On July 11, 2012, California Attorney General Kamala Harris signed into law the California Homeowner Bill Of Rights, designed to shield distressed homeowners from unfair lender practices during the foreclosure process.
The new laws, which will go into effect as of January 1, 2013, build upon and extend legislation put in place following the $25 Billion National Mortgage Settlement, during which California was able to obtain $18 Billion.
If you are faced with Foreclosure in Silicon Valley or in California, here are the top 3 provisions you should be aware of:
- Restriction of dual-track foreclosures, where a lender forecloses on a borrower despite being in discussions over a loan modification to save the home
- Single and knowledgeable point of contact with each lender and direct access to decision makers
- Increased power to law enforcement agencies to deal with mortgage and foreclosure-related crime, in particular civil penalties for fraudulently signed mortgage documents
I would like to outline below in more details some of the critical provisions that every homeowner caught in the net of the foreclosure process in California should be familiar with.
Before anything though, please remember that the California Homeowner Bill of Rights only pertains to first trust deeds secured by owner-occupied
properties with one-to-four residential units. "Owner-occupied" means
that the property is the principal residence of the borrower and secured by a
loan made for personal, family, or household purposes.
No Dual Tracking During A 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 and proof of funds or financing has been provided to the servicer. This requirement expires on January 1, 2018.
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 non judicial foreclosure if the borrower’s complete application for a first lien loan modification is pending, 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 thirty (30) days to appeal the denial of a loan modification.
Cancelling a Pending Trustee's Sale
In the event of a short 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 lien holder, and mortgage insurer as applicable) and proof of funds or financing has been provided to the lender or authorized agent.
For all 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.
Single Point of Contact at each Lender
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.
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 any other foreclosure prevention alternative.
Additional Loan Modification Safeguards
Until January 1, 2018, a mortgage servicer must provide written acknowledgment of receipt within five (5) 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.
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.
Binding Approval if a Loan is Transferred
Any written approval for a foreclosure prevention alternative shall be honored by a subsequent mortgage servicer in the event the borrower's loan is transferred or sold.
Requirement for Lender to Review Foreclosure Documents
A mortgage servicer must ensure that certain foreclosure documents are accurate, 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.
Extension of Initial Contact
The existing law requiring a lender to contact a borrower thirty (30) days before initiating foreclosure has been modified as well as extended with no expiration date.
Notifying Borrower Before a Notice of Default
A mortgage servicer cannot record a notice of default for a non judicial foreclosure until the mortgage servicer informs the borrower of the borrower’s rights.
Notifying Borrower After a Notice of Default
Within five (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 available.
Postponing The Trustee's Sale
Whenever a trustee’s sale is postponed for at least ten (10) business days, the lender or the authorized agent must provide written notice of the new sale date and time to the borrower within five (5) business days after the postponement.
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.
California Principal Reduction Program
On top of the California Bill of Rights, I thought I would call out the following program which will allow a limited number of underwater homeowners in California to have the possibility to get principal reductions of up to $100,000.
To qualify homeowners must live in the home, owe more than it is worth, have low-to-moderate income, and be delinquent or have some hardship that puts them in imminent risk of default. For further information about the California Principal Reduction Program, please refer to this page