BILL ANALYSIS Ó
AB 278
Page 1
REPLACE : 07/02/2012
PROPOSED CONFERENCE REPORT NO. 1 - June 27, 2012
AB 278 (Eng, Feuer, Mitchell and John A. Pérez)
As Amended September 1, 2011
Majority vote
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|ASSEMBLY: | |(May 23, 2011) |SENATE: | |(April 19, |
| | | | | |2012) |
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(vote not relevant) (vote not relevant)
ASSEMBLY CONFERENCE VOTE : 2-1 SENATE CONFERENCE VOTE :2-0
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|Ayes:|Eng, Feuer |Ayes:|Evans, Ron Calderon |
| | | | |
|-----+---------------------------+-----+-------------------------|
|Nays:|Wagner | | |
| | | | |
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Original Committee Reference: B., P. & C.P.
SUMMARY : Makes changes to California's non-judicial foreclosure
process. Specifically, the conference committee amendments :
1)Declare that the purpose of the act is to ensure that as part
of the non-judicial foreclosure process, borrowers are
considered for, and have a meaningful opportunity to obtain,
available loss mitigation options, if any, offered by or
through the borrower's mortgage servicer, such as loan
modifications or other alternatives to foreclosure.
Additionally, provides that nothing in the act shall be
interpreted to require a particular result of that process.
2)Define the following terms:
a) "Mortgage servicer" means a person or entity who
directly services a loan, or who is responsible for
interacting with the borrower, managing the loan account on
a daily basis including collecting and crediting periodic
loan payments, managing any escrow account, or enforcing
the note and security instrument, either as the current
owner of the promissory note or as the current owner's
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authorized agent. Clarifies that a servicer does not
include a trustee;
b) "Foreclosure prevention alternative" means a first lien
loan modification or another available loss mitigation;
c) "Borrower" means any natural person who is a mortgagor
or trustor and who is potentially eligible for any federal,
state, or proprietary foreclosure prevention alternative
program offered by, or through his or her mortgage
servicer. States that borrower does not include:
i) An individual who has surrendered the secured
property as evidenced by either a letter confirming the
surrender or delivery of the keys to the property to the
mortgagee, trustee, beneficiary or authorized agent
(MTBA);
ii) An individual who has contracted with an
organization, person, or entity whose primary business is
advising people who have decided to leave their homes on
how to extend the foreclosure process and avoid their
contractual obligations to mortgagees or beneficiaries;
or,
iii) An individual who has filed a case under Chapter 7,
11, 12, or 13 of the bankruptcy code and the bankruptcy
court has not entered an order closing or dismissing the
bankruptcy case.
d) "First lien" means the most senior mortgage or deed of
trust on the property that is the subject of the notice of
default (NOD) or notice of sale (NOS).
3) Limit scope of application to only mortgages or deeds of
trust that are secured by owner-occupied residential real
property containing no more than four dwelling units.
"Owner-occupied" means that the property is the principal
residence of the borrower and is security for a loan made for
personal, family, or household purposes.
4)Limit the scope of loss mitigation requirements and activities
to first lien mortgages.
5)Make clarifying and conforming changes to existing law
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requirements concerning contact to borrowers prior to the
recording of NOD.
6)Require, until January 1, 2018, in addition to existing
requirements for contacting borrowers prior to NOD, the
servicer must also send the following to the borrower in
writing at least 30 days prior to recording NOD:
a) A statement that if the borrower is a servicemember, or
dependent of a servicemember, he or she may be entitled to
certain protections under the federal Servicemembers Civil
Relief Act (SCRA); and,
b) A statement that the borrower may request the following:
i) A copy of the borrower's promissory note or other
evidence of indebtedness;
ii) A copy of the borrower's deed of trust or mortgage;
iii) A copy of any assignment, if applicable, of the
borrower's mortgage or deed of trust required to
demonstrate the right of the mortgage servicer to
foreclose; and,
iv) A copy of the borrower's payment history since the
borrower was last less than 60 days past due.
7)Establish, until January 1, 2018, the following processes for
borrowers to request loss mitigation assistance:
a) If a borrower submits a complete application for a
first-lien loan modification the servicer shall not record
a NOD or NOS, or conduct a trustee's sale while the
application is pending;
b) The servicer may not record the NOD or NOS until any one
of the following occur:
i) The mortgage servicer makes a written determination
that the borrower is not eligible for a first-lien loan
modification, and any appeal period has expired;
ii) The borrower does not accept an offered first-lien
loan modification within 14 days of offer; or,
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iii) The borrower accepts a written first-lien loan
modification, but defaults on the loan modification or
otherwise breaches the borrowers obligation under the
first-lien loan modification alternative.
c) If the borrower's application is denied they shall have
at least 30 days from the date of the denial to appeal the
denial and provide evidence to the servicer that the
determination was in error;
d) If the borrower's application is denied, then the
mortgage servicer shall not record a NOD, NOS or conduct a
trustee sale until the later of:
i) Thirty-one days after the borrower is notified in
writing of the denial; or,
ii) If the borrower appeals the denial, the later of 15
days after denial of the appeal, or 14 days after a
first-lien loan modification is offered, but declined by
the borrower.
e) Following the denial of the modification, the mortgage
servicer shall send written notice to the borrower
identifying the reasons for the denial, including the
following:
i) The amount of time from the date of the denial
letter in which the borrower may request an appeal of the
denial and instructions on how to appeal the denial;
ii) The specific reason for an investor denial, if
applicable;
iii) If the denial was a result of a net present value
(NPV) calculation, the monthly gross income and property
value used to calculate the NPV and a statement that the
borrower may request, in writing, the inputs used to
calculate the NPV;
iv) If applicable, a finding the borrower was previously
offered a loan modification and failed to successfully
make payments under the terms of the modified loans; and,
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v) If applicable, a description of other foreclosure
alternatives for which the borrower may be eligible.
f) Specifies that in order to minimize the risk of
borrowers submitting multiple applications for first-lien
loan modifications for purpose of delay, a servicer shall
not be obligated to evaluate applications from borrowers
who have already been evaluated unless there has been a
material change in the borrower's financial circumstances
since the date of the borrower's previous application and
the change is documented by the borrower; and,
g) Provides that an application is "complete" when a
borrower has supplied the mortgage servicer with all the
documents required by the servicer within the reasonable
timeframes specified by the mortgage servicer.
8)Specify, until January 1, 2018, certain entities that meet a
specified performance metric (as described in 29) below,
follow a process different than outlined in 7) above.
Specifically, these entities would be prohibited from filing a
NOD or NOS, or conducting a trustee sale while a borrower's
application for first-lien loan modification is pending. If
the application is approved, then the NOD or NOS may not be
recorded and a trustee sale may not be conducted if the
borrower is in compliance with the terms of a loan
modification, forbearance or repayment plan, or a foreclosure
prevention alternative has been approved by all parties.
