California homeowners who remain on the brink of foreclosure will have a new option as they fight to keep their homes in 2013 - lawsuits.

A new ability to sue lenders is one of the key provisions of the Homeowner Bill of Rights, which Attorney General Kamala Harris and other Democrats won approval for last year over considerable objections from the mortgage and lending industries.

The Homeowner Bill of Rights does not go as far as requiring judicial approval for all foreclosures but will allow homeowners to ask a judge for an injunction if they believe their lender has made an error during the foreclosure process.

The laws also prohibit lenders from "dual tracking" foreclosures - the practice of pursuing foreclosure even as a homeowner seeks to modify a loan - and requires lenders to establish a single point of contact for customers trying to avoid foreclosure.

The laws are likely to prolong the foreclosure process in California, but the big question is whether the delays will give homeowners a better chance of staying in their homes or will simply postpone inevitable foreclosures.

"There will be a batch of foreclosures that is delayed by the law but not prevented," said Daren Blomquist, the vice president of Irvine-based RealtyTrac.

RealtyTrac tallies foreclosure data from across the United States.


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Blomquist said he expects to observe a sharp decline in initial foreclosure filings during the early part of 2013, but that will be eventually be followed by a spike in activity as lenders adjust to the new laws.

Attorney General Harris, who testified before state legislators that the new laws are needed to ensure homeowners receive due process, recently repeated her view that the Homeowner Bill of Rights will benefit consumers.

"For too long, struggling homeowners in California have been denied fairness and transparency with their lending institutions," she said in a Dec. 20 statement. "These laws give homeowners new rights as they work through the foreclosure process and will give Californians a fair opportunity to stay in their homes."

Los Angeles-based Beacon Economics published a report while the Homeowner Bill of Rights was still under consideration that predicted the laws would be unlikely to benefit homeowners.

Beacon concluded there is no evidence that a longer foreclosure process increases the odds a homeowner will be able to achieve a loan modification and that some homeowners may even choose to default in order to live "rent free" during a prolonged foreclosure process.

The economists also predicted the laws may reduce credit availability for future homeowners and maintained that some consumers, in the long run, can benefit from foreclosure.

"Foreclosure can provide those who have lost their homes with a clean slate, as they are almost always forgiven any remaining balances on their mortgage debt," according to Beacon's analysis.

"While a defaulter's credit does take a hit, that clears the books faster than many will imagine ... households are often able to borrow and buy again within a relatively short period of time," the report continued.

Foreclosure activity has already been declining, according to RealtyTrac's numbers.

U.S. foreclosure starts reached a 71-month low in November, according to the Irvine firm's count.

In California, November's foreclosure filings decreased by about 50 percent when compared to the same month in 2011. One in every 430 California homes were at some point in the foreclosure process.

Los Angeles County foreclosures fell about 41 percent from November 2011 to November 2012. One in every 441 homes in the county was in the foreclosure process.

San Bernardino County foreclosure activity fell roughly 51 percent in November. One in every 249 homes in the county were somewhere in the foreclosure process that month.


Contact Andrew via email, by phone at 909-386-3872 or 909-483-8550, or on Twitter @InlandGov.