If you are behind in your payments and you live in California, you better contact your bank and discuss your options and you need to do so quickly.  In all likelihood you’ll need to hire a Realtor to get your home listed as a short sale ASAP.  Why?  Because the lenders in non judicial states like California are going to foreclose on you now.  FYI – Non judicial means that there is no judge involved in the foreclosure process.  The lender uses what’s called a trust deed rather than a mortgage.  With a trust deed the lender has a third party or “trustee”, who is authorized to foreclose at the beneficiary’s (the bank’s) behest.  This is in contrast to judicial states where a mortgage is used (only two parties, borrower and lender – no trustee); where the lender must go before a judge to demand the foreclosure.  A judicial foreclosure is a far more time consuming process.

For the past several years the slow nature of the foreclosure process has given a false sense of security to many underwater borrowers.  You hear the stories of people who have been in default for 2 years and the bank takes no action.  That is changing.  Sure, there are states like Nevada where as a state they are devastated by an enormous downturn in value and the State’s Attorney General is stepping in and freezing foreclosures.  But here in California where 9 of the 10 highest foreclosure metropolitan areas reside, banks are accelerating their seizure process.

Sadly, like the poor stepchild in children’s stories, it’s the inland areas that are suffering the most.  Average incomes are lower to begin with and many of those working class people, the most vulnerable.  It was largely in these inland areas of California like Modesto, Fresno, Bakersfield, Stockton, San Bernadino to name a few, where the rampant development during the market’s heyday offered the American Dream to so many families. All you need to do is look where there has been vast new home construction and you’ll find a plethora of distressed property.

I’m not sure that most people across the country really understand how big California is.  Everyone knows it’s the nation’s most populous state but geographically it’s huge as well, only third in area to only Alaska and Texas.  If California were on the east coast it would include every state from southern portion of New York to much of Georgia and as far east as West Virginia; that’s almost all the 13 Colonies and then some!  For years California was a state of north and south.  The north had water, the south had political clout.  Now of course the north has the Silicon Valley and the south a diversity of business unequaled virtually anywhere on the planet.  Because of this, the state is no longer about north and south but rather, east and west.  Housing in the coastal areas remains in demand and land is at a premium.  Much of that land is permanently protected against development, and those areas that are not, so encumbered by municipal red tape, that many would be developers just opt to sell the land in frustration… just ask The Edge of U2, who tried but failed this year to develop a large parcel of land in Malibu overlooking the Pacific Ocean.  He knows all too well about the difficulties in developing along the California coast.

In the Conejo Valley (straddling the Los Angeles and Ventura County lines) where I live and conduct the majority or my business, we too are seeing distressed sales, about 30%.  There are some foreclosures but mostly short sales.  Prices have dropped 25-30% but that’s not collapsed.  Contrast this with the inland communities where values have declined as much as 60% and it’s a little like comparing Paris to Bosnia in the 1990’s; one elegant and gentile and the other a war zone.  Yet our inland communities do share one thing with the coastal areas and that is, if you are behind in your payments the banks are going to seize your property.  Gone are the days of indefinite grace periods.

About 8 months ago I received an email from someone who had read one of my blogs about accidental landlords.  He had been relocated and was unable to sell his home because it had fallen in value below what he owed, so he rented it.  Finally after running a monthly negative for nearly two years, he approached me about short selling and I gave him an assessment.   Shortly thereafter, he told me that his tenant wanted to buy the property and that she knew a Realtor who had lots of short sale experience.  Not really knowing me, he went with the other fellow.  We spoke periodically over the many months and he expressed his frustration with the short sale process.  Meanwhile I kept telling him that I was pushing my short sales through in less than 2 months on average.  Still he stuck with the current arrangement.  After all, he had a buyer and was working with the bank already.  He had moved and his tenant was already living there, so no big deal… that is until Tuesday of this week when responding to a follow up email I’d sent a week or two previous, he said, someone told him his home was going to auction that day.  He asked me to look into it.  Unfortunately it was true, I told him.  The auction was set for that day.  Here’s a guy who thought he was safe because he was trying to negotiate a short sale with his bank, and the bank went and sold the home right out from under him.  His tenant, now on a month to month lease, will be forced to relocate and with the sheriff’s help if necessary.  So what happened?   The banks aren’t messing around anymore; they’re moving forward.  We see this in the increased number of Default Notices.  The banks are trying to address the “shadow inventory.”  They are clearing their books.  Many lenders are, as I’ve written previously here at TheRealEstateConversation.com, selling their nonperforming paper at a discount to private equity firms; taking what they can get and letting these new lien holders foreclose or negotiate a resolution.  You can see it in the numbers.  The time has come for delinquent borrowers to face the music and if you are behind in your payments, hoping for a loan mod or short sale approval, be aware that this is quickly becoming a game of musical chairs and the chairs are being taken away at an ever increasing pace.  Needless to say, you don’t want to be left standing when the music stops.

So what should you do?  Talk to your bank; talk to a Realtor.  Ask questions like “Have you ever seen a loan mod or short sale like mine go through?”  Consult a real estate attorney.  Ask your agent about their approach – ask how they plan on getting the short sale approved?  If you are in default, you may still have time, but now is the time for action, because the banks are getting serious about foreclosure and no longer messing around.