Getting the lender to the table 2923.5 and 2923.6 from SB 1137

Southern California (909)890-9192 in Northern California(925)957-9797
The Problem: Simply put, the problems the legislature attempted to address in SB 1137 are the consequences of the subprime mortgage crisis leading to declining real property values and historic levels of foreclosures. The legislature wanted to make sure lenders, loan servicers and their agents were communicating with borrowers in default about the borrower’s financial situation and foreclosure alternatives before a foreclosure is started by recording a notice of default (“NOD”).

The political environment this past year was such that every politician wanted to take credit for solving the mortgage/foreclosure crisis. Many tried; most failed. SB 1137, signed by the Governor on July 8, 2008, is urgency legislation which became effective immediately. However, sections 2 and 4 (the notice provisions) were delayed and become effective on Saturday, September 6, 2008. The good news is that the provisions of SB 1137 sunset on January 1, 2013 unless extended by the legislature prior to that time.

While SB 1137 is full of ambiguities, lacks definitions and may be unconstitutionally uncertain, most beneficiaries, loan servicers and trustees should be able to substantially comply with the spirit of the law if not the letter of the law. As bad as SB 1137 is, it would have been totally unmanageable had it passed without industry input.

Here are some of the things our office does in fighting foreclosure. Many a client call me when its toooooo late however sometimes something can be done it would envolve an appeal and this application for a stay. Most likely you will have to pay the reasonable rental value till the case is decided. And … Yes we have had this motion granted. ex-parte-application-for-stay-of-judgment-or-unlawful-detainer3
When title to the property is still in dispute ie. the foreclosure was bad. They (the lender)did not comply with California civil code 2923.5 or 2923.6 or 2924. Or the didn’t possess the documents to foreclose ie. the original note. Or they did not possess a proper assignment 2932.5. at trial you will be ignored by the learned judge but if you file a Motion for Summary Judgmentevans sum ud
template notice of Motion for SJ
TEMPLATE Points and A for SJ Motion
templateDeclaration for SJ
TEMPLATEProposed Order on Motion for SJ
TEMPLATEStatement of Undisputed Facts
you can force the issue and if there is a case filed in the Unlimited jurisdiction Court the judge may be forced to consider title and or consolidate the case with the Unlimited Jurisdiction Case

2nd amended complaint (e) manuel
BAKER original complaint (b)
Countrywide Complaint Form
FRAUDULENT OMISSIONS FORM FINAL
sample-bank-final-complaint1-2.docx
California stop foreclosure and get your own shortsale COMPLAINT
elderabusecomplaint
And in some cases an injunction is in order
Foreclosure injunction TRO
and a Lis Pendence
What did SB 1137 do? SB 1137 added a number of new code sections including Civil Code §§ 2923.5 and 2924.8 (which are the “notice provisions” of SB 1137 and designated as sections 2 and 4, respectively). Section 2923.5 requires contact with, or due diligence to attempt to contact, the borrower before a notice of default (“NOD”) may be recorded after 9-6-08 or continued where the notice of default was recorded prior to 9-6-08 but the notice of sale (“NOS”) will not be recorded until after 9-6-08. Section 2924.8 requires a new Notice of Sale to Resident to be posted on the residential property and mailed to the resident of residential properties (in English and in 5 other languages) as part of the nonjudicial foreclosure process.

What Loans are Covered under new Civil Code § 2923.5? Civil Code § 2923.5 only applies to: (1) Loans made from January 1, 2003, to December 31, 2007, inclusive (“Covered Period”); and, (2) loans secured by residential real property that are for owner-occupied residences. For purposes of § 2923.5, “owner-occupied” means that the residence is the principal residence of the borrower. The words “made” and “principal residence” are not defined in the statute, leaving uncertainty as to what these terms mean. Further the statutory definition of “residential property” is not limited to 1-4 residential properties. Therefore, if one unit in any residential property (e.g., an apartment building, a residential unit in a mixed use commercial/residential property, etc) is owner-occupied as the borrower’s principal residence, the borrower may be considered to be covered under Section 2923.5. Lastly, while it appears that the legislature intended to cover loans that were originally intended to be “owner occupied”, the timing of the owner occupancy is also uncertain. Loans meeting the above requirements will be called “covered loans” in this article.

Any loan that was not made between January 1, 2003, through December 31, 2007, is not a “covered loan” and is not subject to the provisions of § 2923.5 (although it still requires a “Notice of Sale to Resident” under certain circumstances discussed below).

