When legislators add “Bill of Rights” to current legislation, they want us to associate the important liberties spelled out in the first ten amendments to our Constitution with whatever they’re working on. However, the California Homeowner “Bill of Rights” falls a little short.
The California Homeowner Bill of Rights became law a year ago (in January, 2013). As with many laws, the motivation behind it was good; according to the California Office of the Attorney General, the Homeowner Bill of Rights is designed to guarantee basic fairness and transparency for homeowners in the foreclosure process. However, some of the details will likely have the opposite effects to those intended.
Government “protection” is like getting “help” from your toddler. It’s well-meaning, but often counter productive.
Restriction on dual track foreclosure: the idea behind the restriction on dual track foreclosure is this: if you’re negotiating a loan modification, lenders cannot pursue foreclosures or short sales at the same time. Sounds good on the surface, but here’s the problem: by taking foreclosures and short sales off the table, you’re making it less likely that lenders will want to consider a loan modification. Foreclosures and short sales take a long time (e.g., six months or more) to come to fruition, and sometimes they don’t work out. If the lender isn’t getting paid for all those months and cannot pursue a remedy while a potential modification is underway, lenders will probably just foreclose and be done with it.
Tenant rights: for this one, buyers who purchase foreclosed homes must honor the lease with existing tenants as long as the lease exists, provided the lease was at “arm’s length” (not with your next of kin for below-market value). While this protects the tenant, it reduced lenders’ enthusiasm in funding rentals.
Basic economics are at play here. When you increase the cost of doing business to a vendor (of any kind, whether it’s a lender or a farmer or a retail merchant), the vendor will pass on the increased costs to the consumer. At some point, the vendor can’t absorb the costs or pass them on without going out of business, so the business folds. Now there are fewer lenders/farmers/merchants. Fewer vendors often means fewer choices and less competition. Taken to its logical conclusion, you get a monopoly, and monopolies are rarely known to reduce prices to the lowest level possible. I feel confident in saying that if we only had one lender to choose from, we wouldn’t be seeing 30-year fixed rate mortgages at 4.25 percent, like we are now.
Happily, the law has some positive elements. For example, if a loan is transferred to a new lender, all prior modifications must be honored (e.g., lower rates, different payment schedule, etc.). For a pretty good summary of the Homeowner Bill of Rights, go to www.oag.ca.gov/hbor. It doesn’t review the economic impacts, but it does summarize several of the provisions, from the guaranteed single point of contact to the increased statute of limitations on prosecuting fraud to tools to fight blight on vacant properties. In this column, I’m not trying focus on the negative; rather, I’m encouraging folks to consider the true costs of legislation.
Next time I’ll write about what to expect in 2014. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at firstname.lastname@example.org or visit our website at www.realtyworldselzer.com. If you have a community event you’d like me to mention, send that my way, too. To see previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.