By: Michael Powers

According to a recent report by RealtyTrac, California foreclosures have dropped nearly 40% from a year ago, ridding the state of its dubious ranking as the highest foreclosure state in the country. This downward trend has been attributed to the “Homeowners Bill of Rights”, which went into effect on January 1st, 2013, and has clearly become a cause for pause for lenders considering a foreclosure.

According to industry insiders, “most Lenders and Servicers have put California foreclosures on hold until they truly have their ducks in a row”, said California mortgage mitigation attorney Brian N. Folland. “For many of the mortgages that were processed during the mortgage boom, especially those mortgages processed through the MERS system, there are no ducks to put in a row, as the necessary paperwork simply does not exist. This has really given consumers the upper hand in many cases, and lenders are more willing to create a meaningful loan modification in order to forego the scrutiny they will have to endure in the foreclosure process. We recently processed a loan modification with a principal reduction of more than $700,000 in central California, and we expect to see more and more of these types of modifications” added Folland.

According to the Homeowner Bill of Rights, lenders attempting a foreclosure with “multiple unverified documents” are subject to civil penalties and enforcement by licensing agencies, including the Department of Corporations, the Department of Real Estate and the Department of Financial Institutions. If you remember the “robo-signing” scandal, it involved lenders fabricating documents that would be necessary for foreclosure, as the original documents had been discarded or otherwise lost.

During the sub-prime mortgage debacle, most mortgages were processed through the MERS system, leading lenders to believe that the system would provide sufficient evidence of a proper chain of ownership of the mortgages. Unfortunately for those lenders, many courts have ruled that the MERS system is not sufficient proof of mortgage ownership, and have instead required the original mortgage paperwork and any subsequent assignments as necessary proof of a lenders legal right to foreclose on a property.

If California were a judicial foreclosure state, then all of the necessary paperwork would have to be presented as evidence in court, and the homeowner would be assured the opportunity to verify the validity of the documents. Unfortunately, California is a non-judicial foreclosure state, where foreclosures are processed by a Trustee. Trustees are often overwhelmed with the huge caseload they face and are not required to protect the interests of a homeowner. Accordingly, many California homeowners facing a foreclosure are hiring an experienced foreclosure defense attorney to protect their rights and interests and scrutinize the paperwork that gives a lender the legal right to foreclosure on their home.