CALIFORNIA NEW FORECLOSURE LAWS IN DETAIL
A REMINDER ABOUT NEW CALIFORNIA MORTGAGE FORECLOSURE LAWS EFFECTIVE JANUARY 1, 2013
The California Foreclosure Reduction Act (“Foreclosure Reduction Act,” AB 268 (Ch. 86, Stats. 2012) and SB 900 (Ch. 87, Stats. 2012)). The Foreclosure Reduction Act reforms California’s non-judicial foreclosure process so that borrowers have greater protection from wrongful foreclosures, and a meaningful opportunity to be considered for, and obtain, a loan modification or other alternative to foreclosure.
Many provisions only apply to mortgage servicers that have foreclosed on more than 175 homes during the preceding year. MOST PROVISIONS APPLY SOLELY TO FIRST LIEN MORTGAGES OR DEEDS OF TRUST SECURED BY OWNER-OCCUPIED PROPERTY.
This summary of key provisions in the Foreclosure Reduction Act applies to mortgage servicers above and below the 175 threshold. This summary also summarizes key provisions that will become operative on January 1, 2018, which will apply to all mortgage servicers, regardless of foreclosure volume.
RMLA and CFLL licensees will be responsible for maintaining evidence of compliance with all of the new requirements. Such evidence includes, but not be limited to, phone conversation logs, copies of correspondence, notices, declarations, and operations manuals that establish a mortgage servicer’s policies and procedures. A licensee’s books and records should establish that required correspondence and notices occur within the time periods set forth in the law. DRE licenses would be well advised to do the same.
I. Mortgage Servicers with 175 or Fewer Foreclosures
1. Foreclosure Communication Requirements (Civil Code §2923.5 (Section 4))
A mortgage servicer is required to contact or attempt to contact a borrower before commencing the foreclosure process, and to record a declaration of compliance with the Notice of Default (“NOD”).
The borrower outreach requirements apply to all loans, regardless of when those loans were first recorded.
2. Review of Foreclosure Documents (Civil Code §2924.17)
Before commencing foreclosure, a MORTGAGE SERVICER IS REQUIRED TO REVIEW COMPETENT AND RELIABLE EVIDENCE TO SUBSTANTIATE THE BORROWER’S DEFAULT and its right to foreclose. In addition, every recorded declaration, affidavit, NOD, Notice
of Sale (“NOS”), assignment, and substitution of trustee must be accurate and complete, and supported by competent and reliable evidence.
3. Prohibition on Dual Tracking (Civil Code §2923.5 (Section 4) and §2924.18)
A MORTGAGE SERVICER IS PROHIBITED FROM COMMENCING OR CONTINUING THE FORECLOSURE PROCESS (I.E. RECORDING A NOD OR NOS, OR CONDUCTING A TRUSTEE’S SALE) PENDING A COMPLETED REVIEW OF A LOAN MODIFICATION APPLICATION SUBMITTED BY A BORROWER AND UNTIL AFTER THE BORROWER HAS BEEN PROVIDED WITH A WRITTEN DECISION ABOUT ELIGIBILITY FOR A LOAN MODIFICATION.
A mortgage servicer is also prohibited from commencing or continuing the foreclosure process if a borrower is in compliance with the terms of an approved foreclosure prevention alterative, or if a foreclosure prevention alternative has been approved by all parties and proof of financing has been provided to the mortgage servicer.
4. Damages (Civil Code §2924.19)
Prior to a trustee’s sale, a borrower may bring an injunctive action against a mortgage servicer for a material violation of Civil Code Sections 2923.5 (borrower outreach and declaration of contact or due diligence), 2924.17 (review of foreclosure documents), or 2924.18 (dual track prohibition).
After a trustee’s deed upon sale has been recorded, a mortgage servicer may be liable to a borrower for actual damages for material violation of the abovementioned Civil Code sections. Furthermore, a mortgage servicer may be liable for the greater of treble damages or $50,000 if the material violation was
intentional, reckless or resulted in willful misconduct. A borrower may be awarded reasonable attorney’s fees and costs.
5. Reporting Requirement If Mortgage Servicer Exceeds 175 Threshold (Civil Code §2924.18(c))
A mortgage servicer is required to notify the Department of Corporations withinthree months after close of the calendar year or annual reporting period when that servicer has exceeded the 175 foreclosure threshold. The Department of Corporations has determined that this notice may be included with the annual report required under the licensee’s licensing law. The mortgage servicer becomes subject to the heightened requirements for mortgage servicers with more than 175 foreclosures, six months after the calendar year in which it exceeds the threshold.
