BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1275|
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THIRD READING
Bill No: SB 1275
Author: Leno (D), et al
Amended: 5/27/10
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 7-2, 4/7/10
AYES: Calderon, Florez, Kehoe, Liu, Lowenthal, Padilla,
Price
NOES: Cogdill, Runner
NO VOTE RECORDED: Correa, Cox, Vacancy
SENATE JUDICIARY COMMITTEE : 3-1, 4/20/10
AYES: Corbett, Hancock, Leno
NOES: Harman
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 6-4, 5/24/10
AYES: Kehoe, Alquist, Corbett, Leno, Wolk, Yee
NOES: Cox, Denham, Walters, Wyland
NO VOTE RECORDED: Price
SUBJECT : Mortgage foreclosure relief
SOURCE : Author
DIGEST : This bill requires a mortgagee, trustee,
beneficiary, or authorized agent, before recording a Notice
of Default on a loan covered by the bill, to comply with
the bills provisions, as specified, which require (1)
written communication and statutory notice, (2) contact and
CONTINUED
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borrower outreach, (3) a declaration of compliance, and (4)
a denial explanation letter. This bill sunsets on January
1, 2013.
Senate Floor Amendments of 5/27/10 describe procedures that
must be followed by mortgage loan servicers before
proceeding to foreclosure.
ANALYSIS : Existing law regulates the nonjudicial
foreclosure of properties pursuant to the power of sale
contained within a mortgage contract. To commence the
process, existing law requires the trustee, mortgagee, or
beneficiary to record a Notice of Default (NOD) and allow
three months to lapse before setting a date for sale of the
property. Existing law requires a notice of nonjudicial
foreclosure sale to be officially noticed in a newspaper of
general circulation, posted on the property, and recorded
at least 20 days before the sale date.
Existing law, pursuant to SB 1137 (Perata, Corbett,
Machado), Chapter 69, Statutes of 2008, provides the
following:
1. A mortgagee, trustee, beneficiary, or authorized agent
may not file an NOD until 30 days after the mortgagee,
beneficiary, or authorized agent contacts the borrower
in person or by telephone to assess the borrower's
financial situation and explore options for the borrower
to avoid foreclosure or 30 days after the mortgagee,
beneficiary, or authorized agent has tried with due
diligence, as defined, to contact the borrower.
2. An NOD must include a declaration that the mortgagee,
beneficiary, or authorized agent has contacted the
borrower, has tried with due diligence to contact the
borrower, or that no contact was required because the
borrower has filed for bankruptcy, surrendered the
property, or contracted with an entity to extend the
foreclosure process.
3. "Due diligence" is defined to require that the
mortgagee, beneficiary, or authorized agent send a
first-class letter to the borrower and then call the
borrower at least three times at different hours and on
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different days. If the borrower does not respond within
two weeks after the phone calls have been made, the
mortgagee, beneficiary, or authorized agent must send a
certified letter, return receipt requested.
4. The above-described provisions sunset on January 1,
2013, and apply only to loans originated between January
1, 2003 and December 31, 2007, which are secured by
owner-occupied residential real property containing no
more than four dwelling units.
This bill, until January 1, 2013, extends the requirements
of SB 1137 for owner-occupied residential real property
containing no more than four dwelling units to mortgages or
deeds of trust recorded prior to January 1, 2009, if the
loans are required to be reviewed under federal Home
Affordable Modification Program (HAMP) guidelines, or
between
January 1, 2003, and January 1, 2009, if the loans are not
required to be reviewed under HAMP guidelines.
This bill:
1. Requires a mortgagee, beneficiary, or authorized agent,
within a specified time period prior to the filing of an
NOD, to provide the borrower with the following written
information regarding loan modifications and a specified
statutory notice regarding the borrower's rights during
the foreclosure process, subject to specified
exceptions:
A. Written information must include the following
information:
(1) A clear description of the loan modification
options available to the borrower, if any, and
list of the steps the borrower must take to apply
for a loan modification, if the mortgagee,
beneficiary, or authorized agent has an existing
loan modification program or if the borrower is
otherwise eligible to be considered for a loan
modification by the mortgagee, beneficiary, or
authorized agent.
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(2) A statement that no loan modification option
is available to the borrower, if the mortgagee,
beneficiary, or authorized agent does not offer
any loan modification programs or if the borrower
is not eligible to be considered for a loan
modification.
(3) A toll-free telephone number that will
provide access to a live representative during
business hours for borrowers who wish to discuss
options for avoiding foreclosure.
(4) The Internet Web site address, if any, of
the mortgagee, beneficiary, or authorized agent,
where a borrower may obtain, among other things,
information on foreclosure avoidance options and a
list of document needed to pursue those options.
B. Statutory notice must include the following
provisions:
(1) "ARE YOU HAVING TROUBLE PAYING YOUR
MORTGAGE?" - This provision of the notice advises
borrowers to contact their loan servicers as soon
as possible to discuss options for avoiding
foreclosure, and provides a toll-free number to
use to locate a HUD- [United States Department of
Housing and Urban Development] certified housing
counseling agency.