9)Provide for a borrower who requests a foreclosure prevention
alternative, the mortgage servicer shall promptly establish a
single point of contact (SPOC) and provide one or more means
of communication with the SPOC. Additionally, requires SPOC
to be responsible for the following:
a) Communicating the process by which a borrower may apply
for an available foreclosure prevention alternative and the
deadline for any required submission to be considered for
the options;
b) Coordinating receipt of all documents associated with
available foreclosure prevention alternatives and notifying
the borrower of any missing documents necessary to complete
the application;
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c) Having access to current information and personnel
sufficient to inform the borrower of the status of their
foreclosure prevention alterative; and,
d) Ensure that a borrower is considered for all foreclosure
prevention alternatives offered, by or through the mortgage
servicer.
10)Require the SPOC to remain assigned to a borrower's account
until the servicer determines that all loss mitigation options
have been exhausted, or the borrower's account becomes
current.
11)Define "SPOC" as an individual or team of personnel each of
whom has the ability and authority to perform the
responsibilities in 9) a) through d) above. Provides that the
servicer shall ensure that each team member is knowledgeable
about the borrower's financial situation and current status in
the foreclosure prevention process.
12)Require that, until January 1, 2018 whenever a trustee sale
is postponed for at least 10 business days, the borrower shall
be provided written notice, at least five business days after
postponement, regarding the new trustee sale date and time.
13)Clarify that no entity shall initiate the foreclosure process
unless it is the holder of the beneficial interest under the
mortgage or deed of trust. Additionally, no agent of the
holder of the beneficial interest may commence the foreclosure
process except when acting within the scope of authority
designated by the holder of the beneficial interest.
14)Specify, until January 1, 2018, that unless a borrower has
previously exhausted the foreclosure avoidance process, within
five business days after recording NOD, a mortgage servicer
shall send a written communication to the borrower that
includes the following:
a) That the borrower may be evaluated for a foreclosure
prevention alternative;
b) Whether an application is required to be considered for
a foreclosure prevention alternative; and,
c) The means and process by which a borrower may obtain an
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application for a foreclosure prevention alternative.
15)Require, until January 1, 2018, a servicer to provide written
acknowledgment of receipt of any borrower documentation within
five business days of receipt. Provides that the servicer, in
its initial acknowledgment of receipt of the loan modification
application shall include the following information:
a) A description of the loan modification process;
b) Any deadlines required to submit missing documentation
that would affect processing of a loan modification
application;
c) Any expiration date of documents; and,
d) Any deficiency in the borrower's loan modification
application.
16)Prohibit the recording of a NOD if the borrower is in
compliance with the terms of a written modification,
forbearance, or repayment plan, or the foreclosure prevention
alternative has been approved in writing by all parties.
17)Provide that if a foreclosure prevention alternative is
approved in writing after recordation of NOD, the servicer
shall not record the NOS or conduct a trustee's sale if the
borrower is in compliance with the terms of a written
modification, forbearance, or repayment plan, or the
foreclosure prevention alternative has been approved in
writing by all parties.
18)Require, until January 1, 2018, the mortgage servicer to
provide a borrower, who accepts an offered loan modification,
a copy of the fully executed loan modification agreement.
19)Specify, until January 1, 2018, that upon the borrower
executing a permanent first-lien loan modification alterative,
the mortgagee, beneficiary or authorized agent shall record a
rescission of a NOD or cancel a pending trustee's sale, if
applicable.
20)Prohibit, until January 1, 2018, the servicer from charging
any application, processing or other fee for a modification or
other foreclosure prevention alternative.
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21)Prohibit, until January 1, 2018, the servicer from collecting
any late fees for periods during which a complete loan
modification application is under consideration, a denial is
being appealed, the borrower is making timely modification
payments, or a foreclosure prevention alternative is being
evaluated or exercised.
22)Provide, until January 1, 2018, that if a borrower has been
approved in writing for a first lien loan modification or
other foreclosure prevention alternative, and the servicing of
that borrower's loan is transferred or sold to another
mortgage servicer, the subsequent mortgage servicer shall
continue to honor the approved loan modification or other
foreclosure prevention alternative.
23)Specify, beginning January 1, 2018, that servicers may not
record a NOS or conduct a trustee sale under certain
circumstances. Specifically, prevents the recordation of the
NOS or conducting the trustee sale until the borrower has been
provided a written determination regarding the borrower's
eligibility for a foreclosure prevention alternative. If the
modification is denied then the servicer must send the
borrower a notice identifying the reasons for the denial.
24)State that beginning January 1, 2018, if a foreclosure
prevention alternative is approved in writing prior the filing
of a NOD the servicer may not record an NOD, or if the
alternative was approved after NOD, then the servicer may not
record the NOS under the following circumstances:
a) The borrower is in compliance with the terms of a
written trial or permanent loan modification, forbearance
or repayment plan; or,
b) A foreclosure prevention alterative has been approved in
writing by all parties.
25)Require that documents required to initiate or complete the
foreclosure process shall be accurate and complete and
supported by competent and reliable evidence. Additionally,
specifies prior to recording or filing foreclosure documents
the mortgage servicer shall ensure it has reviewed competent
and reliable evidence to substantiate the borrower's default
and the right to foreclose, including the borrower's loan
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status and loan information. Provide, until January 1, 2018,
that for repeated and multiple violations, an entity shall be
liable for a civil penalty up to $7,500 per mortgage or deed
of trust.
26)Provide for the following remedies and enforcement:
a) A borrower may bring an action for injunctive relief for
a material violation if the trustee's deed has not been
recorded. The injunction would remain in place, and any
trustee's sale enjoined, until a court determines that the
violation has been corrected and remedied. An enjoined
entity may move to dissolve an injunction based on a
showing that the material violation has been corrected and
remedied;
b) After a trustee's deed has been recorded, the mortgage
servicer or mortgagee, trustee, beneficiary or authorized
shall be liable for actual economic damages resulting from
a material violation that is not corrected and remedied
prior to the recordation of the trustee's deed;
c) If the violation was intentional or reckless, or
resulted from willful misconduct by a mortgage servicer or
MTBA the court may award the borrower the greater of treble
damages or statutory damages of $50,000;
d) Specifies that a mortgage servicer or MTBA shall not be
liable for a violation that has been corrected and remedied
prior to recordation of the trustee's deed;
e) A violation by a person licensed by the Department of
Corporations (DOC), Department of Financial Institutions
(DFI), or Department of Real Estate (DRE) shall be deemed
to be a violation of that person's licensing law; and,
f) No violation shall affect the validity of a sale in
favor of a bona fide purchaser.
