Jim Porter: CA’s new foreclosure law is long overdue
March 28, 2013
TRUCKEE, Calif. — This is Part I of California's new foreclosure law — the Homeowner Bill of Rights (HBOR) signed into law effective January 1.
I assume I get brownie points for alerting you early on that this is a three-part series so you can stop reading now, unlike those TV shows that let you know at the end of the first half, and of course you never see the second half.
Homeowner Bill of Rights
California is the first state to adopt into law the residential mortgage foreclosure reform principles outlined in the 2012 National Mortgage Servicing Settlement with the Country's top five mortgage lenders. It's about time.
Finally, the playing field is a little more level. Well, it's not level but it's better than it was. Borrowers at least now have some rights.
The law aims to avoid foreclosures where possible and encourages loan modifications and short sales. Indeed, that would be a change. The full text of SB 900 is available at http://www.leginfo.ca.gov. Here's a summary of three of the key terms:
Scope of the Law
HBOR applies only to first trust deeds secured by owner-occupied residential property containing no more than four dwelling units. A "Borrower" must be a natural person not a business entity — who has not 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.
That last phrase is interesting. Many parts of the law do not apply to "smaller banks" which foreclosed on 175 or fewer properties during the preceding annual reporting period. So we're talking large lenders like Chase, B of A, CitiBank and Wells Fargo.
No Dual Tracking During Short Sale
A mortgage servicer or lender may not start a foreclosure or conduct a trustee's (foreclosure) sale if a short sale has been approved in writing by the lender(s), and proof of funds or financing has been provided to the servicer/lender.
That requirement expires on January 1, 2018, at which point a lender or mortgage servicer may not record a notice of sale or conduct a trustee's sale if the borrower's complete application for a short sale or loan modification is pending, and until the borrower has been given a written determination by the mortgage servicer. Smaller banks are covered by these requirements after 2018.
No Dual Tracking During Loan Modification
A mortgage servicer or lender may not start a foreclosure (record a Notice of Default) or conduct a trustee's sale if the borrower's complete application for a loan modification is pending, or if the borrower is in compliance with the terms of a written trial or permanent loan modification or a repayment plan.
A borrower has 30 days to appeal a denial of a loan modification (hurray) and the mortgage servicer/lender cannot proceed with a foreclosure until 31 days after giving the borrower written denial of a loan modification or longer if the borrower appeals the denial. However, a mortgage or loan servicer is not obligated to evaluate a loan modification application from a borrower who was previously evaluated before 2013 unless the borrower submits a proof of a change in the borrower's financial circumstances. (That is one way to, in essence, make the law retroactive.)
These specific requirements expire on January 1, 2018 when a lender/mortgage servicer is prohibited from recording and finishing a foreclosure sale if the borrower's complete application for a short sale or a loan modification is pending and until the borrower has been given a written determination. Smaller banks are only covered under these requirements as of January 2018.
Next week we present Part II of California's new foreclosure law.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. He may be reached at firstname.lastname@example.org or at the firm's website http://www.portersimon.com.