California Homeowner Bill of Right


California Homeowner Bill of Rights
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 following is a summary of the key provisions of the Homeowner Bill of
Rights that may affect California's REALTORS® and their clients. The full text
of this law, also known as Assembly Bill 278 and Senate Bill 900, is available
at www.leginfo.ca.gov.


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 generally 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. The procedure for appealing a
denial of a loan modification does not apply to smaller banks. CC 2923.6, and
2924.11, and 2924.18.


No Late Fees or Application Fees: A mortgage servicer cannot
collect any late fees while a complete first lien loan modification application
is under consideration, a denial is being appealed, the borrower is making
timely modification payments, or a foreclosure prevention alternative is being
evaluated or exercised. A mortgage servicer is also prohibited from charging for
any application, processing, or other fee for a first lien loan modification or
other foreclosure prevention alternative. These requirements do not apply to
smaller banks as defined. These requirements will sunset on January 1, 2018. CC
2924.11.


Additional Loan Modification Safeguards: Until January 1,
2018, a mortgage servicer must provide written acknowledgment of receipt within
five business days of a borrower's submission of a complete first lien
modification application or any document in connection with a first lien
modification application. The acknowledgement of receipt must provide a
description of the loan modification process, including an estimated timeframe
for the mortgage servicer to decide, other timeframes, and any deficiencies in
the borrower's application. CC 2924.10. Furthermore, effective January 1, 2013
with no expiration date, if a first lien loan modification is denied, a mortgage
service must send a written notice to the borrower with the reasons for denial
and additional information as specified. On January 1, 2018, the required
content of the denial letter will change to comport with other changes that will
take effect. Smaller banks need not comply with these requirements until January
1, 2018. CC 2923.6 and 2924.11.


Binding if Loan is Transferred: Any written approval for a
foreclosure prevention alternative shall be honored by a subsequent mortgage
servicer in the event the servicing of the borrower's loan is transferred or
sold to another mortgage servicer. This requirement does not apply to smaller
banks. This requirement will expire on January 1, 2018. CC 2924.11.


Lender Required to Review Foreclosure Documents: No entity
can record a notice of default or otherwise initiate the foreclosure process,
except for the holder of the beneficial interest under the deed of trust, an
authorized designated agent of the holder of the beneficial interest, or the
original or substituted trustee under the deed of trust. Furthermore, a mortgage
servicer must ensure that certain foreclosure documents are accurate and
complete, and supported by competent and reliable evidence. Those foreclosure
documents are the initial contact declaration, notice of default, notice of
sale, assignment of deed of trust, substitution of trustee, and declarations and
affidavits filed in a judicial foreclosure proceeding. A mortgage servicer must,
before recording or filing these documents, review competent and reliable
evidence substantiating a borrower’s default and the right to foreclose. The
above provisions have no expiration date. However, until January 1, 2018, any
mortgage servicer who engages in multiple and repeated uncorrected violations of
its obligation to review foreclosure documents shall be liable for a civil
penalty up to $7,500 per deed of trust in an action brought by the Attorney
General, district attorney, or city attorney, or in an administrative proceeding
brought by the DRE, DOC, or DFI against a respective licensee (see below for a
borrower's legal remedies). These provisions apply to all trust deeds,
regardless of occupancy or number of units. CC 2924(a)(6) and 2924.17.


Extending Initial Contact Requirement: Existing law
requiring a lender to contact a borrower 30 days before initiating foreclosure
has been modified as well as extended with no expiration date. Originally set to
expire on January 1, 2013, this provision generally prohibits a mortgage
servicer or lender from recording a notice of default until 30 days after the
lender or mortgage servicer contacts the borrower in person or by telephone to
assess the borrower's financial situation and explore options for avoiding
foreclosure. During the initial contact, the mortgage servicer must advise the
borrower of the right to request a subsequent meeting within 14 days, and
provide a toll-free number to find a HUD-certified housing counseling agency.
Any meeting may occur telephonically. Instead of directly contacting the
borrower, a mortgage servicer can satisfy due diligence requirements in the
manner specified. A notice of default must include a declaration that the
mortgage servicer has complied with or is exempt from this initial contact
requirement. An existing requirement for a declaration in the notice of sale
will be eliminated. Until January 1, 2013, this law generally applies to loans
made from 2003 to 2007 secured by owner-occupied residential properties with
one-to-four units, whereas starting January 1, 2013, this law will generally
apply to first trust deeds secured by owner-occupied residential properties with
one-to-four units. CC 2923.5 and 2923.55.