27)State that a signatory to the national mortgage settlement
that is in compliance with the relevant terms for the
Settlement Term Sheet of that consent judgment with respect to
the borrower who brought an action while the consent judgment
is in effect shall have no liability for a violation.
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28)Allow a court to award a prevailing borrower reasonable
attorney's fees and costs in an action.
29)Provide, until January 1, 2018, that a depository institution
charted under state or federal law, a person licensed as a
California Finance Lender or under the Residential Mortgage
Lending Act or a licensed real estate broker, acting as a
servicer, that during its immediately preceding annual
reporting period, foreclosed on 175 or fewer residential
properties located in California shall only have to comply
with specific sections. Under this performance metric, an
entity with fewer than 175 foreclosures in the previous year
would not need to comply with the following Civil Code
Sections:
a) Section 2923.55: Requires, in addition to existing
requirements for attempting contact with borrowers at 30
days prior to default, that a servicer send a notice to the
borrower including information regarding loss mitigation
and documents that can be requested;
b) Section 2923.6: Prohibitions on foreclosure filing
while loan modification is pending. This section also
established appeal process and deadlines and requires a
detailed denial notice;
c) Section 2923.7: SPOC;
d) Section 2924.9: Requirement that within five days of
recordation of NOD, servicer must send borrower notice of
their loss mitigation options; and,
e) Section 2924.10: Requirement that servicer respond
within five days to borrower's written communication.
30)In relation to 29) above, entities with fewer than 175
foreclosures must comply with the following Civil Code
Sections:
a) Existing legal requirements under Section 2923.5,
established via SB 1137 (Perata, et al.) Chapter 69,
Statutes of 2008, which requires due diligence on the part
of servicers to contact borrowers at least 30 days prior to
filing NOD;
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b) Section 2924: Contains the requirement that
postponements of trustee sale of at least 10 days must be
noticed to the borrower within five days and that an entity
cannot record NOD unless it is the holder of the beneficial
interest of the deed of trust;
c) Section 2924.17: Prohibition on the use of foreclosure
documents that are unverified or not supported by competent
reliable evidence; and,
d) Section 2924.18: Provides a general ban on initiating
or continuing the foreclosure process when a borrower's
request for loss mitigation is under consideration, or a
foreclosure prevention alternative is approved in writing.
31)Sunset various provisions on January 1, 2018. Specifically
sunsets the following provisions in the Civil Code:
a) Existing legal requirements under Section 2923.5,
established via SB 1137 (Perata, et al.), which requires
due diligence on the part of servicers to contact borrowers
at least 30 days prior to filing NOD, that includes new
notice provision;
b) Section 2923.6: Prohibitions on foreclosure filing
while loan modification is pending. This section also
established appeal process and deadlines and requires a
detailed denial notice;
c) Section 2924: Sunset on provision that requires notice
of postponement of trustee sale.
d) Section 2924.9: Five day post NOD notice;
e) Section 2924.10: Requirement that servicers respond in
writing to borrower communications; and,
f) Section 2924.11: Additional ban on continuation of
foreclosure process while borrower has pending
modification; and,
g) Remedies provisions relating to sections described above
that sunset.
32)Provides authority to DOC, DFI and DRE to promulgate
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regulations to carry out purposes of the act.
EXISTING LAW :
1)Regulates the non-judicial foreclosure process pursuant to the
power of sale contained within a mortgage contract, and
provides that in order to commence the process, a trustee,
mortgagee, or beneficiary must record a NOD and allow three
months to lapse before setting a NOS for the property. (Civil
Code Section 2924, all further references are to the Civil
Code).
2)Provides that the mortgagee, trustee or other person
authorized to make the sale must give NOS, and requires notice
of the sale to be made, as specified, at least 20 days prior
to the date of sale. (Section 2924(f))
3)Provides that a mortgage, trustee, beneficiary, or authorized
agent may not file a NOD until 30 days after contact has been
made with the borrower who is in default. (Section
2923.5(a)(1))
4)Requires the mortgagee, trustee, beneficiary or authorized
agent to contact a borrower in default in person or by
telephone and inform them of their right to a subsequent
meeting, and telephone number of U.S. Department of Housing
and Urban Development (HUD) to find a HUD- certified housing
counselor. (Section 2923.5(a)(2))
5)Allows a borrower to assign a HUD-certified counselor,
attorney or other advisor to discuss with the entities options
for the borrower to avoid foreclosure. (Section 2923.5(f))
6)Provides that a NOD may be filed when the mortgagee, trustee,
beneficiary or authorized agent has not contacted the borrower
provided that the failure to contact the borrower occurred
despite reasonable due diligence on the part of the entity and
that "due diligence" means and requires the following:
a) The mortgagee, trustee, beneficiary or authorized agent
sends a first class letter that includes the toll-free
number available for the borrower to find a HUD-certified
housing counseling agency; and,
b) Subsequent to the sending of the letter the mortgagee,
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trustee, beneficiary or authorized agent attempts to
contact the borrower by telephone at least three times at
different hours and on different days. (Section 2923.5(g))
7)Requires the mortgagee, trustee, beneficiary or authorized
agent to maintain a toll-free number for borrowers that will
provide access to a live representative during business hours
and requires the mortgagee, trustee, beneficiary or authorized
agent to maintain a link on the main page of its Internet Web
site containing the following information:
a) Options that may be available to borrowers who are
unable to afford their mortgage payments and who wish to
avoid foreclose, and instructions to borrowers advising
them on steps to take to explore these options; and,
b) A list of documents borrowers should collect and be
prepared to submit when discussing options to avoid
foreclosure. (Section 2923.5(g)(5))
8)Specifies that the notice and contact requirements do not
apply in the following circumstances:
a) The borrower has surrendered the property as evidenced
via a letter or delivery of keys to the property to the
mortgagee, trustee, beneficiary or authorized agent;
b) The borrower has contacted a person or organization
whose primary business is advising people who have decided
to leave their homes on how to extend the foreclosure
process and avoid the contractual obligations; or,
c) The borrower has filed for bankruptcy. (Section
2923.5(h))
9)Makes legislative findings and declarations that a loan
servicer acts in the best interest of all parties if it agrees
to, or implements a loan modification or workout plan in one
of the following circumstances:
a) The loan is in payment default, or payment default is
reasonably foreseeable; or,
b) Anticipated recovery under the loan modification or
workout plan exceeds the anticipated recovery through
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foreclosure on a net present value basis. (Section 2923.6)
10)Requires that upon posting of a NOS, the mortgagee, trustee,
beneficiary or authorized agent shall mail to the borrower a
notice in English and Spanish, Chinese, Tagalog, Vietnamese,
or Korean that states:
"Foreclosure process has begun on this property, which
may affect your right to continue to live in this
property. Twenty days or more after the date of this
notice, this property may be sold at foreclosure. If you
are renting this property, the new property owner may
either give you a new lease or rental agreement or
provide you with a 60-day eviction notice. However,
other laws may prohibit an eviction in this circumstance
or provide you with a longer notice before eviction. You
may wish to contact a lawyer or your local legal aid or
housing counseling agency to discuss any rights you may
have." (Section 2924.8)
11)Provides that a NOS postponement may occur at any time prior
to the completion of a sale for any period of time not to
exceed a total of 365 days from the date set in the notice of
sale. (Section 2924(g))
12)Specifies that if sale proceedings are postponed for a period
totaling more than 365 days, the scheduling of any further
proceedings shall be preceded by giving a new NOS. (Section
2924(g))
FISCAL EFFECT : Unknown
COMMENTS : On April 6, 2012, a federal judge signed-off on the
$25-billion foreclosure settlement, first announced in February
of 2012, between banks (Citi, Wells Fargo, Bank of America,
Chase and Ally), federal agencies, and the state attorneys
general from 49 states and the District of Columbia. The
investigation began in October of 2010 as media stories
highlighted widespread allegations regarding the use of
"robo-signed" documents used in foreclosure proceedings around
the country. The attorneys general formed working groups to
investigate the widespread allegations, however, further
investigation led to a larger discussion with the five largest
mortgage loan servicers regarding various facets of the
foreclosure and loan modification process. While conducting
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their investigation the attorneys general identified deceptive
practices regarding loan modifications, foreclosures occurring
due to the servicer's failure to properly process paperwork, and
the use of incomplete paperwork to process foreclosures in both
judicial and non-judicial foreclosure cases.
