Friday, August 26, 2016

Proposed Bill to Help Widowed Spouses Renegotiate Mortgage Rates

Under current practice in California, if a widowed spouse is an owner of their home, but wasn't on the mortgage note at the time of their husband or wife's passing, obtaining a loan modification can be extremely difficult. Often, when the overall household income goes down due to a spouse's death, the surviving spouse will have trouble coming up with the monthly payment on a mortgage that was determined earlier on based on two salaries instead of just the one. Additionally, laws don't protect widows and widowers from being foreclosed upon while trying to get their bearings. Fortunately, as described by Andrew Khouri in his L.A. Times article, a few Senators have proposed a bill to try to help people stuck in that kind of predicament.

A common practice by banks in these situations is called "dual tracking." Dual tracking simply means that a bank is pursuing a foreclosure while also negotiating a modified mortgage with the client at the same time. Through that method, banks are able to cover all of their bases and make sure that they don't get stuck in an endless cycle of paperwork. Unfortunately, that leaves widowed homeowners trapped. While loan servicers will generally accept payments from the surviving spouse, they rarely can get through all the red tape around proving ownership before the foreclosure has completed. So, in many of these situations, unless the surviving spouse has some way of making up the difference in monthly loan payment for long enough to hold off a foreclosure, they end up losing their home due to no real fault of their own.

One of the benefits to homeowners of the new bill being proposed is that dual tracking will be banned. In other words, foreclosure proceedings are put on hold while all of the required documentation is taken care of. Only once the lender and borrower have finished negotiating the loan modification can any necessary foreclosure continue. This provision in the bill can hold off foreclosure for a limited amount of time, but it only applies to major financial institutions. Smaller banks are exempt from the regulations, which makes sense since smaller lenders are less able to afford to grant extensions on their loans.

The bill, Senate Bill 1150, has been amended a few times and has since been passed by the Senate and Assembly. One important amendment added to the bill was a three-year sunset provision, which means that the bill will have to be formally renewed every three years or it will be thrown out. Legislators hope that the new laws will help to fix the system that punishes widowed homeowners for factors beyond their control. Since the bill has already been passed, all that is left is for the governor to sign it into law. Then, we shall see how much the system really changes.

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