In what would have been the biggest life preserver to distressed homeowners, the California Assembly rejected SB 1275 Monday, a bill that would have protected homeowners from foreclosures unless the lenders considered them for loan modifications first. The failure of the bill has been blamed on the lobbying efforts of banks, who vigorously opposed it.

There is another law that does aid distressed property owners, but only if they purchased the property between January 1, 2003 and December 31, 2007. If they fall within that time frame lenders are required to reach out to them and consider loan modifications before initiating foreclosure proceedings. SB 1275 would have extended that time frame for purchases before January 1, 2009, whether or not the loan was subject to review under HAMP (the Home Affordable Modification Program). As many loans do not fall under HAMP guidelines, the bill would have opened up the potential to avoiding foreclosure to many more homeowners.

Many people in the industry claimed that the bill was poorly drafted and would have been a disaster for the housing market if passed.