Homeowners Bill of Rights

The New Normal

The new rules are probably best thought of as a codification of the February 2012 National Mortgage Servicing Settlement between the states attorneys’ general and the five largest mortgage servicers, making California the first state to enact protections like these at the state level.  The Act—which, in many instances, specifically places the burden of compliance on the “mortgage servicer”—will become effective on January 1, 2013 and includes sunset provisions as of January 1, 2018.  However, many of the obligations will continue beyond that date.  Significant changes in the foreclosure process or procedures include:

1. New Notices to Borrowers: The Act adds Civil Code section 2923.55, which expands the existing pre-foreclosure notice requirements and prohibits a servicer from recording a notice of default until it has informed the borrower of his right to request copies of documents proving the mortgage servicer’s right to foreclose and that the borrower may be entitled to protections under the Servicemembers’ Civil Relief Act (“SCRA”).  It also requires a written notice to the borrower after the postponement of a foreclosure sale for more than 10 business days (though failure to do so is not grounds to invalidate an otherwise valid sale).  (Civil Code § 2924(a)(5).)
2. Dual Tract Foreclosure Ban: Foreclosures must now be held in abeyance and not proceed while a “complete” first lien loan modification application is pending, on appeal, or while the borrower is in compliance with an approved loan modification agreement.  A loan modification application is “complete” when the borrower has submitted all required documents “within the reasonable timeframes” set by the servicer.  (See Civil Code §§ 2923.6, 2924.11, 2924.18.)
3. Single Point of Contact: Servicers that conduct more than 175 foreclosures per year in California must assign a single individual or team of individuals with knowledge of the loan and status of the possible loan modification and must be available to the borrower as to such things as the loan status, foreclosure prevention options available and the coordination of documentation. A decision maker must also be available to a borrower.  (Civil Code § 2923.7.)
4. Verification of Right to Foreclose:  Homeowners can require loan servicers to document their right to foreclose.  The Act also makes explicit that an entity cannot record a notice of default or otherwise initiate the foreclosure process unless it the holder of the beneficial interest under the deed of trust, the original or substituted trustee, or the designated agent of the holder of the beneficial interest.  (Civil Code 2924(a)(6).)
5. Robo-signing Banned: Representatives of a financial institution or servicer may not process foreclosure documents without verifying them for accuracy.  (See Civil Code § 2925.17.)
6. Required Loss Mitigation Procedures: Unless a borrower has previously exhausted the first lien loan modification process, within five business days of recording a notice of default, servicers that conduct more than 175 foreclosures per year in California must send a written notice advising the borrower regarding foreclosure prevention alternatives.  (Civil Code § 2924.9)  Receipt of an application for loan modification (or any other documents) must be acknowledged within five business days.  (Civil Code§ 2924.10)  If a loan modification is denied, the servicer must provide information regarding time to appeal the denial and reason(s) for the denial. (Civil Code §§ 2923.6.)