2013 has seen some changes in foreclosure laws in California.
Banks are no longer conducting "Dual Track" foreclosures on First TD's. That means that a borrower can either negotiate their note if they are paying on time or they simply go into foreclosure. The lenders have to take certain steps before the foreclosure begins, but those who are not making their payments are unlikely to qualify for any type of help.
Contradicting this is the recent California Supreme Court Ruling that allows borrowers to offer oral evidence in court contradicting the terms of the note. In a recent ruling, the court considered it valid to argue that what was promised in modification discussions was not what the note said. See Riverisland Cold Storage v. Fresno-Madera Production Credit Ass'n to see what the change in interpretation could mean in a given situation.
By allowing a borrower to argue without physical evidence, that a modification arrangement was promised and the ensuing documents were unlike the actual agreement, the Court is opening a door that will compel lenders NOT to enter into modification discussions. The result is likely to be rigid lines drawn in the sand where you either qualify or you don't, and there will be no room for maneuver or individual arrangements.
This will translate into a resurgent wave of foreclosures, as many parties who have fallen in arrears will be unable to negotiate their way into modifications and will instead wind up losing their properties to auction. This will most likely happen when interest rates climb. Many indicators are that rates could push up in April, if they have not already done so in March.
Watch for increased foreclosures when this happens, and potentially a wave of REO's entering the market as banks seek to capitalize on higher interest rates.
