Amended in Senate April 26, 2016

Amended in Senate March 28, 2016

Senate Bill No. 1150

Introduced by begin delete Senator end delete begin insert Senators end insert Leno begin insert and Galgiani end insert

February 18, 2016

An act to add Section 2920.7 to the Civil Code, relating to mortgages and deeds of trust.

LEGISLATIVE COUNSEL’S DIGEST

SB 1150, as amended, Leno. Mortgages and deeds of trust: mortgage servicers and lenders: successors in interest.

Existing law imposes various requirements to be satisfied prior to exercising a power of sale under a mortgage or deed of trust. Existing law gives a borrower, as defined, various rights and remedies against a mortgage servicer, mortgagee, trustee, beneficiary, and authorized agent in regards to foreclosure prevention alternatives, as defined, including loan modifications, which is commonly referred to as being part of the California Homeowner Bill of Rights. Existing law defines a mortgage servicer as a person or entity who directly services a loan, or is responsible for interacting with the borrower, and managing the loan account on a daily basis, as specified.

This bill would prohibit a mortgage begin delete servicer or lender, as defined, end delete begin insert servicer, end insert upon notification that a borrower has died, from recording a notice of default until the mortgage servicer begin delete or lender end delete does certain things, including requesting reasonable documentation of the death of the borrower from a claimant, begin delete which end delete begin insert who end insert is someone claiming to be a successor in interest, begin delete that end delete begin insert who end insert is not a party to the loan or promissory note and providing a reasonable period of time for the claimant to present the requested documentation. The bill would deem a claimant a successor in interest, as defined, upon receipt by a mortgage servicer begin delete or lender end delete of the reasonable documentation regarding the status of the claimant. The bill would require a mortgage begin delete servicer or lender, end delete begin insert servicer, end insert within 10 days of a claimant being deemed a successor in interest, to provide the successor in interest with information about the loan, as specified. The bill would require a mortgage servicer begin delete or lender end delete to allow a successor in interest to either assume the deceased borrower’s loan, except as specified, or to apply for foreclosure prevention alternatives on an assumable loan, as specified. The bill would provide that a successor in interest who assumes an assumable loan and wishes to apply for a foreclosure begin delete avoidance end delete begin insert prevention end insert alternative has the same rights and remedies as a borrower under specified provisions of the California Homeowner Bill of Rights. The bill would authorize a successor in interest to bring an action for injunctive relief to enjoin a material violation of specified provisions of law and would authorize a court to award a prevailing successor in interest reasonable attorney’s fees and costs for begin delete such an end delete begin insert the end insert action. The bill would define terms for these purposes and make various findings and declarations.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature hereby declares all of the
following:

(a) Beginning in 2008, California faced a foreclosure crisis,
with rapidly dropping home values and skyrocketing job losses.
Indiscriminate foreclosure practices of major mortgage servicers
compounded the problem as they created a labyrinth of red tape,
lost documents, and erroneous information and then they started
foreclosure proceedings while borrowers and their families were
in the middle of applying for a loan modification.

(b) The California Legislature responded with a
first-in-the-nation Homeowner Bill of Rights (HBOR), which
requires mortgage servicers to provide borrowers a fair and
transparent process, a single point of contact, and the opportunity
to finish applying for a loan modification before foreclosure
proceedings can start. HBOR stabilized families, neighborhoods,
and local communities by slowing down indiscriminate
foreclosures.

(c) Now, however, district attorneys and legal aid organizations
are reporting an increasing number of cases in which mortgage
servicers use a loophole in HBOR to foreclose on certain
homeowners--people who survive the death of a borrower and
have an ownership interest in the home but are not named on the
mortgage loan. Most often, the “survivor” is the borrower’s spouse
and is over 65 years of age.

(d) When the surviving widow or widower, domestic partner,
children, or other heirs attempt to obtain basic information about
the loan from the servicer, they face the same kind of barriers and
abuses--and, finally foreclosure--that convinced the Legislature
to pass HBOR.

(e) Home ownership is the primary avenue for most Americans
to build generational wealth. Indiscriminate foreclosures on
surviving heirs destroy a family’s ability to build for its financial
future. Foreclosures also exacerbate the racial wealth gap--and
overall wealth inequality--in society, and force seniors who want
to “age in place” into the overheated rental market instead, with
devastating health impacts.

(f) Surviving heirs deserve the same transparency and
opportunity to save their home as HBOR gave the original
borrower. This act would stem a disturbing nationwide trend and
help keep widows and widowers, children, and other survivors in
their homes--without requiring mortgage servicers to do anything
more than they already do for other homeowners.

SEC. 2.  

Section 2920.7 is added to the Civil Code, to read:

2920.7.  

