San Diego California Home Foreclosure Moratoriums

What may have been good intentions by the Federal and state governments are making some taxpayers carry the bill for  what can only be described as living rent free on someone else’s dime.   The large number of foreclosure activity is being impacted by Federal and state moratoriums and the Federal government’s continued pressure on mortgage lenders to work out foreclosure alternatives.

The media outlets continue to show families working two full time jobs, plus extra jobs on the side, being ‘forced’ to leave their home because they can’t make their house payments.  It makes for good emotional ‘news.’ There is a different side to this story though, and once again, the taxpayers (and future generations) end up paying.

Last week Citigroup announced plans for a pilot program. Delinquent borrowers who don’t qualify for, or decline, mortgage relief would be allowed to stay in their homes without making payments for up to six months. In return, the owner/tenant agrees keep the property in good condition.   Let’s look at this a different way.  Hypothetically, say the monthly payment is $1,900.  Can the bank not get a gardener and a security service for MUCH less?

Who will make the property tax, insurance, and utility payments?  In the case of condominiums and planned communities, who pays the monthly homeowners dues? My first post on this topic: New California Law Offers Free Living for Many Homeowners was published on 6-6-09.

In San Diego, and probably all of California, many of the foreclosures involve condominiums or communities with homeowner fees. Typically, if after a number of months a homeowner is delinquent in their dues, the Association files a lien notice. In severe cases the Association will foreclose on this lien. Now with all the ‘underwater’ homeowners, many homeowner associations are not even incurring the expense of filing a lien.  Since there is negative equity the associations are rendered impotent.

If that is not bad enough, the California legislature in its infinite wisdom passed two new laws last year that effectively more than double the time before a lender can process a foreclosure. If they had added a provision that moratoriums only applied to homeowners who kept up with their tax, insurance, and homeowner fees it wouldn’t have been so bad.  In my opinion a portion of the regular monthly mortgage payment should have been included.

Perhaps that is too much common sense to expect from our government. Unfortunately, this has created a problem for California homeowner associations. Had the government stayed out of the process and not pressured lenders, the normal foreclosure time frames would not have hit the homeowner associations as hard.

In California, a foreclosure previously took 90 days plus a 21 advertising period. If there are no buyers, the property reverts back to the lender. Once the lender owns the property the monthly expenses, including the homeowner’s fee became the responsibility of the lender.

In California and many western states, on a first loan to purchase your principal residence, the lender’s ONLY recourse is to take back the property. They are barred by law from any other actions against the troubled homeowner (liens, pay garnishments personal property repossession, etc.). Whether the owner is $100,000 under water or stays rent free for another year and becomes an additional $25,000 under water, it really does not matter. The credit rating is going to take a hit for normally 7 years.  With the extent of the current housing problem this credit hit will likely have a lessened impact.  With the extensive negative equity, many are deciding the credit hit is an easy way out.

Troubled homeowners in California are finding it possible to live payment free for up to a year or more.  The homeowner associations are not collecting monthly assessments from these homeowners so the burden falls to those homeowners in the association to make up the difference.  The Association has no hope of recovering the lost fees and end up looking at increased monthly dues for everyone else or implementing special assessments.

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