The complaint filed by the attorneys general, provided a
detailed list of allegations concerning several key areas
related to foreclosure and servicing practices. The specific
allegations include:
1)Unfair, deceptive, and unlawful servicing process.
2)Unfair, deceptive, and unlawful loan modification and loss
mitigation processes.
3)Wrongful conduct related to foreclosures.
4)Unfair and deceptive origination practices.
5)Violations of the Servicemembers Civil Relief Act.
In resolving the aforementioned claims, the settlement provides
for relief for borrowers in the form of modifications, mortgage
loan servicing reforms, increased compliance monitoring and
enforcement.
The settlement requires a total of $17 billion to be allocated
to facilitate loan modifications to borrowers with the intent
and ability to stay in their homes. Of the $17 billion, 60%
must be allocated to principal reduction modifications.
Additionally, banks must offer refinance programs through the
use of $3 billion to assist borrowers with negative equity whom
otherwise would be unable to refinance. Additional settlement
monies are dedicated to borrowers who were wrongfully foreclosed
on after January 1, 2008 (approximately $1.5 billion in relief),
and another $2.5 billion to the states for foreclosure relief
and housing programs.
The settlement also requires major changes in loan servicing
required of the five banks party to the settlement. These
changes include:
1)Information in foreclosure affidavits must be personally
reviewed and based on competent evidence.
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2)Holders of loans and their legal standing to foreclose must be
documented and disclosed to borrowers.
3)Borrowers must be sent a pre-foreclosure notice that will
include a summary of loss mitigation options offered, an
account summary, description of facts supporting lender's
right to foreclose, and a notice that the borrower may request
a copy of the loan note and the identity of the investor
holding the loan.
4)Borrowers must be thoroughly evaluated for all available loss
mitigation options before foreclosure referral, and banks must
act on loss mitigation applications before referring loans to
foreclosure; i.e., "dual tracking" will be restricted.
5)Denials of loss mitigation relief must be automatically
reviewed, with a right to appeal for borrowers.
6)Banks must implement procedures to ensure accuracy of accounts
and default fees, including regular audits, detailed monthly
billing statements and enhanced billing dispute rights for
borrowers.
7)Banks are required to adopt procedures to oversee foreclosure
firms, trustees and other agents.
8)Banks will have specific loss mitigation obligations,
including customer outreach and communications, time lines to
respond to loss mitigation applications, and e-portals for
borrowers to keep informed of loan modification status.
9)Banks are required to designate an employee as a continuing
single point of contact to assist borrowers seeking loss
mitigation assistance.
10)Military personnel who are covered by the SCRA will have
enhanced protections.
11)Banks must maintain adequate trained staff to handle the
demand for loss mitigation relief.
12)Application and qualification information for proprietary
loan modifications must be publicly available.
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13)Servicers are required to expedite and facilitate short sales
of distressed properties.
14)Restrictions are imposed on default fees, late fees,
third-party fees, and force-placed insurance.
For a detailed look at the complaint and resulting settlement, a
full list of documents can be found at:
http://www.nationalmortgagesettlement.com/ .
Background .
Foreclosures blight neighborhoods, put financial pressure on
families and drive down local real estate values; and,
consumers, made more cautious by a crippled housing market,
spend less freely, curbing the economy's growth. Distressed
borrowers are certainly among the hardest hit. But as
communities across the country know all too well, families that
lose their homes are not the only victims of foreclosures. Even
homeowners who have never missed a payment on their loans have
suffered as "spillover" costs extend throughout the neighborhood
and the larger community. By some estimates the foreclosure
crisis will strip neighboring homeowners of $1.9 trillion in
equity as foreclosures drain value from homes located near
foreclosed properties by 2012. As a result of depressed home
values, nearly one out of every four borrowers are "underwater,"
owing more than the home is worth. Meanwhile, state and local
governments continue to be hit hard by declining tax revenues
coupled with increased demand for social services. In fact, the
Urban Institute estimates that a single foreclosure costs
$79,443 after aggregating the costs borne by financial
institutions, investors, the homeowner, their neighbors, and
local governments. However, even this number may understate the
true costs, since it does not reflect the impact of the
foreclosure epidemic on the nation's economy or the disparate
impact on lower-income and minority communities.
When a borrower is in danger of defaulting, a commonsense
approach under a traditional mortgage would be for the lender
and borrower to mutually agree to modify the terms of the loan,
or for the bank to agree to allow the borrower to sell the home
in a "short sale" for an amount that equals or approximates the
outstanding balance on the loan to save the lender the time and
costs of foreclosure. Moreover, in a declining real estate
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market, the amount obtained by the lender in a foreclosure sale
may be less than the amount owed on the loan.
Despite the apparent mutual interest of loan holders and
borrowers, many distressed homeowners report obstacles when
trying to obtain a loan modification or short-sale approval.
