Amended in Senate May 10, 2016

Amended in Senate April 26, 2016

Amended in Senate March 28, 2016

Senate BillNo. 1150


Introduced by Senators Leno and Galgiani

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(Coauthor: Senator Wieckowski)

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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 servicer, upon notification that a borrower has died, from recording a notice of default until the mortgage servicer does certain things, including requesting reasonable documentation of the death of the borrower from a claimant, who is someone claiming to be a successor in interest, who 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 of the reasonable documentation regarding the status of the claimant. The bill would require a mortgage servicer, 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 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 prevention 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 the 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:

P2    1

SECTION 1.  

The Legislature hereby declares all of the
2following:

3(a) Beginning in 2008, California faced a foreclosure crisis,
4with rapidly dropping home values and skyrocketing job losses.
5Indiscriminate foreclosure practices of major mortgage servicers
6compounded the problem as they created a labyrinth of red tape,
7lost documents, and erroneous information and then they started
8foreclosure proceedings while borrowers and their families were
9in the middle of applying for a loan modification.

10(b) The California Legislature responded with a
11first-in-the-nation Homeowner Bill of Rights (HBOR), which
12requires mortgage servicers to provide borrowers a fair and
13transparent process, a single point of contact, and the opportunity
14to finish applying for a loan modification before foreclosure
15proceedings can start. HBOR stabilized families, neighborhoods,
P3    1and local communities by slowing down indiscriminate
2foreclosures.

3(c) Now, however, district attorneys and legal aid organizations
4are reporting an increasing number of cases in which mortgage
5servicers use a loophole in HBOR to foreclose on certain
6homeowners--people who survive the death of a borrower and
7have an ownership interest in the home but are not named on the
8mortgage loan. Most often, the “survivor” is the borrower’s spouse
9and is over 65 years of age.

10(d) When the surviving widow or widower, domestic partner,
11children, or other heirs attempt to obtain basic information about
12the loan from the servicer, they face the same kind of barriers and
13abuses--and, finally foreclosure--that convinced the Legislature
14to pass HBOR.

15(e) Home ownership is the primary avenue for most Americans
16to build generational wealth. Indiscriminate foreclosures on
17surviving heirs destroy a family’s ability to build for its financial
18future. Foreclosures also exacerbate the racial wealth gap--and
19overall wealth inequality--in society, and force seniors who want
20to “age in place” into the overheated rental market instead, with
21devastating health impacts.

22(f) Surviving heirs deserve the same transparency and
23opportunity to save their home as HBOR gave the original
24borrower. This act would stem a disturbing nationwide trend and
25help keep widows and widowers, children, and other survivors in
26their homes--without requiring mortgage servicers to do anything
27more than they already do for other homeowners.

28

SEC. 2.  

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

29

2920.7.  

(a) Upon notification by someone claiming to be a
30successor in interest that a borrower has died, and where that
31claimant is not a party to the loan or promissory note, a mortgage
32servicer shall not record a notice of default pursuant to Section
332924 until the mortgage servicer does both of the following:

34(1) Requests reasonable documentation of the death of the
35borrower from the claimant, including, but not limited to, a death
36certificate or other written evidence of the death of the borrower.
37A reasonable period of time shall be provided for the claimant to
38 present this documentation, but no less than 30 days from the date
39of a written request by the mortgage servicer.

P4    1(2) Requests reasonable documentation from the claimant
2regarding the status of that claimant as a successor in interest in
3the real property. A reasonable period of time shall be provided
4for the claimant to present this documentation, but no less than 90
5days from the date of a written request by the mortgage servicer.

6(b) (1) Upon receipt by the mortgage servicer of the reasonable
7documentation of the status of a claimant as successor in interest
8and that claimant’s relation to the real property, that claimant shall
9be deemed a “successor in interest.”

10(2) There may be more than one successor in interest.begin insert A
11mortgaend insert
begin insertge servicer shall apply the provisions of this section to
12multiple successors in interest in accordance with the terms of the
13loan and federal and state laws and regulations.end insert

14(3) Being a successor in interest under this section does not
15impose an affirmative duty on a mortgage servicer or alter any
16obligation the mortgage servicer has to provide a loan modification
17to the successor in interest. If a successor in interest assumes the
18loan, he or she may be required to otherwise qualify for available
19foreclosure prevention alternatives offered by the mortgage
20servicer.

21(c) Within 10 days of a claimant being deemed a successor in
22interest pursuant to subdivision (b), a mortgage servicer shall
23provide the successor in interest with information in writing about
24the loan. This information shall include, at a minimum, loan
25balance, interest rate and interest reset dates and amounts, balloon
26payments if any, prepayment penalties if any, default or
27delinquency status, the monthly payment amount, and payoff
28amounts.

29(d) A mortgage servicer shall allow a successor in interest to
30either:

31(1) Assume the deceased borrower’s loan, unless such
32assumption is prohibited by the terms of the loan.

33(2) Where a successor in interest of an assumable loan also
34seeks a foreclosure prevention alternative, simultaneously apply
35to assume the loan and for a foreclosure prevention alternative that
36is offered by the loan lender or applicable loss mitigation rules. If
37the successor in interest qualifies for the foreclosure prevention
38alternative, the servicer shall allow the successor in interest to
39assume the loan.