(a) Upon notification by someone claiming to be a
successor in interest that a borrower has died, and where that
claimant is not a party to the loan or promissory note, a mortgage
servicer begin delete or lender end delete shall not record a notice of default pursuant to
Section 2924 until the mortgage servicer begin delete or lender end delete does both of
the following:

(1) Requests reasonable documentation of the death of the
borrower from the claimant, including, but not limited to, a death
certificate or other written evidence of the death of the borrower.
A reasonable period of time shall be provided for the claimant to
present this documentation, but no less than 30 days from the date
of a written request by the mortgage servicer.

(2) Requests reasonable documentation begin delete of the status of a
claimant as such, and that claimant’s interest end delete begin insert from the claimant
regarding the status of that claimant as a successor in interest end insert in
the real property. A reasonable period of time shall be provided
for the claimant to present this documentation, but no less than 90
days from the date of a written request by the mortgage servicer.

begin insert end insert
(b) (1) Upon receipt by the mortgage servicer of the reasonable
documentation of the status of a claimant as successor in interest
and that claimant’s relation to the real property, that claimant shall
be deemed a “successor in interest.”

(2) There may be more than one successor in interest.

(3) Being a successor in interest under this section does not
impose an affirmative duty on a mortgage servicer begin delete or lender end delete or
alter any obligation the mortgage servicer begin delete or lender end delete has to provide
a loan modification to the successor in interest. If a successor in
interest assumes the loan, he or she may be required to otherwise
qualify for available foreclosure prevention alternatives offered
by the mortgage begin delete servicer or lender. end delete begin insert servicer. end insert

(c) Within 10 days of a claimant being deemed a successor in
interest pursuant to subdivision (b), a mortgage servicer begin delete or lender end delete
shall provide the successor in interest with information in writing
about the loan. begin delete Such end delete begin insert This end insert information shall include, at a minimum,
loan balance, interest rate and interest reset dates and amounts,
balloon payments if any, prepayment penalties if any, default or
delinquency status, the monthly payment amount, and payoff
amounts.

(d) A mortgage servicer begin delete or lender end delete shall allow a successor in
interest to either:

(1) Assume the deceased borrower’s loan, unless such
assumption is prohibited by the terms of the loan.

(2) Where a successor in interest of an assumable loan also
seeks a foreclosure prevention alternative, simultaneously apply
to assume the loan and for a foreclosure prevention alternative that
is offered by the loan lender or applicable loss mitigation rules. If
the successor in interest qualifies for the foreclosure prevention
alternative, the servicer begin delete or lender end delete shall allow the successor in
interest to assume the loan.

(e) (1) A successor in interest who is eligible to assume a
deceased borrower’s outstanding mortgage loan and wishes to
apply for a foreclosure begin delete avoidance end delete begin insert prevention end insert alternative in
connection with that loan shall have all the same rights and
remedies as a borrower under subdivision (a) of Section 2923.4
and under Sections begin delete 2923.5, 2923.55, end delete 2923.6, 2923.7, 2924, begin delete 2924.6, end delete
2924.9, 2924.10, 2924.11, 2924.12, 2924.15, 2924.17, 2924.18,
begin delete 2924.19, and 2924.20. end delete begin insert and 2924.19. end insert For the purposes of Section
2924.15, “owner-occupied” means that the property was the
principal residence of the deceased borrower and is security for a
loan made for personal, family, or household purposes.

(2) If a trustee’s deed upon sale has not been recorded, a
successor in interest may bring an action for injunctive relief to
enjoin a material violation of subdivision (a), (b), (c), or (d) of
Section 2920.7. Any injunction shall remain in place and any
trustee’s sale shall be enjoined until the court determines that the
mortgage servicer begin delete or lender end delete has corrected and remedied the
violation or violations giving rise to the action for injunctive relief.
An enjoined entity may move to dissolve an injunction based on
a showing that the material violation has been corrected and
remedied.

(3) After a trustee’s deed upon sale has been recorded, a
mortgage servicer begin delete or lender end delete shall be liable to a successor in interest
for actual economic damages pursuant to Section 3281 resulting
from a material violation of subdivision (a), (b), (c), or (d) of
Section 2920.7 by that mortgage servicer begin delete or lender where end delete begin insert if end insert the
violation was not corrected and remedied prior to the recordation
of the trustee’s deed upon sale. If the court finds that the material
violation was intentional or reckless, or resulted from willful
misconduct by a mortgage servicer begin delete or lender end delete the court may award
the successor in interest the greater of treble actual damages or
statutory damages of fifty thousand dollars ($50,000).

