Jim Porter: California’s new foreclosure law, Part 2
May 13, 2013
TRUCKEE, Calif. — This is the second installment highlighting California's much-needed new foreclosure law effective January 1, 2013. Read Part I here.
Single Point of Contact
For a borrower requesting a short sale or loan modification, the mortgage servicer/lender must upon the borrower's request promptly establish and provide a direct means of communication with a single point of contact.
As it has been handled historically, you never knew who you were talking to and it was never the same person, so this is a good change.
The single point of contact must be an individual or a team responsible for coordinating the application, 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 upon the borrower's request.
Each team member must be knowledgeable about a borrower's situation and current status in the short sale or loan modification process. That has never, in the history of working with these large banks, ever occurred to my knowledge. These requirements do not apply to smaller banks.
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No Late Fees or Application Fees
A mortgage servicer or lender may not 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 short sale or loan modification is being evaluated or exercised.
The lender is also prohibited from charging for any application, processing or other fee for first lien loan modification or short sale.
I've had clients who were told to stop making payments so they could apply for a loan modification, then for unexplained reasons they did not qualify, while in the meantime late charges and piled-on interest accrued, from which they were never able to recover.
Fortunately, there is a new California case that will help borrowers in that nightmare, plus this new law.
Loan Modification Safeguards
Until January 2018, a lender or mortgage servicer must provide written acknowledgment of receipt within five business days of a borrower's submission of complete first lien modification application or any document in connection with a first lien modification application. Wow.
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. That's a huge change.
Additionally, effective January 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 in the law.
That's a significant change. If a lender approves a short sale or loan modification in writing, it must be honored even if the borrower's loan is transferred or sold.
Lender Required to Review Foreclosure Documents
In response to "robo-signing" of foreclosure documents by lenders and mortgage servicers without verifying the contents of the documents or even understanding the loan itself, the new law restricts who can initiate foreclosure proceedings and, believe it or not, requires review of the foreclosure documents before initiating foreclosures. What a concept.
A mere servicing agent cannot initiate foreclosure, which must be done by the lender or the lender's agent or the trustee under the deed of trust. The mortgage servicer or lender must ensure that the documents are accurate, complete and supported by "competent and reliable evidence" concerning the loan, loan status, and the right to foreclose before initiating foreclosure.
Multiple violations of this part of the law carry a civil penalty up to $7,500 per loan in any action brought by the Attorney General or any district attorney or city attorney.
Lenders may not start a foreclosure until 30 days after the lender or loan 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 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. A notice of default which starts the foreclosure process must include a declaration that the lender or servicer has complied with or is exempt from this initial contact requirement.
The requirement for such a declaration in the notice of trustee's sale is eliminated. This portion of the law applies to first trust deeds secured by owner-occupied residential properties with one-two-four units (no longer just loans made between 2003 and 2007).
Next week we present Part III 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 email@example.com or at the firm's website http://www.portersimon.com.