P5    1(e) (1) A successor in interest who is eligible to assume a
2deceased borrower’s outstanding mortgage loan and wishes to
3apply for a foreclosure prevention alternative in connection with
4that loan shall have all the same rights and remedies as a borrower
5under subdivision (a) of Section 2923.4 and under Sections 2923.6,
62923.7, 2924, 2924.9, 2924.10, 2924.11, 2924.12, 2924.15,
72924.17, 2924.18, and 2924.19. For the purposes of Section
82924.15, “owner-occupied” means that the property was the
9principal residence of the deceased borrower and is security for a
10loan made for personal, family, or household purposes.

11(2) If a trustee’s deed upon sale has not been recorded, a
12successor in interest may bring an action for injunctive relief to
13enjoin a material violation of subdivision (a), (b), (c), orbegin delete (d) of
14Section 2920.7.end delete
begin insert (d).end insert Any injunction shall remain in place and any
15trustee’s sale shall be enjoined until the court determines that the
16mortgage servicer has corrected and remedied the violation or
17violations giving rise to the action for injunctive relief. An enjoined
18entity may move to dissolve an injunction based on a showing that
19the material violation has been corrected and remedied.

20(3) After a trustee’s deed upon sale has been recorded, a
21mortgage servicer shall be liable to a successor in interest for actual
22economic damages pursuant to Section 3281 resulting from a
23material violation of subdivision (a), (b), (c), or (d) of Section
242920.7 by that mortgage servicer if the violation was not corrected
25and remedied prior to the recordation of the trustee’s deed upon
26sale. If the court finds that the material violation was intentional
27or reckless, or resulted from willful misconduct by a mortgage
28servicer the court may award the successor in interest the greater
29of treble actual damages or statutory damages of fifty thousand
30dollars ($50,000).

31(4) A court may award a prevailing successor in interest
32reasonable attorney’s fees and costs in an action brought pursuant
33to this section. A successor in interest shall be deemed to have
34prevailed for purposes of this subdivision if the successor in interest
35obtained injunctive relief or damages pursuant to this section.

36(5) A mortgage servicer shall not be liable for any violation that
37it has corrected and remedied prior to the recordation of the
38trustee’s deed upon sale or that has been corrected and remedied
39by third parties working on its behalf prior to the recordation of
40the trustee’s deed upon sale.

P6    1(f) Consistent with their general regulatory authority, and
2notwithstanding subdivisions (b) and (c) of Section 2924.18, the
3Department of Business Oversight and the Bureau of Real Estate
4may adopt regulations applicable to any entity or person under
5their respective jurisdictions that are necessary to carry out the
6purposes of this section.

7(g) The rights and remedies provided by this section are in
8addition to and independent of any other rights, remedies, or
9procedures under any other law. This section shall not be construed
10to alter, limit, or negate any other rights, remedies, or procedures
11provided by law.

12(h) For purposes of this section, all of the following definitions
13shall apply:

14(1) “Notification of the death of the mortgagor or trustor” means
15provision to the mortgage servicer of a death certificate or, if a
16death certificate is not available, of other written evidence of the
17death of the mortgagor or trustor deemed sufficient by the mortgage
18servicer.

19(2) “Mortgage servicer” shall have the same meaning as
20provided in Section 2920.5.

21(3) “Reasonable documentation” means copies of the following
22documents, as may be applicable, or, if the relevant documentation
23listed is not available, other written evidence of the person’s status
24as successor in interest to the real property that secures the
25mortgage or deed of trust deemed sufficient by the mortgage
26servicer:

27(A) In the case of a personal representative, letters as defined
28in Section 52 of the Probate Code.

29(B) In the case of devisee or an heir, a copy of the relevant will
30or trust document.

31(C) In the case of a beneficiary of a revocable transfer on death
32deed, a copy of that deed.

33(D) In the case of a surviving joint tenant, an affidavit of death
34of the joint tenant or a grant deed showing joint tenancy.

35(E) In the case of a surviving spouse where the real property
36was held as community property with right of survivorship, an
37affidavit of death of the spouse or a deed showing community
38property with right of survivorship.

39(F) In the case of a trustee of a trust, a certification of trust
40pursuant to Section 18100.5 of the Probate Code.

P7    1(G) In the case of a beneficiary of a trust, relevant trust
2documents related to the beneficiary’s interest.

3(4) “Successor in interest” means a natural person who provides
4the mortgage servicer with notification of the death of the
5mortgagor or trustor and reasonable documentation showing that
6the person is any of the following:

7(A) The personal representative, as defined in Section 58 of the
8Probate Code, of the mortgagor’s or trustor’s estate.

9(B) The devisee, as defined in Section 34 of the Probate Code,
10or the heir, as defined in Section 44 of the Probate Code, of the
11real property that secures the mortgage or deed of trust.

12(C) The beneficiary, as defined in Section 5608 of the Probate
13Code, on a revocable transfer on death deed.

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

15(E) The surviving spouse of the mortgagor or trustor if the real
16property that secures the mortgage or deed of trust was held as
17community property with right of survivorship pursuant to Section
18682.1.

19(F) The trustee of the trust that owns the real property that
20secures the mortgage or deed of trust or the beneficiary of that
21trust.

22(i) This section shall apply to first lien mortgages or deeds of
23trust that are secured by owner-occupied residential real property
24containing no more than four dwelling units. “Owner-occupied”
25means that the property was the principal residence of the deceased
26borrower.

27

SEC. 3.  

The provisions of this act are severable. If any
28provision of this act or its application is held invalid, that invalidity
29shall not affect other provisions or applications that can be given
30effect without the invalid provision or application.



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