A Santa Clarita realtor is asking residents to call on their elected officials to act on two critical mortgage reforms he believes are necessary to prevent a slew of unnecessary foreclosures in the coming years.

With housing prices starting to “stall,” interest rates going up and the stock market “going crazy,” Rich Szerman of Alta Realty Group believes now is the time to take action in order to prevent a real estate market crash similar to that of 2008, and to put an end to the unjust “zombie” second mortgage market costing people their homes.

“I am in the belly of this on a daily basis,” said Szerman, who provides free foreclosure defense services to the public. “A lot of the (legislative) revisions that should have happened after the collapse of 2008 haven’t happened.”

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Szerman is asking the public to “make noise” with their elected officials about the following two “simple, common-sense” legislative reforms in an effort to save countless families from being unfairly forced out of their homes in the future:

1. Increase transparency by requiring banks to disclose who the new investor is when selling a mortgage on the secondary market.

“If you have a mortgage, I think you have the right to know where your money is going,” said Szerman. “I don’t think that’s a whole lot to ask.”

While a bank cannot be stopped from selling a mortgage on the secondary market — which results in the homeowner’s mortgage being serviced by a different company they didn’t choose, often from a foreign country — Szerman said at the very least, the homeowner should have the right to know who the investor is on their mortgage.

“If the banks had to tell you who the investor is on the file, I don’t think a lot of these files would be leaving the country the way they are,” he said. “I think the U.S. dollars would stay in the country.”

In addition, Szerman continued that increased transparency would likely result in increased responsibility by both the investors and the banks, helping to curb the “bad behavior” becoming increasingly more common in recent years that typically leads to unjust foreclosures.

“If (the bank) had to tell you who your investor is, those investors would behave better,” Szerman said. “(The) bank would behave better as well.”

2. Require junior lien holders to make good on all superior liens before foreclosing by changing the due-on-sale clause to say the first mortgage holder “must” call the loan due and payable rather than it “may,” as the clause currently states.  

“Every loan in the state of California has what’s called a due-on-sale clause,” said Szerman. “What that means is, if I hold your first mortgage and your second forecloses, or if you change the title to the property in any way, I have the right as the first mortgage holder to call that note due and payable.”

This is important because of the many homeowners who were told around the time of the 2008 crash that their second mortgage was “charged off” or something similar, and that no further payments were required.

Now about 10 years later, and usually with quite a bit of equity in the home, these “zombie” second mortgages are coming back to life with a decade of accrued interest and the new servicer demanding immediate payment or they will foreclose on the house.

Related: Santa Clarita Realtor Believes ‘Zombie’ Second Mortgage Crisis Has Reached Epidemic Levels (VIDEO)

These servicers typically buy the charged-off second mortgages on the secondary market for a fraction of the face value of the loan, according to Szerman, meaning that a $36,000 loan could be acquired for just $10,000, and yet they are now demanding $100,000 from the homeowner.

“This is why zombie seconds are so profitable,” he said. “When they take your house, let’s say you have a $200,000 mortgage on it. They don’t have to pay off that $200,000 mortgage — all they have to do is bring it current and make the payments, and the first will sit still and just let them do that.”

Szerman continued, “That is so unbelievably corrupt, and people are losing their homes as a result. Families are being cheated out of their homes as a result, and it must stop.”

However, if the due-on-sale clause is changed to require the first mortgage holder to call the loan due and payable before the servicer forecloses, it becomes much more expensive for them to take any homes, according to Szerman.

“If the junior lien holder had to make good on the first, and instead of being able to steal your house for a lousy $10,000, they had to put up $210,000 because they had to buy the second and the first, that would stop this,” Szerman said.  “All you have to do is change one word in the due-on-sale clause… Change three letters, from may to must, must call the loan due and payable, because that would change this instantly. One word-change in the law and the zombie second market disappears.”

Szerman concluded, “These two simple fixes could stop a financial wildfire that is currently gathering… You’ve got to go to your elected representatives. You’ve got to make noise… Call my office — I’ll tell you how to do this.”

KHTS Radio Owner Carl Goldman added that KHTS is hoping to address these issues with local legislators during the 2019 KHTS Sacramento Road Trip set for March 18-19.

To contact Rich Szerman of Alta Realty Group, call/text 661-714-1400 or click here.

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