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California Legislature Passes Homeowner Bill of Rights
Recently, the California Legislature passed the Homeowner Bill of Rights (“HBOR”). Governor Jerry Brown issued a statement commending the Attorney General for her work on the legislation and is expected to sign the HBOR into law shortly.
The HBOR, passed on July 2, 2012, in many respects codifies the multi-state Attorney General Settlement the five major mortgage lenders entered into earlier this year, but expands those provisions to apply to mortgage servicers generally, with certain exceptions for those servicers conducting fewer than 175 foreclosures per year. The law applies only to first liens on owner-occupied residences. Key provisions include:
- Upon request from a borrower who seeks a foreclosure prevention alternative, a mortgage servicer must provide the borrower with a “single point of contact” and a direct means of communication with that single point of contact. The single point of contact must remain assigned to the borrower’s account until all loss mitigation options have been exhausted or the loan has been brought current. However, the single point of contact can be a person or “team of personnel,” provided each member of the team is knowledgeable about the “borrower’s situation and current status.”
- The servicer must acknowledge receipt of a loan modification application in writing, and provide the borrower with certain information, including an estimate of the time that will be needed to act on the application and a list of any missing documents the borrower must provide.
- The bill purports to end “dual tracking.” Servicers would be required to issue a written decision on a first lien loan modification application before recording a notice of default or notice of sale. The foreclosure cannot proceed until at least 31 days after the servicer has notified the borrower of the denial of the loan modification and the reason for the denial. The HBOR also provides borrowers with a right to appeal the denial of any loan modification application. However, the bill contains provisions designed to prevent borrowers from indefinitely delaying foreclosure by submitting serial loan modification applications.
- Despite the prohibition of “dual tracking,” the HBOR also requires that certain servicers send written notification to any borrower who has not “previously exhausted the first lien loan modification process” advising of available foreclosure prevention alternatives. This notice must be sent within five business days after recording the notice of default.
- The HBOR eliminates the January 1, 2013, sunset provision currently contained in Civil Code section 2923.5, which requires the servicer to have specified contacts with the borrower to discuss loss mitigation options before starting foreclosure proceedings. The bill also removes the limitation of this code section to deeds of trust executed between January 1, 2003, and December 31, 2007; the provisions now apply to all first lien mortgages or deeds of trust secured by owner-occupied properties, regardless of the date the deed of trust was executed.
- A servicer may not record a notice of default until after it has sent the following documents to the borrower: (1) A statement that if the borrower is a servicemember or a dependent of a servicemember, he or she may be entitled to certain protections under the federal Servicemembers Civil Relief Act; (2) A statement that the borrower may request copies of the promissory note or other evidence of indebtedness, the deed of trust or mortgage, any assignment of the mortgage or deed of trust, and the borrower’s payment history “since the borrower was last less than 60 days past due.”
- The bill precludes servicers from collecting any late fees while a complete first lien loan modification application is under consideration or a denial is being appealed, the borrower is making timely modification payments, or a foreclosure prevention alternative is being evaluated or exercised.
- The HBOR outlaws so-called “robo-signing.” Specifically, the bill would require that certain foreclosure-related documents filed in court or recorded with the county shall be accurate, complete, and “supported by competent and reliable evidence.” The bill would require that before recording or filing any of those documents, a mortgage servicer shall ensure that it has reviewed “competent and reliable evidence” to substantiate the borrower’s default and the right to foreclose, including “the borrower’s loan status and loan information.”
- In most instances in which a foreclosure sale is postponed for at least 10 business days, the borrower must be given written notice of the new sale date and time, within five business days following the postponement.
- Before a trustee’s deed upon sale is recorded, a borrower may bring an action for injunctive relief for a “material violation” of the HBOR. The injunction can remain in place until the court determines that the violation has been “corrected and remedied.”
- After a trustee’s deed upon sale has been recorded, a borrower may bring an action for “actual economic damages” for a “material violation” of the HBOR where the violation was not corrected and remedied prior to the recordation of the trustee’s deed upon sale. If the court finds that the material iolation was intentional or reckless, or resulted from willful misconduct, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000.
- Any mortgage servicer that engages in multiple and repeated violations of the HBOR is liable for a civil penalty of up to $7,500 per mortgage or deed of trust, in any action brought by specified state and local government entities. The HBOR also authorizes administrative enforcement against licensees of the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate.
Federally regulated banks are expected to argue that to the extent the HBOR seeks to regulate the processing and servicing of loans, it is preempted by federal law. Regardless of the outcome of the preemption argument, the HBOR is expected to result in an increase in litigation by borrowers seeking to stop or delay foreclosures.
If signed by the governor as expected, the HBOR would go into effect on January 1, 2013.
For more information on the matters discussed in this Locke Lord QuickStudy, please contact the author:
Regina J. McClendon | T: 415-318-8804 | email@example.com