6. Written Notice of Postponement of Sale (Civil Code §2924(a)(5))
A mortgage servicer must notify a borrower in writing, within 5 business days following the postponement, whenever a foreclosure sale is postponed for at least 10 business days.
II. Mortgage Servicers with More Than 175 Foreclosures
1. Foreclosure Communication Requirements (Civil Code §2923.55)
A mortgage servicer is required to contact or attempt to contact a borrower before commencing the
foreclosure process, and to record a declaration of compliance with the NOD.
2. Review of Foreclosure Documents (Civil Code §2924.17)
Before commencing foreclosure, a mortgage servicer is required to review competent and reliable evidence to substantiate the borrower’s default and its right to foreclose. In addition, every recorded declaration, affidavit, NOD, NOS, assignment, and substitution of trustee must be accurate and complete, and supported by competent and reliable evidence.
3. Prohibition on Dual Tracking (Civil Code §2923.55, §2923.6 (Section 7) and §2924.11 (Section 14))
A mortgage servicer is prohibited from commencing or continuing the foreclosure process while a completed loan modification application submitted by a borrower is pending, until (1) the mortgage servicer makes a written determination that the borrower is not eligible for a loan modification and any appeal period has expired;
(2) the borrower does not accept a loan modification offer within 14 days of the offer; or (3) the borrower accepts a loan modification offer, but defaults or breaches the terms.
Additionally, a mortgage servicer is prohibited from commencing or continuing the foreclosure process if a borrower is in compliance with the terms of an approved foreclosure prevention alternative, or if a foreclosure prevention alternative has been approved by all parties and proof of financing has been provided to the servicer.
4. Single Point of Contact (Civil Code §2923.7)
A mortgage servicer is required to create a “single point of contact” upon the request of a borrower. The single point of contact may be an individual or a team that has the authority to perform specific responsibilities, has knowledge of a borrower’s situation and current status, provides accurate information to a borrower, and coordinates all documents associated with a borrower’s foreclosure prevention alternative.
5. Notice to Borrower that has not Applied for a Loan Modification (Civil Code §2924.9)
Unless a borrower has previously exhausted the loan modification process, within five business days after recording a NOD, a mortgage servicer is required to notify a borrower who has not submitted an application for a loan modification that the borrower may qualify for a loan modification or foreclosure prevention alternative, whether an application must be submitted to be considered, and the process to obtain an application.
6. Loan Modification Review Process (Civil Code §2924.10)
A mortgage servicer is required to provide a borrower written acknowledgement of receipt within five business days of receiving a completed loan modification application OR ANY DOCUMENTS CONNECTED TO A LOAN MODIFICATION APPLICATION. The initial written acknowledgement of receipt of the loan modification application must include a description of the loan modification process, including an estimate of when a decision will be made and length of time a borrower will have to consider an offer; any deadlines or expiration dates for submitting documents;
and any deficiencies in the application. In circumstances where a borrower was provided a fair opportunity to be evaluated for a loan modification prior to January 1, 2013, a mortgage servicer is
not required to evaluate a loan modification application from a borrower unless there has been a material, documented change in the borrower’s financial circumstances.
7. Loan Modification Application Denial and Appeal (Civil Code §2923.6 (Section 7))
If a loan modification application is denied, a mortgage servicer is required to send a borrower written notice identifying the reasons for denial, including (1)timing and instructions for requesting an appeal; (2) if applicable, reasons for investor disallowance of the loan modification; (3) information related to the net
present value calculation, if the denial was based on this calculation; (4) if applicable, a finding of a prior failed loan modification; and (5) a description of other foreclosure prevention alternatives for which the borrower may be eligible.
A mortgage servicer must provide a borrower at least 30 days from the date of a written denial to appeal the denial and provide evidence that the mortgage servicer’s determination was in error.
A mortgage servicer is prohibited from recording a NOD or, if a NOD has already been recorded, recording a NOS or conducting a trustee’s sale until the later of: (1) 31 days after the borrower is provided written notice of the denial; (2) If the borrower appeals the denial, the later of 15 days after the denial of the appeal or 14 days after a loan modification is offered after appeal, but declined by the borrower; or (3) if a loan modification is offered after appeal and accepted, the date on which the borrower defaults or breaches the terms of the offer.
