A few months ago we discussed a California legislative package - The Homeowner Bill of Rights - that had been brought forward by State Attorney General (AG), Kamala Harris. Ms. Harris has sought both to codify and build upon concessions won in a recent settlement between the major banks and 49 of the states. The settlement had to do with a variety of alleged mortgage and foreclosure abuses.
At the time, the California Association of Realtors® (CAR), as well as related industry groups, had voiced opposition to many aspects of the legislation. Subsequently, the bills went to a special conference committee where they were modified and fine-tuned outside of the normal hearing processes. Last week the bills came back to the legislature and they are set for debate and votes this week.
Two of the key bills in the package are Assembly Bill 278 (Eng/Feuer/Mitchell) and Senate Bill 900 (Leno/Corbett/DeSaulnier/Evans). Before outlining their major provisions, let us first note their specific limits and their declared purpose.
The procedures described are applicable only to mortgage loans for owner-occupied, residential properties of no more than four units. "‘Owner-occupied’ means that the property is the principal residence of the borrower and is security for a loan made for personal, family, or household purposes." Only senior liens are covered. Many provisions of the bills will sunset January 1, 2018.
The declared purpose of the act "is to ensure that as part of the non-judicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower’s mortgage servicer, such as loan modifications or other alternatives to foreclosure." Additionally, it is also stated, "nothing in the act shall be interpreted to require a particular result of that process." Which is to say, there is no guarantee that applicants will in fact obtain loan mods.
There are four key provisions to these central bills.
1. Dual Tracking Ban: The legislation would require a mortgage servicer to render a decision on a loan modification before advancing the foreclosure process by filing a notice of default or notice of sale, or by conducting a trustee’s sale. The literature and real estate meetings overflow with horror stories about a lender processing a loan mod application (or short sale) in one department, while another department proceeds ahead and forecloses on the property. This won’t happen under these bills. There is a spelled-out procedure whereby, once a completed application is received, it must be processed (with a right of appeal in case of denial) before there can be any further movement towards a foreclosure.
2. Single Point of Contact (SPOC) : As the Senate legislative analyst notes, "Borrowers have reported…regarding frustration in seeking loss mitigation [that] resulted in numerous phone calls with different people, each one not aware of the efforts of the other. Additionally, borrowers have reported submitting paperwork to one contact at a servicer to only get passed on to another contact who then requests the same information…" Just about any active Realtor® could confirm this. The bill provides that an SPOC be an individual or a team, "each of whom must have knowledge of the borrower’s status and…alternatives, access to decision makers, and the responsibility to coordinate the flow of documentation…"
3. Enforceability: Borrowers are given the authority to seek redress of material violations of the legislation. If this occurs during the process, the borrower may seek injunctive relief. If the foreclosure has already occurred, monetary damages may be sought. Damages are limited to actual damages. However, if the violation is shown to be "reckless or intentional", the court may award a borrower the greater of treble damages or $50,000.
4. Verification of Documents: The legislation requires that the party filing the documents must "ensure that it has reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose." An entity "that engages in ‘multiple and repeated’ violations of this requirement may be subject to a civil penalty of up to $7,500 per mortgage or deed of trust…" The action would have to be brought by a public prosecutor or in an administrative proceeding.
CAR still opposes these bills on grounds largely related to possible unintended consequences: namely, that the foreclosure process may become so stalled and cumbersome that it will negatively affect the real estate market by making the lending process more difficult and expensive. Nonetheless, it is a pretty sure bet that the legislative package brought to a Democrat-controlled legislature by a Democrat AG will be passed and signed by a Democrat Governor.