Santa Cruz Good Times

There are more than 100 foreclosure filings each month in the county. What has the Board of Supervisors done to address this, and do you have any further plans to do so?

The Board examined these two questions at length at our May 15 meeting.  Unfortunately, some hard truths emerged. Beyond the role the county has traditionally played in providing essential health and social services, and beyond our continued support of public and private efforts to provide some form of foreclosure assistance, there is little the county can do now or in the future to prevent a foreclosure from occurring—even a fraudulent one—without a fundamental change in state law. 

What our nation has witnessed since the collapse of the housing bubble is a deeply flawed and easily manipulated system that has allowed banks to foreclose on homeowners who could have been rescued by the right kind of modification, or who should not have legally been foreclosed upon at all. Moreover, one can only speculate on just how many of those foreclosures were initiated in the shadows of sloppy recordkeeping, cut corners, and the massive “robo-signing’’ of forged or un-reviewed foreclosure documents. How could the system have gone unchecked for so long and failed so miserably? A number of factors are to blame. However, chief among them for California is the fact that the laws governing foreclosure proceedings are woefully inadequate in protecting homeowners.

In a letter to the Board presented on May 15, County Counsel Dana McRae addressed California foreclosure law and what possible role the county could play in stemming the tide of foreclosures occurring in the county. What we learned is that California is one of 30 states that allow for “non-judicial” foreclosures. Homeowners can lose their homes to foreclosure with no court oversight and without any opportunity to present their case to an unbiased, impartial party. This skirting of due process is accomplished through the lender’s exercise of the “power of sale” clause contained in the mortgage or deed of trust. Any homeowner wishing to contest a foreclosure must file a lawsuit.  This is extraordinarily difficult to do without the help of an attorney, a cost most people in this financially challenging position can ill-afford.

By contrast, in a judicial state it is the lender—not the homeowner—who must file an action in court to obtain a judgment authorizing a foreclosure sale. In such an action, the homeowner has the opportunity to raise defenses to the foreclosure, such as the alleged default did not exist, the mortgage is invalid based on violations of state and federal consumer protection laws, or the servicer accepted but failed to process an application for a loan modification.
Without some judicial oversight over the foreclosure process, lender/mortgage servicer errors go unchallenged and homeowner defenses that could prevent foreclosure are not addressed.

The state has taken positive steps, most notably by introducing a suite of homeowner protection bills known as the “Homeowner Bill of Rights” that is currently being debated in Sacramento. And the recent negotiated settlement awarded to the state for the criminally negligent practices of some of our biggest financial institutions is the result of California’s dogged leadership in ensuring that these companies face real consequences. Unfortunately, neither the legislative action nor the monetary fix goes far enough to guarantee the protection to which homeowners—and all citizens of this nation—are entitled: the right to be heard.

In October of 2011, the State of Nevada, another non-judicial state, enacted a law requiring lenders seeking to foreclose on a home in that state to record a notarized affidavit verifying its authority to foreclose that includes information showing they have the legal right to exercise the power of sale. Our Board has requested information on what a local verification ordinance might look like for Santa Cruz County. This information is scheduled to be presented to the Board on June 12.  In the interim, however, it has become very clear that state law prohibits us from even taking that step. What will be before the Board on the 12th is proposed state legislation that will take homeowner protections to the next level. But in the end, verification without judicial review would still be an incomplete solution.

The State of California can and must do more to allow families to avoid foreclosure and preserve their homes and the wealth and savings embodied in those homes. If they are unable to do so, they must loosen the tight statutory reins that tie the hands of local government so that we can act to protect local residents. In other words, the state must either lead or get out of our way.

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