8. Prohibition on Fees (Civil Code §2924.11 (Section 14))
A mortgage servicer is prohibited from charging application, processing and other fees for a loan modification or other foreclosure prevention alternative. A mortgage servicer is also prohibited from collecting late fees for the period when a loan modification application is under review, when a denial is being appealed, when the borrower is making timely modification payments, or when a foreclosure prevention alternative is being considered or exercised.
9. Additional Notices (Civil Code §2923.55)
A mortgage servicer is prohibited from recording a NOD until after the servicer has provided the borrower written notice with (1) a statement that if a borrower is a servicemember or dependent of a servicemember, the borrower may be entitled to certain protections under the federal Servicemembers Civil Relief Act; and (2) a statement that the borrower may request a copy of the promissory note, deed of trust, any assignment of the borrower’s mortgage, and the borrower’s payment history.
10. Other Requirements (Civil Code §2924.11 (Section 14))
A mortgage servicer is required to provide a borrower that has accepted a loan modification offer or foreclosure prevention alternative a copy of the executed agreement. In addition, a mortgage servicer is required to record a rescission of a NOD or cancel a pending trustee’s sale, if applicable, upon a borrower
executing a permanent foreclosure prevention alternative.
11. Damages (Civil Code §2924.12 (Section 16))
Prior to a trustee’s sale, a borrower may bring an injunctive action against a mortgage servicer for a material violation of Civil Code Sections 2923.55 (borrower outreach and declaration of contact or due diligence), 2923.6 (dual track prohibition and loan modification application denial and appeal), 2923.7
(single point of contact), 2924.9 (notice to a borrower that has not applied for a loan modification), 2924.10 (loan modification review process), 2924.11 (dual track prohibition and prohibition against application or late fees) or 2924.17 (review of foreclosure documents).
After a trustee’s deed upon sale has been recorded, a mortgage servicer may be liable to a borrower for actual damages for the above-mentioned Civil Code sections where the violation was not corrected and remedied prior to the recordation. Furthermore, a mortgage servicer may be liable for the greater of treble damages or $50,000 if the material violation was intentional, reckless or resulted in willful misconduct.
A borrower may be awarded reasonable attorney’s fees and costs.
12. Written Notice of Postponement of Sale (Civil Code §2924(a)(5))
A mortgage servicer is required to notify a borrower in writing within 5 business days following the postponement of a foreclosure sale, whenever the sale is postponed for at least 10 business days.
Different rules go into effect in 2018 and are not posted here because they are 5 years hence. If you would like a seminar on these new laws please forward your name, address, phone and e mail. If enough are interested I will conduct one at our office conference room which will hold 40. If you would like your organization to have me as a speaker to discuss the new law contact Herman Thorsen, Attorney at Law at 888-667-8529. There is no charge for my being the guest speaker. If it is outside the 5 Southern California Counties the organization will have to pay for actual travel expensive such as airfare, car and parking.
by thorlaw February 24, 2013 4:27 AM
"...so that borrowers have greater protection from wrongful foreclosures..."
I would love to see a detailed accounting of exactly how many "wrongful foreclosures" there have been, and what percentage of the total they represent.
by MichiganTed February 24, 2013 4:15 PM
and the consumer will ultimately pay for all this in higher rates and fees, as our opportunistic government "public servants" extort their g-fees/tax from the secondary market spreads that will never expire
in the end who loses? the consumer
and they don't even know it...the veil of protection is an illusion
by Dr. Branker February 25, 2013 11:37 AM
All pure bullshit and an enormous waste of time and tax oney. The lendersd are BYPASSING regular non judicial FC and going straight to judicial in states allowing it. In Oragun, very few non judicials are even filed. Its creating a large backlog of judicial proceedings. Our state atty general made a similar set of laws and the lenders all said screw you and filed judicial. Most of the lenders using MERS filed their TRANSFERS AFTER they started the foreclosure process---which means they didnt even have the right to start the process. Most borrowers who only wnated small breaks such as one or two months deferred payments were told they had to be 2 payments in default to apply for modification and those months late started a downhill credit slide from which the borrowers couldnt overcome. ALL BACKED BY OUR GOVERNMENT that doesnt want the banks to fail.
by Cedonulli2 February 25, 2013 2:52 PM