Beneficiaries and loan servicers should consult with their compliance attorney to determine how to structure compliance with the provisions of section 2923.5. While legislation is often metaphorically viewed as making “sausage”, SB 1137 is an insult to sausage. Nonetheless, full compliance will be necessary by 9-6-08.

Preconditions to Recording Notice of Default (“NOD”). A trustee, beneficiary, or authorized agent may not file a notice of default (“NOD”) until: (1) 30 days after contact is made with the borrower as required by section 2923.5(a); or, (2) 30-days after satisfying the due diligence requirements of section 2923.5(g); or (3) after qualifying for one of the exclusions under section 2923.5(h).

Contact with the Borrower (Before Foreclosure). The beneficiary or authorized agent must contact the borrower in person or by telephone in order to: (1) Assess the borrower’s financial situation; and, (2) Explore options for the borrower to avoid foreclosure. Since many lenders already have policies which may fulfill these requirements, those policies should be reviewed as they are likely to fall short of some of the new requirements.

Assessment of the Borrowers Financial Situation; Discussion of Options and Notice of Borrower’s Right to Have a Meeting with Beneficiary or Agent. The assessment of the borrower’s financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. Civil Code § 2923.5 gives no guidance as to what the lender or servicer must do in “assessing the borrower’s financial situation. Similarly, there is no guidance as to what, if any, “options for the borrower to avoid foreclosure” should be discussed.

During the initial contact, the beneficiary or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within 14 days. (Civ. Code § 2923.5(a).) A beneficiary’s or authorized agent’s loss mitigation personnel may participate by telephone during any contact required by this section. (Civ. Code § 2923.5(d)(2).)

Whether the assessment of the borrower’s financial situation and discussion of options occurs at the initial meeting or at a subsequent meeting within 14 days, the borrower shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Any meeting may occur telephonically and does not have to be in person.

A borrower may designate a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the beneficiary or authorized agent, on the borrower’s behalf, options for the borrower to avoid foreclosure. That contact made at the direction of the borrower will satisfy the contact requirements of Civil Code § 2923(a)(2). However, any loan modification or workout plan offered at the meeting by the beneficiary or authorized agent is subject to approval by the borrower. (Civ. Code § 2923.5(a)(2)& (f).)

Where the loan servicer undertakes SB 1137, except where a loan servicing agreement is broad enough to specifically authorize the loan servicer to fulfill the requirement of Civil Code § 2923.5 for his principal (beneficiary), the loan servicer (e.g., broker) should consider modifying its loan servicing agreement to specifically authorize the broker/loan servicer to undertake the requirements of Civil Code § 2923.5 for the principal.2 While a trustee might be an “agent”, most trustees do not have the information or authority to engage in workout agreements or modifications of the beneficiary’s loan. Because of this, the legislature removed “trustee” from many of the provisions of SB 1137.

It is unclear what type of proof is necessary to satisfy the lender that a person allegedly “designated” by the borrower can speak for the borrower. While not addressed in SB 1137, if an authorized agent (including an attorney) wants to discuss the borrower’s personal financial information (not just options to avoid foreclosure) possessed by the lender or servicer, the lender or servicer should consider obtaining a written authorization to release (discuss) such information with the agent. Otherwise, the lender or loan servicer risks disclosing the borrower’s confidential financial information to a third party who may not prove to be the borrower’s authorized agent. Consideration should be given to providing an authorization form (prepared and approved by counsel). The lender’s counsel approved form of authorization may be provided on the lenders or on the loan servicer’s website or may be delivered in any other fashion (e.g., mailed, faxed, e-mailed or personally delivered) to the borrower or to the borrower’s designated authorized agent. Keep in mind simply to discuss options to avoid foreclosure with the borrower’s “designated agent” probably does not require much proof because these options are usually going to be generic. It is only if these discussions with the borrower’s agent go into the borrower’s personal financial information that a more detailed written authorization might be necessary. The lender’s or loan servicer’s authorization form should not be the sole form accepted as long as the form provides appropriate authorization for the lender or servicer to discuss and disclose the borrower’s personal financial information with the designated agent (i.e., where such conversations are going to take place).