(4) A court may award a prevailing successor in interest
reasonable attorney’s fees and costs in an action brought pursuant
to this section. A successor in interest shall be deemed to have
prevailed for purposes of this subdivision if the successor in interest
obtained injunctive relief or damages pursuant to this section.

(5) A mortgage servicer begin delete or lender end delete shall not be liable for any
violation that it has corrected and remedied prior to the recordation
of the trustee’s deed upon sale or that has been corrected and
remedied by third parties working on its behalf prior to the
recordation of the trustee’s deed upon sale.

(f) Consistent with their general regulatory authority, and
notwithstanding subdivisions (b) and (c) of Section 2924.18, the
Department of Business Oversight and the Bureau of Real Estate
may adopt regulations applicable to any entity or person under
their respective jurisdictions that are necessary to carry out the
purposes of this section.

(g) The rights and remedies provided by this section are in
addition to and independent of any other rights, remedies, or
procedures under any other law. This section shall not be construed
to alter, limit, or negate any other rights, remedies, or procedures
provided by law.

begin delete

(f)

end delete

begin insert (h) end insert  For purposes of this section, all of the following definitions
shall apply:

begin delete

(1) “Lender” means a finance lender or broker licensed under
the California Finance Lenders Law (Division 9 (commencing
with Section 22000) of the Financial Code), a residential mortgage
lender licensed under the California Residential Mortgage Lending
Act (Division 20 (commencing with Section 50000) of the
Financial Code), a commercial or industrial bank organized under
the Banking Law (Division 1 (commencing with Section 99) of
the Financial Code), a savings association organized under the
Savings Association Law (Division 2 (commencing with Section
5000) of the Financial Code), and a credit union organized under
the California Credit Union Law (Division 5 (commencing with
Section 14000) of the Financial Code).

end delete begin delete

(2)

end delete

begin insert (1) end insert  “Notification of the death of the mortgagor or trustor” means
provision to the mortgage servicer of a death certificate or, if a
death certificate is not available, of other written evidence of the
death of the mortgagor or trustor deemed sufficient by the mortgage
servicer.

(2) “Mortgage begin delete servicer or lender” includes a mortgagee, trustee,
beneficiary, or authorized agent. end delete begin insert servicer” shall have the same
meaning as provided in Section 2920.5. end insert

(3) “Reasonable documentation” means copies of the following
documents, as may be applicable, or, if the relevant documentation
listed is not available, other written evidence of the person’s status
as successor in interest to the real property that secures the
mortgage or deed of trust deemed sufficient by the mortgage
servicer:

(A) In the case of a personal representative, letters as defined
in Section 52 of the Probate Code.

begin insert

(B) In the case of devisee or an heir, a copy of the relevant will
or trust document.

end insert begin insert

(C) In the case of a beneficiary of a revocable transfer on death
deed, a copy of that deed.

end insert begin delete

(B)

end delete

begin insert (D) end insert  In the case of a surviving joint tenant, an affidavit of death
of the joint tenant or a grant deed showing joint tenancy.

begin delete

(C)

end delete

begin insert (E) end insert  In the case of a surviving spouse where the real property
was held as community property with right of survivorship, an
affidavit of death of the spouse or a deed showing community
property with right of survivorship.

begin delete

(D)

end delete

begin insert (F) end insert  In the case of a trustee of a trust, a certification of trust
pursuant to Section 18100.5 of the Probate Code.

begin delete

(E)

end delete

begin insert (G) end insert  In the case of a beneficiary of a trust, relevant trust
documents related to the beneficiary’s interest.

(4) “Successor in interest” means a natural person who provides
the mortgage servicer begin delete or lender end delete with notification of the death of
the mortgagor or trustor and reasonable documentation showing
that the person is any of the following:

(A) The personal representative, as defined in Section 58 of the
Probate Code, of the mortgagor’s or trustor’s estate.

(B) The devisee, as defined in Section 34 of the Probate Code,
or the heir, as defined in Section 44 of the Probate Code, of the
real property that secures the mortgage or deed of trust.

(C) The begin delete beneficiary of a Revocable Transfer on Death Deed,
as defined in Section 5608 of the Probate Code. end delete begin insert beneficiary, as
defined in Section 5608 of the Probate Code, on a revocable
transfer on death deed. end insert

(D) The surviving joint tenant of the mortgagor or trustor.

(E) The surviving spouse of the mortgagor or trustor if the real
property that secures the mortgage or deed of trust was held as
community property with right of survivorship pursuant to Section
682.1.

(F) The trustee of the trust that owns the real property that
secures the mortgage or deed of trust or the beneficiary of that
trust.

begin insert

(i) This section shall apply to first lien 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 was the principal residence of the deceased
borrower.

end insert

SEC. 3.  

The provisions of this act are severable. If any
provision of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.