Thanks to a new law In California that took effect January 1st of this year, foreclosure activity dropped substantially last month. The law, called the “Homeowner Bill of Rights,” has now made it much harder and “potentially more costly” for banks to foreclose on homeowners.
According to RealtyTrac’s Daren Blomquist, “The new law imposes fines of up to $7,500 per loan for filing of multiple unverified foreclosure documents. As a result, the downward foreclosure trend in California accelerated into hyper speed in January, decisively shifting the balance of power when it comes to the nation’s foreclosure activity,”
RealtyTrac data shows that foreclosure activity in California fell 40 percent in January from the same period a year ago. Also last month, foreclosure starts, the first notice of foreclosure filing, fell 62 percent from December and 75 percent from January of the previous year. By comparison, foreclosure activity fell 28 percent from a year ago nationally.
Blomquist said that this type of legislation is “forcing” lenders to find other creative ways of dealing with delinquencies since the law makes it more difficult to use foreclosure as a first option.
The new solutions include short sales (when the property is sold for less than the mortgage), deeds in lieu of foreclosure and selling off bad loans to investors. Investors are often able to help keep borrowers in their home because they are buying the property at a deep discount, and then offering more drastic loan modifications to the borrower than the original lender.
According to DataQuick, nearly 26 percent of Southern California home sales in January were short sales, while just 15 percent were foreclosure sales. Cash buying by investors was at or near record levels.
RealtyTrac states that Florida now has the most properties with foreclosure filings in the nation, thanks to the legal changes in California. In January one of every three hundred had foreclosure filings in Florida.