Procedures Where, Despite “Due Diligence”, the Borrower Cannot Be Contacted. A NOD may be filed when a beneficiary or authorized agent has not contacted a borrower provided that the failure to contact the borrower occurred despite the due diligence of the beneficiary or authorized agent. (Civ. Code § 2923.5(g).) “Due diligence” under § 2923.5 means “all of the following:”

(1) A beneficiary or authorized agent shall first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. (“First Contact Letter”). Although SB 1137 does not specify what HUD number should be used, the HUD website states the following: “To find out more about HUD-approved housing counseling agencies and their services, please call (800) 569-4287 on weekdays between 9:00 a.m. and 5:00 p.m. ET (6:00 a.m. to 2:00 p.m. PT). You can also get an automated referral to the three housing counseling agencies located closest to you by calling (800) 569-4287, or see our list of these HUD-approved agencies by state.” Nothing in section 2923.5 requires that the First Contact Letter be delayed until the lender or servicer has tried to contact the borrower. Therefore, the First Contact Letter should be sent out shortly after default so that any attempted contacts with the borrower count toward the lender’s “due diligence” requirements.

(2) After the First Contact Letter has been sent, the beneficiary or authorized agent shall attempt to contact the borrower by telephone at least three times at different hours and on different days. Telephone calls shall be made to the primary telephone number on file. A beneficiary or authorized agent may attempt to contact a borrower using an automated system to dial borrowers, provided that, if the telephone call is answered, the call is connected to a live representative of the beneficiary, or authorized agent.

(3) A beneficiary or authorized agent satisfies the telephone contact requirements of § 2923.5(g) if it determines, after attempting contact pursuant to § 2923.5(g), that the borrower’s primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected.

(4) If the borrower does not respond within two weeks after the above telephone call requirements have been satisfied (e.g., calls or determination that the borrower telephone numbers have been disconnected), the beneficiary or authorized agent shall then send a certified letter, with return receipt requested. (“Due Diligence Letter”).

(5) The beneficiary or authorized agent shall provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.

(6) The beneficiary or authorized agent has posted a prominent link on the homepage of its Internet Web site, if any, to the following information: (a) Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options; (b) A list of financial documents borrowers should collect and be prepared to present to the beneficiary or authorized agent when discussing options for avoiding foreclosure. (This is where the beneficiary or loan servicer may want to put the agent authorization form and list it as a document to bring to the meeting); (c) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, beneficiary, or authorized agent; and, (d) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. Civil Code § 2924.5 does not specify in any further detail how or what should be included in the lender or servicer’s website.

While not addressed in SB 1137, where the loan servicer or trustee is subject to the Federal Fair Debt Collection Practices Act (“FDCPA”), it should be careful to comply with all of the requirements of the FDCPA (e.g., the mini-Miranda warning in 15 U.S.C. § 1692e(11); validation notice under 15 U.S.C. §1692g, etc.) The FDCPA prohibits communication with the consumer in connection with the collection of a debt at any unusual time or place or in a manner or place known (or which should be known) to be inconvenient to the consumer. (“Safe Harbor” hours are between 8:00 a.m. and 9:00 p.m. if not known to be inconvenient to the borrower). Whether you are subject to the FDCPA and how to comply should be discussed with your compliance attorney.

Exclusions from Some of the Requirements of § 2923.5(h). Civil Code § 2923.5(a) [30-day waiting period and borrower contact], (c) [declaration in NOS where NOD occurred prior to enactment of SB 1137], and (g) [due diligence alternative] do not apply if any of the following occur: (1) The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the trustee, beneficiary, or authorized agent; (2) The borrower has contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to beneficiaries; or, (3) The borrower has filed for bankruptcy, and the proceedings have not been finalized. (Civil Code § 2923.5(h).) Whether these exceptions apply and whether a declaration in the NOD or NOS is needed should be discussed with compliance counsel.

Surrender of Keys or Surrender Letter. To avoid disputes, It may be a good practice for lender’s and servicer’s to have a counsel approved form of surrender letter (even where the borrower turns over the keys) to clearly evidence the borrower’s intention. However, no particular form is required and no letter is required where the borrower turns over the keys to the property.

Contract with Foreclosure Avoidance Organizations. Proving that the borrower “has contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to beneficiaries” may be problematic. Relying on this exception should be limited to situations where counsel or an experienced supervisor has determined that the exclusion applies.

