BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 278
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           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)           |
           ------------------------------------------------------------------ 
                    (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                     |     |                         |
          |     |                           |     |                         |
           ----------------------------------------------------------------- 
          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. 








                                                                  AB 278
                                                                  Page  17


          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 








                                                                  AB 278
                                                                  Page  18

          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 








                                                                  AB 278
                                                                  Page  19

          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 








                                                                  AB 278
                                                                  Page  20

          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; 








                                                                  AB 278
                                                                  Page  21


                  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 








                                                                  AB 278
                                                                  Page  22

          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.








                                                                  AB 278
                                                                  Page  23


          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 








                                                                  AB 278
                                                                  Page  24

          (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 








                                                                  AB 278
                                                                  Page  25

            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.








                                                                  AB 278
                                                                  Page  26


          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.









                                                                  AB 278
                                                                  Page  27


               "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 








                                                                  AB 278
                                                                  Page  28

               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.










                                                                  AB 278
                                                                  Page  29

          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 








                                                                  AB 278
                                                                  Page  30

          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 








                                                                  AB 278
                                                                  Page  31

          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