Amended in Assembly June 13, 2016

Amended in Senate May 26, 2016

Amended in Senate May 16, 2016

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

(Coauthor: Senator Wieckowski)

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’sbegin delete loan, except as specified,end deletebegin insert loanend insert or to apply for foreclosure prevention alternatives on an assumablebegin delete loan, as specified.end deletebegin insert loan to the extent permitted under state and federal law and the terms of the loan.end insert The bill would provide that a successor in interest, as specified, 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.begin insert The bill would exempt specified depository institutions and persons from these provisions.end insert

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
P3    1foreclosure proceedings while borrowers and their families were
2in the middle of applying for a loan modification.

3(b) The California Legislature responded with a
4first-in-the-nation Homeowner Bill of Rights (HBOR), which
5requires mortgage servicers to provide borrowers a fair and
6transparent process, a single point of contact, and the opportunity
7to finish applying for a loan modification before foreclosure
8proceedings can start. HBOR stabilized families, neighborhoods,
9and local communities by slowing down indiscriminate
10foreclosures.

11(c) Now, however, district attorneys and legal aid organizations
12are reporting an increasing number of cases in which mortgage
13servicers use a loophole in HBOR to foreclose on certain
14homeowners--people who survive the death of a borrower and
15have an ownership interest in the home but are not named on the
16mortgage loan. Most often, the “survivor” is the borrower’s spouse
17and is over 65 years of age.

18(d) When the surviving widow or widower, domestic partner,
19children, or other heirs attempt to obtain basic information about
20the loan from the servicer, they face the same kind of barriers and
21abuses--and, finally foreclosure--that convinced the Legislature
22to pass HBOR.

23(e) Home ownership is the primary avenue for most Americans
24to build generational wealth. Indiscriminate foreclosures on
25surviving heirs destroy a family’s ability to build for its financial
26future. Foreclosures also exacerbate the racial wealth gap--and
27overall wealth inequality--in society, and force seniors who want
28to “age in place” into the overheated rental market instead, with
29devastating health impacts.

30(f) Surviving heirs deserve the same transparency and
31opportunity to save their home as HBOR gave the original
32borrower. This act would stem a disturbing nationwide trend and
33help keep widows and widowers, children, and other survivors in
34their homes--without requiring mortgage servicers to do anything
35more than they already do for other homeowners.

36(g) It is the intent of the Legislature that this act work in
37conjunction with federal Consumer Financial Protection Bureau
38servicing guidelines.

39

SEC. 2.  

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

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2920.7.  

(a) Upon notification by someone claiming to be a
2successor in interest that a borrower has died, and where that
3claimant is not a party to the loan or promissory note, a mortgage
4servicer shall not record a notice of default pursuant to Section
52924 until the mortgage servicer does both of the following:

6(1) Requests reasonable documentation of the death of the
7borrower from the claimant, including, but not limited to, a death
8certificate or other written evidence of the death of the borrower.
9A reasonable period of time shall be provided for the claimant to
10 present this documentation, but no less than 30 days from the date
11of a written request by the mortgage servicer.

12(2) Requests reasonable documentation from the claimant
13regarding the status of that claimant as a successor in interest in
14the real property. A reasonable period of time shall be provided
15for the claimant to present this documentation, but no less than 90
16days from the date of a written request by the mortgage servicer.

17(b) (1) Upon receipt by the mortgage servicer of the reasonable
18documentation of the status of a claimant as successor in interest
19and that claimant’s relation to the real property, that claimant shall
20be deemed a “successor in interest.”

21(2) There may be more than one successor in interest. A
22mortgage servicer shall apply the provisions of this section to
23multiple successors in interest in accordance with the terms of the
24loan and federal and state laws and regulations.

25(3) Being a successor in interest under this section does not
26impose an affirmative duty on a mortgage servicer or alter any
27obligation the mortgage servicer has to provide a loan modification
28to the successor in interest. If a successor in interest assumes the
29loan, he or she may be required to otherwise qualify for available
30foreclosure prevention alternatives offered by the mortgage
31servicer.