(See e.g. "Loan Modifications Elude Local Homeowners,"
Sacramento Bee, January 17, 2011.) Part of the answer may be
that the mortgage industry has become more complex. Rarely does
a modern mortgage involve only two players, a lender and a
borrower, with a common interest in avoiding default and the
capacity to communicate directly. Instead, the modern mortgage
industry typically involves at least four players: 1) the
original lender (or originator); 2) a loan servicer (who may or
may not be affiliated with the originator) who collects from the
borrower and remits to the mortgage holder; 3) an investor who
has purchased an interest in the mortgage (or more likely an
interest in the stream of income from a pool of mortgages); and,
4) a borrower. Under this more complex arrangement, it is the
servicer - not the loan originator or the investor holding an
interest in the mortgage - who collects payments and has the
power to either bring a foreclosure or approve a loan
modification or a short sale if the borrower fails to make
timely payments.
In some cases, difficulty obtaining investor approval is cited
as the primary obstacle. Critics contend, however, that
servicers' financial incentives are the true explanation. In a
review of subprime securitization pooling and servicing
agreements from 2006, University of California, Davis Law
Professor John Patrick Hunt found that 60% of loans reviewed
authorized modification, while 32% were silent on modification.
He found that only 8% expressly barred modification. The
aggregate principle of the secured pools he reviewed accounted
for $323 billion, equaling 75% of subprime securitizations in
2006.
Some analysts and leading economists have cited a failure by
banks to provide long term and sustainable loan modifications as
a single reason that the foreclosure crisis continues to drag
on. Another obstacle to loan modifications arises if borrowers
have second liens, like home equity loans, on their properties.
These liens are often held by lenders who are also servicers on
the first mortgage. They, too, have little interest in seeing
any modification because it would harm the value of their
holdings and reduce their income from fees. ("A Mortgage
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Nightmare's Happy Ending," New York Times (December 25, 2010)).
The potential for a loan modification to provide a positive
change for borrowers, communities and even financial markets is
indisputable. TransUnion found that borrowers who received loan
modifications have a better record of repaying auto and
credit-card debt than trouble borrowers who receive no
assistance ("Home Loan Modifications Cut Credit Risk, TransUnion
Says," Bloomberg News, June 21, 2012).
Difficulties in achieving an equitable foreclosure and loan
modification process predate the multi-state settlement .
The nationwide mortgage settlement is not the beginning of this
story. Borrower frustration with the loan modification process
and their ability to communicate with their loan servicer dates
back to 2006-2007 as newspapers, magazines, blogs, and
television news broadcasts have all detailed borrower
difficulties concerning the loan modification and foreclosure
process. In 2010 the problems became highlighted due to reviews
of the various federal foreclosure relief programs.
A report released by the Congressional Oversight Panel in
December 2010 reviewing these programs, found:
Although Treasury oversees servicers and encourages
compliance, there is little real accountability for
servicers that fail to adhere to program standards, lose
borrower submitted paperwork, unnecessarily delay the
process, or otherwise don't make modifications...The Panel
has previously noted that servicers need to face
'meaningful monetary penalties' for noncompliance with
servicer participation agreements and denial of
modification for an unexplained reason, a breach of their
contractual obligations under HAMP servicer participation
agreements. However, Treasury has seemed reluctant to do
more than vaguely threaten the potential for clawbacks of
HAMP payments.
Then in April of 2011, Federal regulators (Office of Comptroller
of Currency, Office of Thrift Supervision, and Federal Reserve
System) issued enforcement orders against Ally Bank/GMAC, Aurora
Bank, Bank of America, Citibank, EverBank, HSBC, JPMChase,
MetLife, OneWest, PNC, Sovereign Bank, SunTrust, US Bank, and
Wells Fargo. These orders were based on a review conducted by
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the regulators of the foreclosure policies and practices of
these servicers. In their report, Interagency Review of
Foreclosure Policies and Practices, April 2011 the federal
regulators found:
The reviews found critical weaknesses in servicers'
foreclosure governance processes, foreclosure document
preparation processes, and oversight and monitoring of
third-party vendors, including foreclosure attorneys. While
it is important to note that findings varied across
institutions, the weaknesses at each servicer, individually
or collectively, resulted in unsafe and unsound practices
and violations of applicable federal and state law and
requirements. The results elevated the agencies' concern
that widespread risks may be presented-to consumers,
communities, various market participants, and the overall
mortgage market. The servicers included in this review
represent more than two-thirds of the servicing market.
Thus, the agencies consider problems cited within this
report to have widespread consequences for the national
housing market and borrowers.
And:
Foreclosure governance processes of the servicers were
underdeveloped and insufficient to manage and control
operational, compliance, legal, and reputational risk
associated with an increasing volume of foreclosures.
Weaknesses included:
1) inadequate policies, procedures, and
independent control infrastructure covering all
aspects of the foreclosure process;
2) inadequate monitoring and controls to oversee
foreclosure activities conducted on behalf of
servicers by external law firms or other third-party
vendors;
3) lack of sufficient audit trails to show how
information set out in the affidavits (amount of
indebtedness, fees, penalties, etc.) was linked to the
servicers' internal records at the time the affidavits
were executed;
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4) inadequate quality control and audit reviews
to ensure compliance with legal requirements, policies
and procedures, as well as the maintenance of sound
operating environments; and
5) inadequate identification of financial,
reputational, and legal risks, and absence of internal
communication about those risks among boards of
directors and senior management.
And:
Weaknesses in foreclosure processes and controls present
the risk of foreclosing with inaccurate documentation, or
foreclosing when another intervening circumstance should
intercede. Even if a foreclosure action can be completed
properly, deficiencies can result (and have resulted) in
violations of state foreclosure laws designed to protect
consumers. Such weaknesses may also result in inaccurate
fees and charges assessed against the borrower or property,
which may make it more difficult for borrowers to bring
their loans current. In addition, borrowers can find their
loss-mitigation options curtailed because of dual-track
processes that result in foreclosures even when a borrower
has been approved for a loan modification. The risks
presented by weaknesses in foreclosure processes are more
acute when those processes are aimed at speed and quantity
instead of quality and accuracy.
The consent order resulting from the investigations required the
creation of an independent foreclosure review process. This
process was created in order to allow borrowers who are denied
foreclosure mitigation to appeal that decision to a third party
for a review. A year after these enforcement orders, only 3% of
eligible borrowers have requested a review of their loan file,
and no servicer that was party to the enforcement order has
faced a penalty for actions uncovered during the investigation,
nor have any borrowers received compensation for wrongful acts
(Just 3% of Eligible Borrowers Apply for Foreclosure Review,
Wall Street Journal, April 3, 2012).
