California Reinstates Homeowner Bill of Rights with Amendments
The State of California recently reinstated and amended its Homeowner Bill of Rights, which previously expired on January 1, 2018. The Homeowner Bill of Rights contains various foreclosure protections for borrowers pursuing loan modifications or similar foreclosure prevention alternatives. The law becomes effective on January 1, 2019.
The Homeowner Bill of Rights provides for a variety of requirements and prohibitions in connection with foreclosures. These provisions generally apply to first lien loans secured by owner-occupied homes. Among other things, entities that foreclosed on more than 175 homes during the prior reporting year are prohibited, following submission of a complete loan modification application, from recording a notice of default or notice of sale, or conducting a trustee’s sale (if an application is submitted at least 5 business days prior to a scheduled sale) until the borrower: (i) is provided a written denial of an application (including the reasons for denial and foreclosure prevention alternatives) and the 30-day period to appeal the denial expires; (ii) does not accept a written offer to participate in a modification within 14 days; or (iii) defaults under an accepted modification. Further, prior to recording any notice of default: (i) the borrower must be given written notice of protections that may be available under the federal SCRA and the right to request copies of the evidence of indebtedness and security instrument, any assignment, and payment history since the borrower was last less than 60 days past due; and (ii) 30 days must pass after contacting the borrower or after making diligent effort to do so. In addition, a notice of default also may not be recorded if the borrower is approved in writing for a foreclosure prevention alternative, and certain other specified conditions are met.
If a foreclosure prevention alternative is offered, a servicer must generally send written communication providing specified information about the alternative within 5 days after recording a notice of default. If an alternative is approved, a servicer is prohibited from recording a notice of sale or conducting a trustee’s sale if specified conditions are met. A notice of default must be rescinded, and a pending trustee’s sale canceled, upon execution of a permanent foreclosure alternative. The law prohibits fees from being charged in connection with a modification or foreclosure prevention alternative, and requires that modifications and prevention alternatives previously approved must be honored following transfer or sale to another servicer. The law also requires that a notice of default must include a specified declaration regarding contact with the borrower, and provides that a mortgage servicer satisfies specified telephone contact requirements in this regard if the borrower makes a written request to cease communications. Certain technical changes have also been made to provisions requiring a servicer to establish a single point of contact for a borrower requesting a foreclosure prevention alternative. The law also defines what it means for a loan modification application to be “complete.”
Violations of the above provisions may result in liability to borrowers, as well as awards of the greater of treble damages or statutory damages of $50,000 for intentional or reckless violations. Violations of certain provisions by CFL, CRMLA, and REL licensees may be deemed violations of those respective licensing laws. Mortgage servicers engaging in multiple and repeated filings of unsubstantiated foreclosure documents may be subject to a civil penalty of up to $7,500 per lien and further administrative enforcement.
Additionally, the law provides that any amendment, addition, or repeal of a section of the Homeowner Bill of Rights does not release, extinguish, or change any liability under a previous section that was in effect at the time of an action. The law also generally subjects entities that foreclosed on fewer than 175 properties during the prior reporting year to similar, but in some cases less stringent, requirements and restrictions.
A copy of the reinstated California Homeowner Bill of Rights, as amended, is available here.
