Los Angeles Stiffens Foreclosure Penalties
[Update 1: Clarifies California foreclosure statistics]
The city of Los Angeles last week passed a city ordinance allowing for fines up to $100,000 to lenders and servicers of properties under foreclosure for failing to adequately preserve properties.
According to coverage in PropertyWire, community activists are joined in wide support of the provision. The article states that by charging huge fees for noncompliance the city is looking to motivate lenders and servicers to upkeep properties in foreclosure, in order to keep communities from widely falling into disrepair.
RealtyTrac, an online marketplace of foreclosure properties, reports new foreclosure filings in Los Angeles grew by nearly 3,000 properties in May. The state of California is listed as the highest ranked state for foreclosures filings on the firm's website, in terms of volume, and fourth in percentage.
However, data compiled by RealtyTrac finds that of the 72,030 properties in default, 15,946 are in real-estate owned status – meaning ownership is now transferred back to the lender. The average sales price for a LA home in foreclosure is $400,000.
For the California Mortgage Bankers Association, the news is part of a tidal wave of new regulations for mortgage finance firms in the state. Spokesman Dustin Hobbs added that just a few years ago the CMBA tracked two or three bills in the California State Legislature that dealt with the housing industry. Today it's upward of 40 or so pieces of legislation that would seriously impact the mortgage market.
"The LA ordinance is an example where lenders, servicers now have one more piece of paper to push around in what is becoming a compliance nightmare," Hobbs said. "The city is essentially asking firms to take responsibly for homes that they technically don't own yet."
The passage of a California state law last year, Senate Bill 1137, slows down the foreclosure process by adding an additional 30 day window to satisfy "due diligence requirements" and "in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure." One servicer said Monday that the additional time means the risk of damage to the property will increase as borrowers grow more disenchanted with the status of the property. Hobbs said the Los Angeles ordinance adds more layers of bureaucracy.
Write to Jacob Gaffney.
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