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For long-suffering homeowners, there are signs of improvement in California’s housing market. The state’s foreclosure rate dropped by five percent in October, down 35 percent from the same time a year ago. The drop was needed relief for the state whose foreclosure rate peaked in July of this year when one out of every 325 California homeowners received a default notice. At that time the rate was near twice the national average. The October foreclosure rankings brought the number down significantly in the state to one out of every 379 homes, according to RealtyTrac.In all, 36,000 people received foreclosure notices. While these numbers mark an improvement, they are still alarmingly high. California’s foreclosure rate is still the fourth highest in the country. Yet for homeowners looking to avoid home foreclosure, now may still be the best time to investigate their options.

Foreclosure Factors

One of the main reasons why there are more foreclosures in California is its high unemployment rate. According to the California Employment Development Department, California’s unemployment rate hit 10.1 percent in October while the national rate fell to 7.9 percent. In Los Angeles, the unemployment rate remains even higher at 10.6 percent.

The other reason behind the California’s foreclosure rate are the remaining backlog of foreclosures that arose out of the robo-signing scandal in 2010. Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo had been accused of violating the law by regularly signing foreclosure-related papers outside the presence of a notary public and without verifying the facts contained in the documents. A $25 billion settlement between the five major banks in February of this year opened the doors for mortgage companies to initiate foreclosures once again.

While foreclosures have picked up, lenders are still pacing the number of foreclosures they process, to bolster property values in prime markets such as Los Angeles, where inventory for entry-level homes under $300,000 is at a minimum.

For many Los Angeles area homeowners anxious to stop foreclosure and hold onto their homes, the market shortage may end up being the break they are looking for as increased home values may put them in a better position to obtain a loan modification.

The National Settlement and California Homeowner Bill of Rights

The national settlement brought the promise of long-needed help for borrowers whose loans are owned by the settling banks. As part of the settlement process, mortgage lenders were required to take measures to simplify the loan modification process and provide greater transparency about who is servicing their loans.

The settlement does not release the servicers from other kinds of liability. They can still be held criminally liable and can be sued by individuals or through a class action in civil court.

California was among the states hardest hit by the mortgage meltdown and robo-signing scandal. In response, the California Homeowner Bill of Rights was signed into law on July 2012 and will go into effect on January 1, 2013. The Bill of Rights will help many to save their homes but, even with new protections, loan modifications may not always be possible.

Bankruptcy Often a Good Option for Those Who Cannot or Should Not Modify

A number of factors may put a loan modification out of reach for some people. And for others, a loan modification may not be the best option for them. Bankruptcy is a remarkably flexible tool that offers a number of different options for people trying to stop foreclosure.

Homeowners can catch up on mortgage arrears using Chapter 13 bankruptcy while protecting themselves from foreclosure. In addition, homeowners who qualify may be able to strip off their unsecured second and third mortgages entirely through a Chapter 13 plan.

If you are currently facing foreclosure, it is wise to seek out the advice of an experienced California loan modification attorney. An attorney can evaluate your situation and educate you on your options.

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