The arrival of the multi-state settlement must be viewed in
context. As demonstrated in this analysis, the issues and
concerns raised by the settlement are not new, and appear to
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have not yet been resolved. At a national level, it seems that
these combined efforts demonstrate that borrowers with a
legitimate chance to stay in their home have fallen through the
cracks. The issues may even be more pronounced in California as
foreclosures are processed via a non-judicial foreclosure
process. California's foreclosure process relies on all parties
carrying out the foreclosure to meet their statutory deadlines
without independent oversight. This process also assumes that a
borrower facing foreclosure is aware of their rights, and has
the ability and knowledge to challenge their foreclosure in the
proper venue. Under normal circumstances, this process works
and can via its certainty benefit the overall housing and
lending markets. However, in the extraordinary circumstances
currently facing California, it is a system that places an
overwhelming amount of authority and judgment in the hands of
servicers, many of whom have admitted to being overwhelmed with
the volume of foreclosure activity since 2007.
Consumer Financial Protection Bureau (CFPB) mortgage servicing
standards .
Earlier this year CFPB announced that they would be developing
national servicing standards later this year, with a draft of
the standards available in the summer of 2012. Specific
language of the proposal is not yet available, but CFPB did
release a summary of the issues they are considering. These
issues include:
1)Servicers would be required to provide clear monthly mortgage
statements.
2)Borrowers should receive a warning before interest rate
adjustments.
3)Borrowers should be aware of options to avoid force-placed
insurance.
4)Servicers would be required to contact borrowers prior to
foreclosure to discuss loss mitigation options.
5)Payments should be immediately credited.
6)Servicer records should be up-to-date and accessible.
7)Servicers would be required to correct errors quickly.
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8)Servicers should be required to maintain foreclosure
prevention teams.
It is unclear how the final version of these concepts will look.
As with any rule proposed by a federal regulatory body, the
final version can often differ from the initial press release.
However, if the final rules indeed reflect the initial summary,
will these rules interfere or otherwise upset California's
efforts to provide transparent rules for the loan modification
process? Specifically, to the servicing and loan modification
processes contemplated by this bill, the CFPB proposal appears
to build on California's existing pre-default contact
requirements contained in Civil Code Section 2923.5. The CFPB
proposal would require servicers to provide delinquent borrowers
with written information, no later than 45 days after
delinquency about options to avoid foreclosure and how to access
a housing counselor. This information would also include an
explanation of the foreclosure process and possible foreclosure
timelines.
In short, it does not appear that the rules prevent or otherwise
frustrate current efforts, and instead appear to complement, or
indeed, even build upon California's existing pre-foreclosure
contact requirements.
In so far as the preemptive effect of CFPB rules, the creation
of the CFPB included language in the Dodd-Frank Wall Street
Reform Act that specifically provided the foundation for the
interaction between CFPB and state laws. Section 1041 of the
Dodd-Frank Act provides that in its administration of the
federal laws transferred to it, the CFPB may not preempt state
laws that are more protective than a federal consumer law
counterpart. Specifically, Section 1041 states that a state's
law may only be preempted if it is inconsistent with a federal
consumer protection law-but an inconsistency does not include
providing greater consumer protection.
SPOC .
The mortgage settlement requires that the servicers party to the
settlement establish a SPOC for "each potentially eligible first
lien mortgage borrower so that the borrower has access to an
employee of the servicer to obtain information throughout the
loss mitigation, loan modification and foreclosure processes
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(Exhibit A, page 21 of the settlement term sheet documents)."
The issues preceding the need for inclusion of a SPOC in the
loan modification process have been well documented. Borrowers
have reported via media outlets and in other forums regarding
frustration in seeking loss mitigation have resulted in numerous
phone calls with different people, each one not aware of the
efforts of the other. Additionally, borrowers have reported
submitting paperwork to one contact at a servicer to only get
passed on to another contact who then requests the same
information for submission. In the worst cases, paperwork is
lost, or the foreclosure process continues while the borrower
believes they are being genuinely evaluated for a loan
modification.
As mentioned previously, in April of 2011, federal regulators
(Office of Comptroller of Currency, Office of Thrift
Supervision, and Federal Reserve System) issued enforcement
orders against several national banks concerning foreclosure and
loss mitigation practices. Among these new requirements
demanded by federal regulators was the establishment of a SPOC.
The federal regulatory enforcement orders require, in specific
reference to SPOC, that:
1)A SPOC is established for each borrower to remain with them
throughout the lost mitigation process.
2)Written communications with the borrower identify such SPOC
along with one or more direct means of communication with the
contact.
3)SPOC has access to current information and personnel (in-house
or third-party) sufficient to timely, accurately, and
adequately inform the borrower of the current status of the
Loss Mitigation, loan modification, and foreclosure
activities.
4)Measures to ensure that staff are trained specifically in
handling mortgage delinquencies, Loss Mitigation, and loan
modifications.
5)Procedures and controls to ensure that a final decision
regarding a borrower's loan modification request (whether on a
trial or permanent basis) is made and communicated to the
borrower in writing, including the reason(s) why the borrower
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did not qualify for the modification.
Following these enforcement guidelines, the United States
Treasury Department issued additional guidance under the Making
Home Affordable (MHA) modification program (Supplemental
Directive 11-04, issued May 11, 2011 and effective on September
1, 2011). The directive provided, "Each servicer subject to
this Supplemental Directive must establish and implement a
process through which borrowers who are potentially eligible for
Home Affordable Modification Program (HAMP), the Home Affordable
Unemployment Program (UP) or Home Affordable Foreclosure
Alternatives (HAFA) are assigned a relationship manager to serve
as the borrower's single point of contact through the entire
delinquency or imminent default resolution process."
Does the assignment of a SPOC work to encourage greater
efficiency and outcomes in the foreclosure process? According
to Alan Jones, Senior Vice President of Wells Fargo Home
Mortgage, while speaking on a panel at a Mortgage Bankers
Association servicing conference in 2011, "the single-point of
contact does work. It has helped to avoid foreclosures when the
borrower has one person to call while filling out their
documentation" ("Wells Fargo Finalizing Electronic Mortgage
Modification Revamp," Housingwire, February 25, 2011).
The SPOC requirements of the conference committee amendments
track consistently the requirements outlined in the mortgage
settlement term sheet, and those requirements provided for in
the previously mentioned consent orders. However, one major
difference, is that the amendments provide added flexibility for
servicers that wish to use individuals or teams of personnel to
meet the SPOC requirement.
Validity of foreclosure documents .
The conference committee amendments require that the official
documents used in the foreclosure process must be accurate and
complete and supported by competent reliable evidence. Concerns
regarding the validity of foreclosure documents arose from
national media attention to an issue known as "robosigning."
Robosigning was first discovered in 2009 by Palm Beach, Florida
Attorney Tom Ice after he deposed a bank employee who admitted
to signing hundreds of foreclosure documents in a day without
looking at them.
