Insights

With a flurry of press conferences, California’s Governor Jerry Brown, signed into law portions of the new Homeowner Bill of Rights on July 11, 2012. The legislation is aimed at reducing the negative economic impacts of foreclosures on state and local economies by providing additional protections to borrowers while they pursue loss mitigation options. In particular, the portion of the legislation that passed includes a prohibition on “dual tracking” by prohibiting the recording of a notice of default, notice of sale or conducting a trustee’s sale until the servicer has reviewed and rendered a decision on a borrower’s application for a loan modification. It also requires certain mortgage servicers to establish a single point of contact when a borrower requests a foreclosure prevention alternative and provides new avenues for enforcement and penalties. Certain provisions are generally applicable while others are applicable based upon the number of California residential properties the entity foreclosed upon in the previous year.

Currently, California law includes contact and due diligence requirements for mortgages originated between January 1, 2003 and December 31, 2007. The new provisions expand these requirements by eliminating the date limitation and extending the date through which the legislation remains in effect from January 1, 2013 through January 1, 2018. The contact and due diligence requirements remain substantially the same. However, the following are new requirements:

• If the borrower submits a complete application for a first lien loan modification, no notice of default or notice of sale may be recorded and no trustee’s sale may be conducted until the borrower is provided with a written determination regarding the borrower’s eligibility for the loan modification. If the borrower is approved for a foreclosure prevention alternative, the notice of default may not be recorded, or if it was previously recorded, the notice of sale may not be recorded or trustee’s sale held:
• if the borrower is in compliance with the terms of the written plan, or
• the foreclosure prevention alternative was approved by all parties and proof of funds or financing has been provided to the servicer.

There are additional appeal procedures and other requirements for entities which have foreclosed on more than 175 residential properties in the previous year.

For most entities which foreclosed on more than 175 residential properties in California during the previous year, when a borrower requests a foreclosure prevention alternative, the mortgage servicer must promptly establish a single point of contact and provide one or more direct means of communication with the single point of contact.

“Foreclosure prevention alternative” is defined as a first lien loan modification or other available loss mitigation option.

“Single point of contact” means an individual or team of personnel, each of whom has the ability and authority to perform the required responsibilities and must remain assigned to the borrower’s account until the mortgage servicer determines that all loss mitigation options offered by, or through, the mortgage servicer have been exhausted or the borrower’s account becomes current.

Among other things, the single point of contact is responsible for doing all of the following:

• Communicating the process by which a borrower may apply for an available foreclosure prevention alternative and the deadline for any required submissions to be considered for these options.
• Coordinating receipt of all documents associated with available foreclosure prevention alternatives and notifying the borrower of any missing documents necessary to complete the application.
• Having access to current information and personnel sufficient to timely, accurately, and adequately inform the borrower of the current status of the foreclosure prevention alternative.
• Ensuring that a borrower is considered for all foreclosure prevention alternatives offered by, or through, the mortgage servicer, if any.
• Having access to individuals with the ability and authority to stop foreclosure proceedings when necessary.

The new provisions include a penalty of $7,500 per mortgage or deed of trust for any mortgage servicer who fails to ensure that it has reviewed competent and reliable evidence of the borrower’s default and the right to foreclose, including the borrower’s loan status and loan information with regard to a declaration of compliance with the contact and due diligence requirements, notice of default, notice of sale, assignment of the deed of trust, or substitution of trustee recorded by or on behalf of the mortgage servicer. They further provide for injunctive relief by the borrower prior to sale for certain material violations of the new provisions.

Please note that other substantive requirements are included in the new Homeowner Bill of Rights. The legislation will become effective January 1, 2013.

Lauren E. Ingersoll is an associate in the California office of Hudson Cook, LLP. She can be reached at 714-263-0426 or by email at lingersoll@hudco.com.