Notifying Borrower Before NOD: A mortgage servicer cannot
record a notice of default for a nonjudicial foreclosure until the mortgage
servicer informs the borrower of the borrower’s right to: (1) request copies of
the promissory note, deed of trust, payment history, and assignment of loan if
any to demonstrate the mortgage servicer's right to foreclose; and (2) certain
protections under the Servicemembers Civil Relief Act if the borrower is a
service member or dependent. This requirement does not pertain to smaller banks
as defined. This requirement expires on January 1, 2018. CC 2923.55.


Notifying Borrower After NOD: Within 5 business days after
recording a notice of default, a mortgage servicer must generally send a written
notice to the borrower on how to apply for the mortgage servicer’s foreclosure
prevention alternatives if any. This notice is not required if the borrower has
previously exhausted the first lien loan modification process offered by the
mortgage servicer as specified. This requirement does not apply to smaller banks
as defined. This requirement shall sunset on January 1, 2018. CC 2924.9.


Postponing a Trustee's Sale: Whenever a trustee’s sale is
postponed for at least 10 business days, the lender or authorized agent must
provide written notice of the new sale date and time to the borrower within five
business days after the postponement. However, any failure to comply with this
requirement will not invalidate any trustee's sale that would otherwise be
valid. This requirement applies to all trust deeds, regardless of occupancy or
number of units. This requirement shall sunset on January 1, 2018. CC
2924(a)(5).


Legal Remedies for Borrowers: A borrower may generally bring
a private right of action to enjoin or stop a trustee's sale until the mortgage
servicer has corrected certain material violations of this law. If a trustee’s
deed has already been recorded, the borrower may recover actual monetary damages
for certain material violations. For intentional and reckless violations by the
mortgage servicer, the borrower may recover treble actual damages or $50,000,
whichever is greater. A prevailing borrower who is awarded relief under this
provision can also recover reasonable attorneys’ fees and costs. Certain
violations by a person licensed by the DRE, DOC, or DFI are deemed violations of
that person's licensing laws. A lender (Bank of America, Wells Fargo, Chase,
Citi, or Ally) is not liable for these violations if, with respect to the
borrower who sues, the lender complies with the terms of the National Mortgage
Settlement with the attorneys general of 49 states, including California. These
provisions do not apply to smaller banks until 2018. CC 2924.12. C.A.R. opposed
the private right of action provision because of our concern for bad faith
claims, but the Legislature was not convinced.


Lender's Standard of Care to Investors: The Legislature
intends for a mortgage servicer to offer the borrower a loan modification or
workout plan in accordance with the mortgage servicer's contractual or other
authority. Any duty a mortgage servicer has to maximize net present value under
a pooling and servicing agreement is owed to all investors, not any particular
investor. A mortgage servicer will be deemed as acting in the best interest of
all investor if it implements a loan modification or workout plan in accordance
with certain specified parameters. CC 2923.6.





The information contained herein is believed accurate as of January 31, 2013.
It is intended to provide general answers to general questions and is not
intended as a substitute for individual legal advice. Advice in specific
situations may differ depending upon a wide variety of factors. Therefore,
readers with specific legal questions should seek the advice of an attorney.
Written by Stella Ling, Esq.


Copyright© 2013 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is
granted to C.A.R. members only to reprint and use this material for
non-commercial purposes provided credit is given to the C.A.R. Legal Department.
Other reproduction or use is strictly prohibited without the express written
permission of the C.A.R. Legal Department. All rights reserved.