Facing foreclosure can lead to severe outcomes for the borrower. This includes harm to their credit rating and being forced to leave their residence.
If the property is sold for a value lower than the outstanding loan amount, it may lead to a deficiency judgment, pushing the borrower deeper into financial trouble.
Due to the significant repercussions of foreclosure, most individuals will take any possible measures to evade it.
As a result, foreclosure trends serve as a valuable gauge of substantial financial strain. Let’s explore the 2023 trends on foreclosures in Sacramento.
Foreclosures Trends in Sacramento, CA (2023)
Nationwide, foreclosures have been consistently dwindling for a couple of years now.
This trend is evident in the California real estate arena, where we observed a considerable decline between the first halves of 2020 and 2021.
During this period, filings for foreclosures in California saw a substantial reduction.
In 2022, there was a 57% reduction in the rate of distressed property filings.
Given its stature as one of the state’s largest cities, Sacramento’s real estate market has undeniably played a role in contributing to this decline.
It is crucial to believe, however, that such a reduction in foreclosures owe more to government interventions than the current financial state of homeowners.
It is also suspected that foreclosures for the city will be on an upswing in the near future.
Factors Contributing to Uptick in Foreclosure Trends
Although a substantial reduction has been witnessed for the past couple of years, things might start to shift fast.
During the first quarter of 2023, a total of 6,867 foreclosure initiations occurred in the state, reflecting a 3 percent increase from the previous quarter and a substantial 29 percent rise from the corresponding period a year earlier.
Remarkably, California stood out by having the highest number of foreclosure stats among all states nationwide.
Although the foreclosure rate in California remains comparatively modest concerning the nationwide average, it is nonetheless witnessing a growth trend.
In March 2023, the foreclosure rate in California translated to 1 in every 4,244 households. In contrast, the national foreclosure rate was notably higher at 1 in every 1,217 homes.
Such an uptick in foreclosure activity in California can be attributed to several contributing factors, which include:
- Escalating Interest Rates
- Rising Housing Costs
- Inflationary Pressures
- Employment Losses
- Conclusion of the CARES Act’s Eviction Moratorium
Foreclosures in Sacramento Set to Rise
The pause on foreclosures for loans backed by the government has significantly stopped foreclosure processes in the past year.
However, mortgage servicers have been able to start foreclosing on empty or abandoned properties, which has been helpful for local communities.
These specific foreclosures may be contributing to the small increase in recent months.
The number of foreclosures in Sacramento will undoubtedly increase; it’s not a matter of if but when.
As government assistance stops, more people will likely struggle to keep up with their loan payments. This could lead to more loans being unpaid and potentially ending up in foreclosure.
So, Sacramento real estate investors should proactively get financing promptly. This approach will let them assist homeowners who are in distress while also getting good property deals.
The Wells Fargo ‘Mishap’
The Wells Fargo mishap is one of the most significant developments in the banking and real estate sectors.
In 2023, Wells Fargo, one of the largest banking institutions in the United States, found itself embroiled in a scandal that had repercussions on the foreclosure landscape.
The mishap stemmed from irregularities and misconduct within the Wells Fargo foreclosure department.
It was discovered that the bank had improperly foreclosed on several properties, often without the necessary documentation or adherence to legal procedures.
This led to wrongful foreclosures, causing financial and emotional distress to affected homeowners.
The scandal not only tarnished Wells Fargo’s reputation but also raised questions about the foreclosure process’s integrity across the industry.
Homeowners, advocacy groups, and lawmakers criticized the bank’s actions, calling for stronger regulations and oversight to prevent such incidents from occurring in the future.
Federal Lawsuit Filed by Sacramento
In addition to the Wells Fargo foreclosure scandal, the company had been allegedly involved in other discriminatory acts.
A federal lawsuit was filed against Wells Fargo by the city of Sacramento, California, alleging that the bank discriminated against Black and Latino homebuyers by steering them towards more expensive mortgages than white borrowers.
The lawsuit claimed this practice created a “long-standing pattern and practice” of illegal lending in minority and low-income communities.
The city accused Wells Fargo of reducing home values, limiting property tax revenue, and increasing foreclosures through these practices.
The lawsuit also cited anonymous former mortgage employees who confirmed that minority borrowers were intentionally placed into higher-cost loans due to their race or ethnicity.