Bankruptcy Exclusion. For the bankruptcy exclusion what does: “the proceedings have not been finalized’ mean? “Finalized” is not defined by § 2923.5(h)(3). However, it likely means that either: (1) an order entered on the court’s docket closing the file by the court; or, (2) an order entered on the court’s docket dismissing the bankruptcy case.

What happens if a lender, trustee or servicer relies on the bankruptcy exclusion and the bankruptcy is dismissed before the sale occurs? Probably nothing if the bankruptcy was filed and not finalized at the time the NOD (or NOS in the transition period) was filed. The trustee, lender or authorized agent should not engage in the contact requirements of SB 1137 while the borrower is in bankruptcy, as this may violate the automatic stay in bankruptcy.

NOD Recorded on or after 9-6-08, must contain a Declaration of Compliance with Civil Code § 2923.5.
A NOD filed on or after September 6, 2008, shall include: “[A] declaration from the mortgagee, beneficiary, or authorized agent that it has contacted the borrower, tried with due diligence to contact the borrower as required by this section, or the borrower has surrendered the property to the mortgagee, trustee, beneficiary, or authorized agent.” (Civ. Code § 2923.5(b).)

The form of the declaration is not specified in Civil Code § 2923.5(b) The form of the declaration should be provided by compliance counsel and is likely to vary depending on whether compliance is achieved by contact or due diligence or by application of one of the exclusions. Some counsel may even argue that a declaration is not needed for exclusions because no such exclusion is mentioned in Civil Code § 2923.5(b). The more conservative approach, however, would be to draft and use declarations when any exclusion in Civil Code § 2923.5(h) is relied upon.

A declaration is frequently attached to the Notice of Default is not under penalty of perjury therefore the notice and the sale could be overturned on this ground.

Transition Period Rules. Where the NOD has been recorded “prior to the enactment” of § 2923.5 and a notice of rescission of NOD has not been recorded, the trustee, beneficiary, or authorized agent shall, as part of the NOS filed pursuant to Section 2924f, include a declaration that either: (1) States that the borrower was contacted to assess the borrower’s financial situation and to explore options for the borrower to avoid foreclosure; or, (2) Lists the efforts made, if any, to contact the borrower in the event no contact was made.

The use of the words “prior to enactment of this section [§2923.5] is problematic as the statute was technically enacted on July 8, 2008 when the chaptered bill was enrolled with the Secretary of State after being signed by the Governor. However, Section 10(b) of SB 1137 provides that the provisions of sections 2 and 4 of the Act (i.e., Civil Code §§ 2923.5 and 2924.8) shall become operative “60 days after the “effective date” of SB 1137. The “effective date” was July 8, 2008 and 60 days thereafter should be Saturday, September 6, 2008. The problem that may occur is that Section 10 of SB 1137 is found in what are called the “uncodified sections”, meaning that that section will not appear in the printed code sections relied upon by attorneys. To respond to challenges by consumers, their representatives and counsel prior to September 6, 2008, beneficiaries, loan servicers, trustees and their respective counsel should keep on hand a chaptered copy of SB 1137 with section 10(b) highlighted for the purpose of promptly responding to claims. However, the most likely statutory interpretation of SB 1137 is that the transition period for loans covered by Civil Code § 2923.5 commences on 9-6-08 where a NOD was recorded prior to 9-6-08 and a NOS will be recorded on or after 9-6-08. It would make no sense for the transition period to predate the time when Civil Code §§ 2923.5 and 2924.8 become effective. Furthermore this interpretation appears more consistent with the legislative intent and is most protective of the consumer.

Clearly, as to loans covered by Civil Code § 2923.5, beneficiaries/servicers who have not implemented SB 1137 compliance by the time this article is read, will be delayed for whatever time it takes to achieve compliance as they cannot record a NOD (or a transitional period NOS) until they have complied with section 2923.5.

Application to Judicial Foreclosure. SB 1137 appears to be inapplicable to judicial foreclosures as it is specifically limited to NODs and NOSs “pursuant to Civil code § 2924.” (Civil Code §§ 2923.5(a)(1), (b) & (c).) Oddly, the legislature may have created incentive for some lenders to use the more costly and time consumer judicial foreclosure process at least where other facts exist for the selection of judicial foreclosure.

Addition of Civil Code § 2923.6 (Servicer’s Duty under Pooling Agreements). SB 1137 added Civil Code §2923.6(a) dealing with pooling and servicing agreements. This section should be reviewed by managers of pools or loan servicers. It appears to be designed to provide some level of protection for servicers and pool managers in offering loan modifications or workout plans to borrowers.

