foreclosure don't have to apply the moratorium to such loans.

• Loans purchased, serviced, or used as collateral by California Housing Finance Agency (CalHFA) aren't qualified for the moratorium.

• Loans where the borrower has surrendered the property, contracted with an organization to extend the foreclosure process, or has an open bankruptcy case are not eligible for the moratorium.