Legal Strategies to Stop Foreclosure Threat
For homeowners facing the daunting prospect of foreclosures in Sacramento, a few strategies might offer a glimmer of hope.
Some of these strategies include filing for bankruptcy, pursuing a loan modification, or even resorting to legal action.
These last-minute interventions help stall foreclosure, allowing homeowners to explore alternatives and potentially retain their homes.
Bankruptcy as a Stopgap Measure
If you are facing issues related to foreclosures in Sacramento, filing for bankruptcy can immediately halt the process through an “automatic stay“.
This legal injunction prevents the bank from proceeding with the foreclosure or any collection activities. While the bank may seek permission from the court to move, the foreclosure is likely to be delayed by at least a couple of months.
This delay allows homeowners the time to consider alternative solutions with their lenders.
Chapter 13 and Chapter 7 Bankruptcy
Homeowners facing foreclosures in Sacramento must weigh the benefits of different types of bankruptcy.
Chapter 13 bankruptcy offers a chance to restructure debts over three to five years, potentially allowing for the repayment of delinquent mortgage payments.
This option can help prevent foreclosure and provide a path for homeowners to retain their homes.
On the other hand, Chapter 7 bankruptcy, while not a surefire way to save a home, can provide temporary respite by delaying foreclosure proceedings.
This option is beneficial for those who are awaiting a loan modification or exploring other foreclosure avoidance strategies.
Chapter 7 bankruptcy can also eliminate personal liability for mortgage debt, reducing the potential financial burden.
Lawsuits to Challenge Foreclosure
For homeowners facing nonjudicial foreclosures in Sacramento, where the process occurs outside the court system, a lawsuit can potentially challenge the proceedings.
By filing a lawsuit, homeowners can seek a temporary restraining order and preliminary injunction to halt the foreclosure sale while legal claims are being considered.
To succeed in court, homeowners must demonstrate violations of state laws, improper documentation, or other grievous errors by the bank.
Foreclosure Mediation and Homeowner Assistance
Some states, counties, and cities, including Sacramento, offer homeowners facing foreclosure the opportunity to engage in mediation. Foreclosure mediation involves negotiating with the lender, potentially leading to options like loan modification, short sale, or repayment plans. This process provides a chance to explore foreclosure alternatives and negotiate more manageable terms for the homeowner.
In early 2021, the American Rescue Plan Act introduced the Homeowner Assistance Fund, a federal program designed to aid households struggling with mortgage payments due to COVID-19. While this program may not halt foreclosure, it can provide financial assistance to homeowners and potentially offer a lifeline during challenging times.
Trends related to foreclosures in Sacramento have shown a significant reduction in recent years, mainly due to government interventions. However, the recent increase in foreclosure initiations suggests that the landscape may be changing.
Factors such as escalating interest rates, rising housing costs, inflation, employment losses, and the conclusion of the CARES Act’s eviction moratorium contribute to this uptick in foreclosures. The evolving landscape underscores the importance of proactive financial management for homeowners and real estate investors alike.
Frequently Asked Questions (FAQs)
What are the main factors contributing to the recent increase in foreclosure initiations in Sacramento, California?
The recent increase in foreclosure initiations in Sacramento can be attributed to a combination of factors. These include escalating interest rates, rising housing costs, inflationary pressures, employment losses, and the conclusion of the CARES Act’s eviction moratorium.
These factors collectively contribute to financial strain for homeowners, making it more difficult for them to keep up with their mortgage payments.
Is there any impact of Bankruptcy on foreclosure?
Bankruptcy doesn’t stop the foreclosure but can provide a delay. If you file for Chapter 13 bankruptcy and have a steady income, you might retain your home by including mortgage debt in your repayment plan.
Under Chapter 7, you may only delay foreclosure. The automatic stay in bankruptcy temporarily halts foreclosure until the lender gains permission to proceed. This delay can offer time for planning a transition.
What is foreclosure mediation, and how can it help homeowners in Sacramento?
Foreclosure mediation is a process that allows homeowners to negotiate with their lenders in the presence of a mediator. This can lead to alternatives such as loan modification, short sale, or repayment plans.
Sacramento and other areas and cities offer homeowners the option of foreclosure mediation to explore viable alternatives to foreclosure. This process provides a chance to negotiate more manageable terms and potentially find a solution that helps homeowners retain their homes.