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Often these problems appeared to be limited to judicial
foreclosure states where a foreclosure requires various court
filings. However, media reports demonstrated that the issue was
not limited to judicial foreclosure states. A January 20,
2011, article in American Banker ("New Point of Foreclosure
Contention: Default Notice") provided the following:
At issue is the notice of default, the first letter
that a mortgage lender or servicer sends to a
homeowner who has fallen behind on payments. The
notice typically starts the formal foreclosure
process in nonjudicial states such as California,
Arizona and Nevada.
Every notice of default has a signature on it. But
just like the infamously rubber-stamped affidavits
in the robo-signing cases, default notices, in at
least some instances, have been signed by employees
who did not verify the information in them, court
papers show. In several lawsuits filed in
nonjudicial states, borrower attorneys are arguing
that this is grounds to stop a foreclosure.
"Whoever signs the NOD needs to have knowledge that
there is in fact a default," said Christopher
Peterson, an associate dean and law professor at
the University of Utah.
The suits also argue that the default notices are
invalid because the employees who signed them
worked for companies that did not have standing to
foreclose.
In a lawsuit against Wells Fargo & Co. in Nevada,
an employee for a title company who signed default
notices admitted in a deposition this month that he
did not review any documents or know who had the
right to foreclose.
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"They are starting foreclosures on behalf of
companies with no authority to foreclose," said
Robert Hager, an attorney with the Reno, Nev., law
firm Hager & Hearne, representing the borrower in
the case. "The policy of these companies is to just
have a signer execute a notice of default starting
foreclosure without any documentation to determine
whether they are starting an illegal foreclosure."
The Nevada nonjudicial foreclosure statute requires
that the company signing a notice of default have
the authority to foreclose, Hager said.
In a deposition on Jan. 4, Stanley Silva, a title
officer at Ticor Title of Nevada Inc., said he
"technically signed" default notices for clients,
which were often acting as agents of other parties,
which in turn worked for others.
"The person at the bottom of the chain, by
executing the document, has taken an action on
behalf of all of them through their various agency
agreements," Silva said. In one case, for example,
he said he had signed "on behalf of Ticor Title of
Nevada, who is agent for LPS Title, who is agent
for National Default Servicing."
"Who is agent for Fidelity National?" Hager asked.
"Apparently, yes," Silva replied.
"Which is a servicer for Wilshire?"
"Apparently."
Silva said under oath that he never reviewed any
documents or knew what company was the holder of
the original note at the time he signed the notice
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of default. He said he signed about 200 default
notices over a four-year period.
When asked by Hager if he signed notices of default
"without verifying the accuracy of the
information," Silva replied: "Correct."
?
Walter Hackett, a lawyer with Inland Counties Legal
Services, in San Bernardino, Calif., and a former
banker with Bank of America Corp. and Union Bank,
has filed several cases contesting notices of
default, on the grounds that the employees signing
such notices were working for companies that are
not the note holders - or even their appointed
agents.
"A huge percentage of notices of default and
notices of trustee sales are legally questionable
and probably void," Hackett said. "Nobody with the
authority to trigger the nonjudicial foreclosure
process is triggering it - only third parties who
claim they have the right to do so are triggering
it."
After a notice of default is sent to the borrower
and filed at the county recorder's office, a notice
of sale is typically published in the local
newspaper and the sale of the property often takes
place without the borrower even knowing the home
has been sold to another party.
O. Max Gardner 3rd, a consumer bankruptcy attorney
at Gardner & Gardner PLLC in Shelby, N.C., said the
default notice is "the key legal document that is
sent to the borrower" before a notice of sale.
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The United States Department of Housing and Urban Development,
Office of Inspector General (OIG) conducted a review of the
servicing practices of the five servicers party to the national
mortgage settlement. These reviews were conducted due to
reported allegations made in the fall of 2010 that servicers
were engaged in widespread foreclosure practices that involved
the use of unverified foreclosure documents. The five servicers
were examined based on their status as Federal Housing
Administration (FHA) direct endorsement lenders that can
originate, sponsor and service FHA-insured loans. Among the
findings included in one of the reports (Bank of America
Corporation Foreclosure and Claims Process Review. HUD, Office
of Inspector General, March 12, 2012) were the following:
1)Bank of American did not establish effective control over its
foreclosure process.
2)Bank of America did not establish a controlled environment
that ensured that its notaries met their responsibilities
under state laws that required them to witness affiants'
signatures on documents they notarized. The sample of
documents reviewed by OIG included documents with notary
stamps from Texas and California. California law requires a
notary to verify the signature of signers.
3)Bank of America's claim files for the 118 sample loans did not
consistently contain relevant pre-foreclosure information that
supported the legal basis for foreclosure.
4)Bank of America conveyed a property located in Modesto, CA, to
HUD with incorrect legal description. California is a
two-deed state, requiring a trustee deed and grant deed. The
grant deed conveying the property title to HUD used a legal
description for a property on another street. Because the
legal description was incorrect, Bank of America did not give
HUD good and marketable title to the property.
Similar HUD OIG reports exist for Wells Fargo, Citi, Chase, and
Ally Financial.
Scope of proposed conference committee amendments .
In response to concerns raised by industry stakeholders, the
proposed conference committee amendments would be limited in
scope in several ways. First, the dual track and SPOC
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provisions would apply only to first lien loan modifications.
This restriction is consistent with the national mortgage
settlement. Second, the dual track and SPOC provisions would
apply only to mortgages or deeds of trust that are secured by
owner-occupied residential real property containing no more than
four dwelling units. The amendments would specify that
"owner-occupied" means that the property is the principal
residence of the borrower and is security for a loan made for
personal, family, or household purposes. This restriction to
owner-occupied residences is on the whole already contained in
existing law, Civil Code Section 2923.5, which was added by SB
1137 (Perata, et al.). Finally, the amendments would define
"borrower" by specifying that a borrower is an individual who is
potentially eligible for any federal, state, or proprietary
foreclosure prevention alternative program offered by, or
through, the mortgage servicer.
Summary of dual track prohibitions .
