Amended in Assembly June 23, 2016

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 Bill No. 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 begin delete servicers and lenders: end delete begin insert servicers: end insert 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 begin delete either end delete assume the deceased borrower’s loan or to apply for foreclosure prevention alternatives on an assumable begin delete loan to the extent permitted under state and federal law and the terms of the loan. end delete begin insert loan, as specified. 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 deem a mortgage servicer, mortgagee, or beneficiary of the deed of trust, or an agent thereof, to be in compliance with the above- end insert begin insert described provisions if they comply with specified federal laws. end insert The bill would exempt specified depository institutions and persons from these provisions.

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.

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

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 shall not record a notice of default pursuant to Section
2924 until the mortgage servicer 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 from the claimant
regarding the status of that claimant as a successor in interest 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.

(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. A
mortgage servicer shall apply the provisions of this section to
multiple successors in interest in accordance with the terms of the
loan and federal and state laws and regulations.

(3) Being a successor in interest under this section does not
impose an affirmative duty on a mortgage servicer or alter any
obligation the mortgage servicer 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
servicer.

(c) Within 10 days of a claimant being deemed a successor in
interest pursuant to subdivision (b), a mortgage servicer shall
provide the successor in interest with information in writing about
the loan. This 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 shall allow a successor in interest begin delete to
either: end delete begin insert to: end insert

begin delete

(1) Assume the deceased borrower’s loan to the extent permitted
under state and federal law and 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 shall allow the successor in interest to
assume the loan to the extent permitted under state and federal law
and the terms of the loan.

end delete begin insert

(1) Assume the deceased borrower’s loan, subject to an
evaluation of the creditworthiness of the successor in interest,
consistent with the appropriate investor requirements and
guidelines.

end insert begin insert

(2) If the successor in interest qualifies for the foreclosure
prevention alternative, assume the loan subject to an evaluation
of the creditworthiness of the successor in interest consistent with
the appropriate investor requirements and guidelines.

end insert begin insert

(3) If 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 mortgage loan servicer.

end insert

(e) (1)  begin delete (A) end delete begin delete   end delete A successor in interest begin delete who meets the criteria in
subparagraph (B) end delete shall have all the same rights and remedies as a
borrower under subdivision (a) of Section 2923.4 and under
Sections 2923.6, 2923.7, 2924, 2924.9, 2924.10, 2924.11, 2924.12,
2924.15, 2924.17, 2924.18, and 2924.19. 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.

begin delete

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

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

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

(iii) