The pace of foreclosures in California will continue unabated, despite paperwork improprieties that drove three of the nation's biggest mortgage lenders to suspend foreclosures in 23 states last week, real estate attorneys said Monday.
California's foreclosure process allows lenders to take back properties owned by delinquent borrowers without any intervention by the legal system. Last week, GMAC Mortgage LLC, JPMorgan Chase & Co. and Bank of America said they needed to review thousands of crucial legal documents that they may have signed without reading. But the documents only matter in states that require a judge's order for a foreclosure. The three lenders suspended foreclosures in these states, but announced no changes to their activities in California.
In California, a lender can foreclose by mailing three letters, properly spaced: A warning that a default is imminent and the borrower should consider loan modification or some other alternative to foreclosure; a notice of default, granting the borrower 90 days to get his or her loan up to date; and a letter of trustee sale, announcing the sale of the property at public auction to follow 21 days later.
Borrowers can interrupt this process by declaring bankruptcy, or by taking lenders to court, said Kevin McCann, a Carlsbad real estate attorney.
"It really shifts the burden to the borrower to try to get court intervention to stop this process," McCann said. "Most people who are victims of this economy can’t afford to do that."
Not only must borrowers pay their lawyers' fees, but the law also requires them to put up a bond to pay the lender interest and expenses while the matter is in court. McCann said judges have wide discretion in setting the amount of the bond, but there's a $7,500 minimum, and it can easily amount to tens of thousands of dollars if the case is likely to go to trial.
"In theory, if they can prove it was an improper trustee sale, they can get money back, but that virtually never happens," McCann said.
The one weakness in the foreclosure process stems from the initial, pre-default notice letter, said Eric Ginder, a real estate attorney in Escondido.
By California law, lenders must contact borrowers to let them know they have ways to avoid foreclosure. In the event the borrower can't be reached, the lender must sign a letter swearing it made a good-faith effort. California Attorney General Jerry Brown, a candidate for governor, contacted GMAC and Chase to see whether those letters were signed with proper review, said Brown spokesman Jim Finefrock.
Sometimes a borrower can prove in court that the lender didn't even try.
"What they can probably expect to do is delay the process," Ginder said. "But the end result is probably going to be the same."