The conference committee amendments provide for a simplified ban
on dual tracking borrowers, in response to concerns raised by
stakeholders. Significantly, the dual track protections are
triggered only when a borrower submits a "complete" application,
which is defined as meaning that a borrower has supplied the
mortgage servicer with all required documents within the
reasonable timeframes specified by the servicer. It is
important to note that these timeframes are only reasonable if
they permit the borrower sufficient time to complete the
application before the filing of the NOD or the NOS or the
trustee's sale and therefore it would be inherently unreasonable
for a mortgage servicer to file a NOD or NOS or conduct a
trustee's sale prior to the expiration of the timeframes. Under
the amendments, a mortgage servicer must give a borrower a clear
answer on an application before the servicer may proceed with
foreclosure. In addition, if a borrower's application has been
approved and the borrower is in compliance with the loan
modification, forbearance, or repayment plan, the mortgage
servicer may not proceed with a NOD or NOS, or conduct a
trustee's sale. The same is true if the foreclosure prevention
alternative is approved by all parties and proof of funds or
financing has been provided to the servicer. The amendments
would also provide that if a borrower has been approved in
writing for a foreclosure prevention alternative and the
servicing of the borrower's loan is transferred or sold to
another mortgage servicer, the subsequent mortgage servicer must
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continue to honor any previously approved alternative. This
provision is similar to one contained in the nationwide mortgage
settlement. The amendments also contain several procedural
elements of this dual track ban which sunset on January 1, 2018.
After that date, a general ban on dual tracking will become
operative.
The amendments contain a number of safeguards, including that
servicers are not required to offer foreclosure prevention
alternatives if they do not participate in such programs. In
addition, the amendments would provide that their purpose is to
ensure that, as part of the non-judicial process, borrowers have
a meaningful opportunity to obtain available loss mitigation
options, but nothing in the amendments is intended to require a
particular result.
Summary of SPOC provisions .
The conference committee amendments build upon existing best
practices by requiring mortgage servicers to maintain a SPOC for
borrowers and allow flexibility by permitting a team to be used.
In response to concerns raised by industry stakeholders, SPOC
are limited to borrowers who are "potentially eligible" for a
federal, state, or proprietary foreclosure prevention
alternative program offered by, or through, the mortgage
servicer. In addition, the SPOC could include multiple
individuals, each of whom has the ability and the authority to
perform specified responsibilities such as having access to
current information in order to inform the borrower of the
current status of his or her application. These provisions do
not sunset.
Summary of document verification provisions .
The conference committee amendments do not use the term
"robosigning." Instead, the amendments would require a mortgage
servicer, before recording or filing a declaration pursuant to
Civil Code Sections 2923.5 or 2923.55, a NOD, NOS, assignment of
a deed of trust, or substitution of a trustee in connection with
a foreclosure to ensure that it has reviewed competent and
reliable evidence to substantiate the borrower's default and the
right to foreclose. Until January 1, 2018, an entity that
engages in "multiple and repeated" violations of this
requirement may be subject to a civil penalty of up to $7,500
per mortgage or deed of trust in an action brought by a public
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prosecutor or in an administrative proceeding brought by DOC,
DFI, or DRE against one of its licensees. In response to
industry stakeholder concerns, this provision was limited by
restricting imposition of the civil penalty only to multiple and
repeated violations, lowering the civil penalty amount and
providing that the actual penalty could be "up to" that amount,
and restricting the penalty to every loan rather than every
document.
In addition, the conference committee amendments would require a
declaration pursuant to Civil Code Sections 2923.5 or 2923.55, a
NOD, NOS, assignment of a deed of trust, or substitution of a
trustee recorded in connection with a foreclosure to be accurate
and complete and supported by competent and reliable evidence.
This requirement would not be subject to the civil penalty
provisions described above.
Under existing law, pursuant to Civil Code Section 2924(b),
trustees do not have liability for any good faith error when
relying on information provided by the beneficiary regarding the
nature and amount of a default. Similarly, the conference
committee amendments are not intended to impose liability on an
entity that records documents at the direction of a trustee,
substitute trustee, or beneficiary who is acting within the
scope of authority designated by the holder of the beneficial
interest and where the entity is carrying out its recording
duties in good faith in the normal course of their activity.
Explanation of threshold provision .
The conference committee amendments would create a threshold so
that a mortgage servicer that foreclosed on 175 or fewer
single-family residential real properties during the immediately
preceding annual reporting period would be subject to the dual
track ban and document verification provisions but would be
excused from the procedural elements of dual track and the
requirements to provide a single point of contact. This
threshold provision would sunset January 1, 2018, and these
entities would then be subject to the general dual track ban
described above.
Summary of enforcement provisions .
In response to concerns expressed, the conference committee
amendments would provide for a narrow and targeted enforcement
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mechanism. Because the amendments provide for individual
protections, the bill necessarily allows individual enforcement.
However, to protect against any potential frivolous claims or
efforts to merely delay legitimate foreclosure proceedings, the
amendments would provide for enforceability only for certain key
provisions related to the prohibitions against dual tracking,
SPOC, and false or incomplete documents. Moreover, no legal
action whatsoever could be brought unless the violation is
material.
Importantly, no action for money damages would be allowed until
the date the trustee's deed is recorded after a foreclosure
sale. At all times until then, the only legal remedy a
homeowner may seek is an action to enjoin a substantial
violation of the specified sections, along with any trustee's
sale. When a court considers a request for injunctive relief it
must determine whether there is convincing evidence of harm if
the injunction is not granted. The court will also consider if
the borrower has a likelihood of prevailing on the merits. As
part of that consideration, no legal action would be permissible
if brought in bad faith or intended merely for the purpose of
unnecessary delay, and no injunctive relief could be awarded
unless the homeowner could show a likelihood of prevailing on
the merits in relation to the balance of harms. Any such
injunction is to be dissolved if the moving party shows that the
violation has been redressed. No special pre-litigation
procedures or particular allegations are required by the
amendments, whether or not the sale is pending. Conversely, the
servicer or other covered entity may avoid legal action by
curing the violation any time prior to recordation of a
trustee's deed. This right to cure is not unprecedented in
comparable circumstances where the parties are known to each
other and have an established relationship of ongoing
communication. Equivalent provisions may be found in Civil Code
Section 910 et seq. and Labor Code Section 2698 et seq. If it
is necessary to order injunctive relief, a party who obtains an
injunction is among those who is recognized as a prevailing
party for the purposes of attorney's fees and costs. As with the
vindication of other important statutory rights, an award of
attorney's fees and costs is to be decided by the court (See,
e.g., Code of Civil Procedure Section 1021.5; Government Code
Section 12965; Civil Code Section 52.1). If an action for
damages is necessary, the amendments are further limited by
providing that the measure of damages in an ordinary case would
be actual economic damages sustained. There are no statutory
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damages in this instance. There is also a provision for treble
damages or a statutory minimum when a violation is committed
intentionally, recklessly or willfully. The amendments
expressly provide that no violation, regardless of substance,
shall affect the validity of a sale in favor of a bona fide
purchaser and its encumbrancers, as specified.
Finally, the amendments would provide that servicers who are
signatories to the national mortgage settlement agreement have
no liability to an individual borrower if the servicer is in
compliance with the term sheet of the settlement agreement as to
the borrower.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0004350