California Homeowner Bill of Rights: A New Mortgage Law For The New Year

by Sheppard Mullin Richter & Hampton LLP
Contact

[authors: Mark RackersAlejandro Moreno, and Shannon Petersen]

The California Homeowner Bill of Rights (“HBR”) goes into effect on January 1, 2013. The HBR revamps California’s non-judicial foreclosure statutes granting borrowers additional rights. It was designed to correct perceived abuses by lenders and servicers.

The HBR applies only to first lien mortgages or deeds of trust that are secured by owner-occupied residential real property. It does not protect: (i) entity borrowers; (ii) borrowers who purchased investment property; (iii) borrowers who are already in bankruptcy; (iv) borrowers who have already surrendered their property ; or (v) borrowers who have contracted with someone whose primary business is advising on how to delay or prevent foreclosure.

The HBR imposes the following requirements on all lenders and servicers:

  • Ban on “Dual-Tracking”: Upon receipt of a “complete application” for a loan modification, a lender/servicer must halt any foreclosure activity until it renders a decision on the application. A “complete application” means that the borrower has provided all of the documents requested. Cal. Civ. Code §§ 2923.6 and 2924.18.
  • Ban On “Robo-Signing”: Before filing or recording any declaration or notice relating to a foreclosure, the lender/servicer must review competent and reliable evidence to substantiate the borrower’s default and the right to foreclose. Cal. Civ. Code § 2924.17.
  • New Notice Requirements: Within five days of recording a notice of default, a lender must send the borrower a notice regarding foreclosure prevention alternatives (such as loan modification or short-sale), whether an application is required, and how to obtain an application. Also, whenever a trustee’s sale is postponed for a period of at least 10 business days, the borrower must receive written notice of the new sale date and time within five business days of the date of the postponement. A failure to provide the notice of postponement does not invalidate an otherwise proper non-judicial foreclosure. Cal Civ. Code § 2924(a)(5).

If a lender conducted more than 175 residential foreclosures in California the previous year, then it is subject to the following additional requirements.

  • Single Point Of Contact: For borrowers eligible for a loan modification (or other “foreclosure prevention alternatives”), lenders must designate a “single point of contact” – a person or team – with knowledge of the borrower’s status and foreclosure prevention alternatives, and access to decision makers. The contact person or team is assigned to the borrower’s account until all loss mitigation options have been exhausted or the loan is brought current. Cal. Civ. Code § 2923.7.
  • Additional Notices Prior To Recording A Notice Of Default: In addition to existing requirements, the HBR prevents a lender/servicer from recording a notice of default until it sends the borrower: (i) a notice that service members may be entitled to certain additional specific legal protections and (ii) a written statement informing the borrower that he or she may request copies of the promissory note, deed of trust, any assignment, and the borrower’s payment history. Cal. Civ. Code § 2923.55.
  • Additional Notice To Borrower After Recording A Notice Of Default: Within five days of the recording of a notice of default, the lender/servicer must send a written notice informing the borrower: (i) that the borrower may be eligible for foreclosure prevention alternatives; (ii) whether an application is required to be considered for any foreclosure prevention alternatives; and (iii) the method by which a borrower may obtain an application for any foreclosure prevention alternatives. Cal. Civ. Code § 2924.5.
  • Written Acknowledgement Of Receipt Of Complete Loan Modification Package: Within five business days of receiving a complete loan modification application or any document in connection with a loan modification, the lender/servicer must provide written acknowledgement of its receipt, including: (i) a description of the loan modification process; (ii) any deadlines that would affect the processing of the application; (iii) any expiration dates for submitted documents; and (iv) any deficiency in the borrower’s loan modification application. Cal. Civ. Code § 2924.10.
  • Lender/Servicer Must Halt The Foreclosure Process Once A Modification Is Approved: A notice of default may not be filed after a loan modification is approved. Any foreclosure notices recorded prior to an executed modification agreement must be rescinded. Cal. Civ. Code § 2924.11.
  • Lender/Servicer May Not Charge Any Fees In Connection With A Loan Modification: A lender may not charge any fees in connection with the loan modification process. Cal. Civ. Code § 2924.11.

Enforcement

Except for the Robo-Signing provision, a borrower may sue for “material” violations of the HBR. Prior to foreclosure, a borrower may only obtain injunctive relief to prevent the foreclosure. After the foreclosure, the borrower can seek actual damages caused by the violation. If the violation is found to be willful or reckless, a borrower may obtain treble the actual damages or $50,000, whichever is greater. Cal. Civ. Code § 2924.12(b).

Only the government may enforce the Robo-Signing provision. Failure to comply with this provision may result in a civil penalty of up to $7,500 per loan. Cal. Civ. Code § 2924.17

A lender/servicer may avoid liability for any violation it has corrected prior to the date the trustee’s deed upon sale is recorded. Cal. Civ. Code §§ 2924.12(c) and 2924.19(c).

The HBR also allows the borrowers, but not lenders or servicers, to recover their attorneys’ fees if they prevail based on a violation of the act. A borrower “prevails” if he or she “obtained injunctive relief or was awarded damages” for a violation of the HBR. Cal. Civ. Code § 2924.12(i).

The HBR is expected to generate a new wave of mortgage litigation in California. Sheppard Mullin has a deep bench of experienced mortgage litigators ready to defend against these new claims.

Authored by:

Mark G. Rackers
(619) 338-6648
mrackers@sheppardmullin.com

Alejandro E. Moreno
(619) 338-6664
amoreno@sheppardmullin.com

Shannon Z. Petersen
(619) 338-6656
spetersen@sheppardmullin.com

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP
Contact
more
less

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.