32(c) Within 10 days of a claimant being deemed a successor in
33interest pursuant to subdivision (b), a mortgage servicer shall
34provide the successor in interest with information in writing about
35the loan. This information shall include, at a minimum, loan
36balance, interest rate and interest reset dates and amounts, balloon
37payments if any, prepayment penalties if any, default or
38delinquency status, the monthly payment amount, and payoff
39amounts.

P5    1(d) A mortgage servicer shall allow a successor in interest to
2either:

3(1) Assume the deceased borrower’sbegin delete loan, unless such
4assumption is prohibited by the terms of the loan.end delete
begin insert loan to the extent
5permitted under state and federal law and the terms of the loan.end insert

6(2) Where a successor in interest of an assumable loan also
7seeks a foreclosure prevention alternative, simultaneously apply
8to assume the loan and for a foreclosure prevention alternative that
9is offered by the loan lender or applicable loss mitigation rules. If
10the successor in interest qualifies for the foreclosure prevention
11alternative, the servicer shall allow the successor in interest to
12assume thebegin delete loan.end deletebegin insert loan to the extent permitted under state and
13federal law and the terms of the loan.end insert

14(e) (1) (A) A successor in interest who meets the criteria in
15subparagraph (B) shall have all the same rights and remedies as a
16borrower under subdivision (a) of Section 2923.4 and under
17Sections 2923.6, 2923.7, 2924, 2924.9, 2924.10, 2924.11, 2924.12,
182924.15, 2924.17, 2924.18, and 2924.19. For the purposes of
19Section 2924.15, “owner-occupied” means that the property was
20the principal residence of the deceased borrower and is security
21for a loan made for personal, family, or household purposes.

22(B) For the purposes of subparagraph (A), a successor in interest
23shall meet all of the following criteria:

24(i) Be eligible to assume a deceased borrower’s outstanding
25mortgage loan.

26(ii) Wish to apply for a foreclosure prevention alternative in
27connection with the deceased borrower’s loan.

28(iii) Bebegin delete oneend deletebegin insert eitherend insert of the following:

29(I) The spouse, child, or grandchild of the deceased borrower.

30(II) A person who occupies the property as his or her principal
31residence at the time of the deceased borrower’s death.

begin delete

32(III) A person who will occupy the property as his or her
33principal residence within 60 days of loan assumption.

end delete

34(2) If a trustee’s deed upon sale has not been recorded, a
35successor in interest may bring an action for injunctive relief to
36enjoin a material violation of subdivision (a), (b), (c), or (d). Any
37injunction shall remain in place and any trustee’s sale shall be
38enjoined until the court determines that the mortgage servicer has
39corrected and remedied the violation or violations giving rise to
40the action for injunctive relief. An enjoined entity may move to
P6    1dissolve an injunction based on a showing that the material
2violation has been corrected and remedied.

3(3) After a trustee’s deed upon sale has been recorded, a
4mortgage servicer shall be liable to a successor in interest for actual
5economic damages pursuant to Section 3281 resulting from a
6material violation of subdivision (a), (b), (c), or (d) by that
7mortgage servicer if the violation was not corrected and remedied
8prior to the recordation of the trustee’s deed upon sale. If the court
9finds that the material violation was intentional or reckless, or
10 resulted from willful misconduct by a mortgage servicer, the court
11may award the successor in interest the greater of treble actual
12damages or statutory damages of fifty thousand dollars ($50,000).

13(4) A court may award a prevailing successor in interest
14reasonable attorney’s fees and costs in an action brought pursuant
15to this section. A successor in interest shall be deemed to have
16prevailed for purposes of this subdivision if the successor in interest
17obtained injunctive relief or damages pursuant to this section.

18(5) A mortgage servicer shall not be liable for any violation that
19it has corrected and remedied prior to the recordation of the
20trustee’s deed upon sale or that has been corrected and remedied
21by third parties working on its behalf prior to the recordation of
22the trustee’s deed upon sale.

