New California Foreclosure Law

Because all my hard money lending is done in California and to people who buy, rehab, and sell foreclosures, this news story caught my eye. The California legislature recently passed a law making it harder to banks to foreclose on property owners. According to Reuters, the bill prohibits banks from "dual-tracking" loans - proceeding with the foreclosure process while also in loan modification negotiations with the owners. The bill also lawsuits against robo-signing. The bill still has to be signed by the governor before it becomes law, but he is expected to sign it.

On the surface, this law sounds good to me. I will freely admit the first I heard about it was from the above linked article and the facts in that article are the extent of my knowledge of it. I do think robo-signing is a big problem. When your actiosn can result in people losing their home and being forced out onto the streets, you need to have someone carefully look over the documents before foreclosing. This just stands to reason. As to the prohibition against dual-tracking, I'm OK with that as well. Yes, it may result in longer times to foreclose on a property. But if a borrower is in talks with a bank to modify their loan, I think they would reasonably conclude that the bank would pause foreclosure proceedings while they are attempting to work out a settlement. Further, without this restriction, the bank has a huge advantage at negotiating - they would be able to drag out the talks until foreclosure was a day away, leaving the borrower with no choice but to either accept the terms the bank offered or lose his or her house.

How will this affect my lending? I expect to see a slowdown in houses for sale at auction for the 6 or so months after this bill becomes law. This will represent the time banks have to wait while they attempt to reach a loan modification deal before proceeding. There is nothing in this law, to my knowledge, that requires the banks change what loan modification terms they must accept, so they will still be reaching the same decision on modifying loans or not, resulting in about the same number of houses going to foreclosure. There will just be a delay lasting the length of those negotiations.

May Apartment Update

I received the May financials for the Houston apartment complex and I'm pleased to see the numbers continue their improvement. Last month's record income was exceeded by almost $3,000, setting another new record for the highest income since 2010. Also, as mentioned last month, we received a reimbursement from our insurance company for some electrical work that was done last month. Just as the expense depressed our monthly income last month, the refund inflated our monthly income this month. However, if we exclude that amount, the property actually showed a $1,200 profit this month! That's the first time in a long time the property has been in positive territory. Looking at the entire year so far, it's still underwater, but it's possible the property  may be emerging from the red sea.

Will this trend continue? I hope so. In what may or may not be an ominous sign, management did not give an indication of how June was shaping up.

Security At Houston Apartment Complex

Last month, I noticed that the financials for the Houston apartment complex showed the security expense had dropped from between $1,500 and $3,000 a month to zero. My concern was that management eliminated some security measures as a cost cutting move. I was worried that this might result in an increase in vandalism and crime-related expenses. I emailed management about this and, it took a while, but I finally got a response.

It turns out, management was able to cancel the private on-site security patrols they were using because they were able to install security cameras owned by the Houston Police Department at no cost. In the couple of months these have been in operation, there has not been in increase in criminal activity, so it seems to be a positive move.

April Apartment Update

As hinted at last month, the April numbers for the Houston apartment complex were good. Revenue hit $184,000, which is the highest since 2010. The water conservation program management implemented last year is working well - costs this year are running about 25% below last year's numbers. That's an annual savings of over $24,000.

The property still showed a loss this month, but that was due to an emergency repair that was needed. A high voltage line went out, causing half of the property to lose power. This happened on a weekend, so the emergency repair bill was $30,000. The good news is that the full amount will be recovered from insurance. Unfortunately, the expense shows up in this month's numbers and the insurance reimbursement won't show until next month's numbers, so for this month, we show a large loss. We also had slightly higher legal expenses due to working out a payment schedule with some vendors we owed money to. That expense should also be gone next month. Excluding these two one-time expenses, the property lost about $3,000 in April. This is down from a loss of $9,000 in March, $10,500 in February, and $30,000 in January. Clearly, things are moving in the right direction.


Management projects May's revenue will be slightly higher than April and the property should reach break-even in a couple of months and continue improving from there.