(2) "POTENTIAL FORECLOSURE AVOIDANCE OPTIONS" -
This provision informs borrowers about the loan
modification process including the servicer's
obligation for timely processing and adequate
explanations of denial, and provides information
about HAMP.
(3) "THE FORECLOSURE PROCESS" - This section of
the notice informs borrowers of the documents
required by the loan servicer during the
foreclosure process and the timeline of this
entire process including the NOD and the Notice of
Sale. It also advises the borrower to seek legal
advice if necessary.
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2. Requires an unspecified state entity to make this
statutory notice available in English, Spanish, Chinese,
Tagalog, Vietnamese, and Korean.
3. Revises the borrower contact requirements by requiring a
mortgagee, beneficiary, or authorized agent to make
reasonable borrower solicitation efforts to explore
options for the borrower to avoid foreclosure. Defines
reasonable borrower solicitation as all of the
following:
A. Sending the borrower the statutory notice
described above.
B. Sending the borrower a written communication
described above.
C. Attempting to call the borrower, as specified, by
telephone at the last known telephone number of
record at least three times at different hours and on
different days, and prohibits the call include a
demand for immediate payment of any past due amounts
owed by the borrower.
D. Providing 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.
E. Posting a link on its Internet Web site a link to
information about available options for avoiding
foreclosure.
4. Requires a loan servicer to explore options that will
assist the borrower in avoiding foreclosure and, if the
borrower initiates an application for a loan
modification, prohibits the filing of an NOD until the
borrower has been determined to be ineligible for a loan
modification.
5. Specifies the minimum time periods in which the borrower
may submit an application or supplemental information
for a loan modification, and requires the mortgagee,
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beneficiary, or authorized agent, if it denies the
application, to send a denial explanation letter within
a specified time period. This requirement would not
apply to a mortgagee, beneficiary, or authorized agent
that has no loan modification option available to the
borrower.
6. Requires loan servicers to record a declaration of
compliance with the foreclosure trustee and mail the
borrower a notice stating that the borrower solicitation
requirements have been met. Provides if a loan servicer
fails to record a completed declaration of compliance,
submits a false declaration, or fails to send a denial
explanation letter the borrower may pursue any one of
the following remedies, as applicable:
A. If the property is sold to a bona fide purchaser
at a trustee sale, the borrower may recover the
greater of treble actual damages or statutory damages
of $10,000.
B. If, prior to an action to recover damages by the
borrower, the property is sold to a bona fide
purchaser by the foreclosing party subsequent to a
trustee sale, the borrower may recover the greater of
treble actual damages or statutory damages of
$10,000. If the borrower establishes that the loan
servicer had actual notice of the borrowers claim
prior to selling the property, the borrower is
entitled to recover statutory damages of $15,000 in
addition to other damages the borrower may be
entitled to.
C. If the property is transferred to the foreclosing
party at a trustee sale the borrower may bring an
action to void the foreclosure sale.
7. Requires the declaration of compliance demonstrate that
reasonable borrower solicitation efforts have been made,
and shall include dates, times, addresses, and telephone
numbers used for the contact. The declaration shall be
a part of, or attached to, every NOD prior to being
recorded, and will contain a checklist of several items
pertaining to the declaration of compliance, borrower
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contact, and foreclosure avoidance review.
8. Specifies that nothing in the bill shall affect any
cause of action or claim that is pending prior to the
effective date of this bill, and that the provisions of
the bill shall not be construed to be retroactive.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
DFI auditing/reviews $62 $121
$62Special*
DOC
----------------unknown-------------- Special**
DRE
------------------minor---------------- Special***
* Department of Financial Institutions Fund
** Department of Corporations Fund
***Department of Real Estate Fund
SUPPORT : (Verified 5/25/10)
Affordable Housing Services
Alliance of Californians for Community Empowerment
California Alliance for Retired Americans
California Capital Financial Development Corporation
California Coalition for Rural Housing
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Human Development Corporation
California Labor Federation
California Reinvestment Coalition
Causa Justa: Just Cause
Center for Responsible Lending
City of Lakewood
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Coalition for Quality Credit Counseling
Community Financial Resources
Community Housing Works, San Diego
Consumer Federation of California
Consumer Legal Services in East Palo Alto
Consumers Union
Contra Costa Interfaith Supporting Community Organization
Council on Aging Silicon Valley
East LA Community Corporation
East Palo Alto Council of Tenants Education Fund
Engineers and Scientists of California, IFPTE Local 20
Housing and Economics Rights Advocates
Inland Fair Housing and Mediation Board
International Longshore and Warehouse Union
JOLT, Coalition for Responsible Investing
Law Foundation of Silicon Valley
National Council of La Raza
Neighborhood Housing Services of Orange County
Novadebt
Oakland Community Organizations
Opportunity Fund
Orange County Fair Housing Council, Inc.