23(f) Consistent with their general regulatory authority, and
24notwithstanding subdivisions (b) and (c) of Section 2924.18, the
25Department of Business Oversight and the Bureau of Real Estate
26may adopt regulations applicable to any entity or person under
27their respective jurisdictions that are necessary to carry out the
28purposes of this section.

29(g) The rights and remedies provided by this section are in
30addition to and independent of any other rights, remedies, or
31procedures under any other law. This section shall not be construed
32to alter, limit, or negate any other rights, remedies, or procedures
33provided by law.

34(h) Except as otherwise provided, this act does not affect the
35obligations arising from a mortgage or deed of trust.

36(i) For purposes of this section, all of the following definitions
37shall apply:

38(1) “Notification of the death of the mortgagor or trustor” means
39provision to the mortgage servicer of a death certificate or, if a
40death certificate is not available, of other written evidence of the
P7    1death of the mortgagor or trustor deemed sufficient by the mortgage
2servicer.

3(2) “Mortgage servicer” shall have the same meaning as
4provided in Section 2920.5.

5(3) “Reasonable documentation” means copies of the following
6documents, as may be applicable, or, if the relevant documentation
7listed is not available, other written evidence of the person’s status
8as successor in interest to the real property that secures the
9mortgage or deed of trust deemed sufficient by the mortgage
10servicer:

11(A) In the case of a personal representative, letters as defined
12in Section 52 of the Probate Code.

13(B) In the case of devisee or an heir, a copy of the relevant will
14or trust document.

15(C) In the case of a beneficiary of a revocable transfer on death
16deed, a copy of that deed.

17(D) In the case of a surviving joint tenant, an affidavit of death
18of the joint tenant or a grant deed showing joint tenancy.

19(E) In the case of a surviving spouse where the real property
20was held as community property with right of survivorship, an
21affidavit of death of the spouse or a deed showing community
22property with right of survivorship.

23(F) In the case of a trustee of a trust, a certification of trust
24pursuant to Section 18100.5 of the Probate Code.

25(G) In the case of a beneficiary of a trust, relevant trust
26documents related to the beneficiary’s interest.

27(4) “Successor in interest” means a natural person who provides
28the mortgage servicer with notification of the death of the
29mortgagor or trustor and reasonable documentation showing that
30the person is any of the following:

31(A) The personal representative, as defined in Section 58 of the
32Probate Code, of the mortgagor’s or trustor’s estate.

33(B) The devisee, as defined in Section 34 of the Probate Code,
34or the heir, as defined in Section 44 of the Probate Code, of the
35real property that secures the mortgage or deed of trust.

36(C) The beneficiary, as defined in Section 5608 of the Probate
37Code, on a revocable transfer on death deed.

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

39(E) The surviving spouse of the mortgagor or trustor if the real
40property that secures the mortgage or deed of trust was held as
P8    1community property with right of survivorship pursuant to Section
2682.1.

3(F) The trustee of the trust that owns the real property that
4secures the mortgage or deed of trust or the beneficiary of that
5trust.

6(j) This section shall apply to first lien mortgages or deeds of
7trust that are secured by owner-occupied residential real property
8containing no more than four dwelling units. “Owner-occupied”
9means that the property was the principal residence of the deceased
10borrower.

begin insert

11
(k) This section shall not apply to a depository institution
12chartered under state or federal law, a person licensed pursuant
13to Division 9 (commencing with Section 22000) or Division 20
14(commencing with Section 50000) of the Financial Code, or a
15person licensed pursuant to Part 1 (commencing with Section
1610000) of Division 4 of the Business and Professions Code, that,
17during its immediately preceding annual reporting period, as
18established with its primary regulator, foreclosed on 175 or fewer
19residential real properties, containing no more than four dwelling
20units, that are located in California.

end insert
21

SEC. 3.  

The provisions of this act are severable. If any
22provision of this act or its application is held invalid, that invalidity
23shall not affect other provisions or applications that can be given
24effect without the invalid provision or application.



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