Notices of Sale to Resident of Foreclosure of Residential Rental Properties: (Foreign Language Copies). SB 1137 added Civil Code § 2924.8 which only apply: (1) To loans secured by residential real property; and, (2) If the billing address for the mortgage note is different than the property address.

Section 2924.8 is not limited to “owner-occupied” residential properties nor is it limited to loans made between 1-1-03 and 12-31-07. Section 2924.8 does not define what “address for the mortgage note” means. However, it can be assumed that where the servicer originally, or after the loan is made, has an address for the borrower that is different than the address of the property for the purpose of sending notices under the note, § 2924.8 should be applied.

What Is the New Notice and How Is It given? Section 2924.8 provides that when the trustee or authorized agent posts the NOS: (1) The trustee or authorized agent shall also post the following notice, in the manner required for posting the notice of sale on the property to be sold, and; (2) The trustee, beneficiary, or authorized agent shall mail, “at the same time” [as the posting] in an envelope addressed to the “Resident of property subject to foreclosure sale” the following notice in English and the languages described in Civil Code § 1632 (i.e., Spanish, Chinese, Tagalog, Vietnamese, and Korean).

The Notice of Sale to Resident shall read:

“Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.”

(Civ. Code § 2924.8(a).) The form including foreign language translations were done by the State of California and are posted on the California Department of Corporations website at http://www.corp.ca.gov/FSD/pdf/Notice_of_Sale.pdf.

It is an infraction to tear down the new notice within 72 hours of posting. Violators shall be subject to a fine of one hundred dollars ($100). (Civil Code § 2924.8(b).)

Should the § 2924.8 notice to resident be posted and mailed to the property address on all types of property (i.e., residential, commercial, industrial or vacant land) just to be cautious? No. But the notice probably should be posted and mailed on all residential properties (e.g., single family, multi-unit or mixed use where part of the property is residential) where the billing address for the mortgage note is different than the property address. Since Civil Code § 2924.8 does not specifically refer to “rental property”, the new notice may create some confusion if posted on purely non-residential property. The problem is that the new State approved Notice of Sale to Resident references “rental property” and does not limit that statement to residential rental property. The required language goes on to refer to the “60-day eviction notice” which, in a different code section, expressly only applies to “residential properties. (See, new Code of Civil Procedure § 1161b). Because of these ambiguities between Section 2924.8, the new notice contained in that section and the provisions of new Code of Civil Procedure § 1161b, if the new Notice of Sale to Resident is given to tenants of non-residential properties, it has the risk of confusing nonresidential tenants. Since Civil Code § 2924.8 is designed to protect residential rental tenants, it is best to err on the side of giving the notice whenever the trustee, beneficiary or their agents are not sure.

Should the notice to resident be mailed to the trustor (borrower) or other persons (besides the occupant of the residential rental property) who are entitled to receive NODs or NOSs? No. The new Notice of Sale to Resident should only be mailed to “Resident of property subject to foreclosure sale”. Civil Code § 2924.8(d) states: “This section shall only apply to loans secured by residential real property, and if the billing address for the mortgage note is different than the property address.” Since is unclear what is meant by “billing address for the mortgage note, we recommend mailing and posting the “notice to resident” in any case where the beneficiary originally, or subsequently, had in its file an address for the purpose of notifying the borrower (e.g., for sending statements) other than that of the secured property. For example, whenever the lender’s file reveals that a street address, rural postal route, P.O. Box, private mailing center (e.g., box) etc. has been used by the borrower, other than the address of the secured property”, the best practice would be to post and mail the new Notice to Resident.

Could such an approach create confusion to the trustor if he/she is occupying the property even though he/she is using an address other than the secured property?

Probably not. The statutory wording expressly states: “If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. New Code of Civil Procedure § 1161b(b) expressly states: “This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.” KEEP IN MIND THE PROVISIONS OF CODE OF CIVIL PROCEDURE § 1161b BECAME EFFECTIVE ON JULY 8, 2008 AND IS NOT SUBJECT TO THE 60-DAY DELAY THAT APPLIES TO THE CONTACT AND NOTICE TO RESIDENT PROVISIONS OF CIVIL CODE SECTIONS 2923.5 AND 2924.8.
Southern California (909)890-9192 in Northern California(925)957-9797