Professional and Technical Engineers, IFPTE Local 21
Public Counsel
Rural Community Assistance Corporation
Sacramento Gray Panthers
Sacramento Housing Alliance
Sacramento Mutual Housing Association
Southern California Housing Rights Center
The Mission Economic Development Agency
United Food & Commercial Workers Western States Council
UNITE-HERE
Vallejo Neighborhood Housing Services, Inc.
Vermont Slauson Economic Development Corp.
Yolo Mutual Housing Association
OPPOSITION : (Verified 5/25/10)
American Council of Engineering Companies of California
California Bankers Association
California Building Industry Association
California Chamber of Commerce
California Credit Union League
California Financial Services Association
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California Independent Bankers
California Land Title Association
California Mortgage Association
California Mortgage Bankers Association
Civil Justice Association of California
Securities Industry and Financial Markets Association
United Trustees Association
ARGUMENTS IN SUPPORT : The author writes:
"? delinquencies and foreclosures in California continue
to increase - and appear likely to increase into the
foreseeable future. Meanwhile, data shows that the rate
of permanent loan modifications offered to borrowers has
lagged in comparison. The California non-governmental
agencies providing housing counseling services have seen
many cases in which foreclosures are initiated and/or
homes sold in foreclosure while a borrower is still under
review for a loan modification - or even while a borrower
is making payments on a trial modification plan. ?
"Borrowers and housing counselors throughout the State
report that they regularly face seemingly insurmountable
obstacles when they contact loan servicers for
assistance. These include delays of many months to over
a year in processing applications; financial and other
documentation lost by the servicer; repeated requests
from the servicer for the borrower to send in additional
documentation or to send in the same documentation over
and over again; miscalculations or misreading of borrower
income leading to mistaken denials; misapplication and
misrepresentation of investor guidelines and restrictions
leading to mistaken denials; inconsistent, inaccurate and
contradictory information provided to borrowers about
their rights and obligations; foreclosures conducted
while a modification application is pending (or while a
trial plan is in effect) because the servicer failed to
instruct the foreclosure trustee to postpone the sale;
and unnecessary foreclosures conducted after an erroneous
denial.
"In the vast majority of cases, borrowers and their
advocates are confronted with an overwhelming lack of
information and communication from the servicer - about
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the status of their applications, the documentation they
need to provide, and, in the event a borrower is notified
that an application has been denied, about the reasons
for the denial. This lack of transparency makes it
nearly impossible for borrowers to figure out where they
are in the review process or to assess whether a denial
is erroneous and to seek reconsideration of a qualifying
application. Because borrowers often arrive at their
foreclosure sale date without receiving a decision on a
pending modification application, this lack of
transparency also denies borrowers the opportunity to
explore alternatives to foreclosure if they do not in
fact qualify for a modification."
ARGUMENTS IN OPPOSITION : Opponents of SB 1137 state:
"While we believe that SB 1137 was a sound product,
certain provisions have resulted in class action
litigation. Some of those provisions that are subject to
lawsuit are being amended by SB 1275, which we believe
would inappropriately intervene in pending litigation.
While we endeavor to understand the intricacies of this
measure and its impact, we argue that that the bill
exemplifies an overly complicated formula that will be
layered on to recently enacted borrower outreach efforts
to further frustrate and prolong existing foreclosure and
loss mitigation efforts. We believe the measure will
result in adding to the complexity of navigating these
processes for loan servicers to create a series of
procedural traps that will lead to ever increasing
litigation. How this measure interacts mechanically and
chronologically with recent state and federal regulatory
and statutory changes is unclear. This will result in
compliance hurdles and a detrimental distraction from our
efforts to assist our customers.
"Changes at the federal level are frequent and swift and
make this measure unnecessary. To further illustrate
this point, President Obama's and the United States
Treasury Department's Home Affordable Modification
Program (HAMP) has continued to evolve. In November
2009, Treasury released Supplemental Directive 09-08
requiring participating servicers to provide borrowers
with a non-approval notice if they are denied for a trial
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period plan or official HAMP modification (effective on
January 1, 2010). This disclosure provides detailed
information as to why the borrower was not eligible for a
HAMP modification.
"On March 24, 2010, Treasury released Supplemental
Directive 10-02. This directive precludes a servicer
from foreclosing on a borrower until the borrower has
been evaluated and eligibility has been determined under
HAMP. The directive also includes a foreclosure process
explanation letter to be sent to borrowers detailing the
HAMP eligibility consideration process and advising
borrowers to pay attention to foreclosure notices. This
directive is effective June 1, 2010. We understand that
additional changes to HAMP are forthcoming. Given recent
changes to HAMP, we believe that this measure is
unnecessary and may conflict with federal programs. At a
minimum, SB 1275 continues a trend of delaying or
stretching out the foreclosure process. This will delay
economic recovery, further frustrate local governments
struggling with properties in disrepair while continuing
the trend of reduced property tax revenue for local
governments, and will artificially sustain depressed
property values."
JJA:mw 5/28/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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