California Homeowner Bill of Rights Becomes Law
All eyes in the nation now turn to California as Governor Jerry Brown signed into law today the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California’s housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.
The full text of this law is in Assembly Bill 278 and Senate Bill 900. Here is a portion of the California Association of Realtors synopsis.
Applicability of the Law: This law will generally come into effect on January 1, 2013. It only pertains to first trust deeds secured by owner-occupied properties with one-to-four residential units, unless otherwise indicated below. “Owner-occupied” means the property is the principal residence of the borrower and secured by a loan made for personal, family, or household purposes (CC 2924.15). A “borrower” under this law must generally be a natural person and potentially eligible for a foreclosure prevention alternative program offered by the mortgage servicer, but not someone who has filed bankruptcy, surrendered the secured property, or contracted with an organization primarily engaged in the business of advising people how to extend the foreclosure process and avoid their contractual obligations (CC 2920.5(c)). A “foreclosure prevention alternative” is defined as a first lien loan modification or another available loss mitigation option, including short sales (CC 2920.5(b)). Some of the requirements of this law do not apply to “smaller banks” that, during the preceding annual reporting period, foreclosed on 175 or fewer properties with one-to-four residential units (CC 2924.18(b)).
No Dual Tracking During Short Sale: A mortgage servicer or lender cannot record a notice of default or notice of sale, or conduct a trustee’s sale, if a foreclosure prevention alternative has been approved in writing by all parties (e.g., first lien investor, junior lienholder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the servicer. This requirement expires on January 1, 2018. Effective January 1, 2018, a lender or mortgage servicer cannot record a notice of sale or conduct a trustee’s sale if the borrower’s complete application for a foreclosure prevention alternative is pending, and until the borrower has been given a written determination by the mortgage servicer. Smaller banks are only covered by the requirements taking effect in 2018. CC 2924.11.
Cancelling a Pending Trustee’s Sale: A mortgage servicer must rescind or cancel any pending trustee’s sale if a short sale has been approved by all parties (e.g., first lien investor, junior lienholder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the lender or authorized agent. For other types of foreclosure prevention alternatives, a lender must record a rescission of a notice of default or cancel a pending trustee’s sale if a borrower executes a permanent foreclosure prevention alternative. These requirements do not apply to smaller banks, and will sunset on January 1, 2018. CC 2924.11.
Providing a Single Point of Contact: For a borrower requesting a foreclosure prevention alternative, the mortgage servicer must, upon the borrower’s request, promptly establish and provide a direct means of communication with a single point of contact. The single point of contact must remain assigned to the borrower’s account until all loss mitigation options offered by the mortgage servicer are exhausted or the borrower’s account becomes current. The single point of contact must be an individual or team responsible for, among other things, coordinating the application for the foreclosure prevention alternative, giving timely and accurate status reports, having access to those with the ability and authority to stop foreclosure proceedings, and referring the borrower to a supervisor if any upon the borrower’s request. Each team member must be knowledgeable about a borrower’s situation and current status in the foreclosure alternatives process. These requirements do not apply to smaller banks as defined. CC 2923.7.
No Dual Tracking During Loan Modification: A mortgage servicer generally cannot record a notice of default, notice of sale, or conduct a trustee’s sale for a nonjudicial foreclosure if the borrower’s complete application for a first lien loan modification is pending as specified, or if a borrower is in compliance with the terms of a written trial or permanent loan modification, forbearance, or repayment plan. The borrower will have 30 days to appeal the denial of a loan modification, and the mortgage service cannot proceed with the above foreclosure steps until 31 days after giving the borrower a written denial of a loan modification, or longer if the borrower appeals the denial. To prevent abuse of this provision, however, a mortgage servicer is not obligated to evaluate a first lien loan modification application from a borrower who has previously been evaluated before 2013, or given a fair opportunity to be evaluated, unless the borrower submits a documented material change in the borrower’s financial circumstances. These specific requirements expire on January 1, 2018 at which time, as stated above, a lender or mortgage servicer will be prohibited from recording a notice of sale or conducting a trustee’s sale if the borrower’s complete application for a foreclosure prevention alternative is pending, and until the borrower has been given a written determination by the mortgage servicer. Smaller banks are only covered under the requirements commencing in 2018. CC 2923.6 and 2924.11.
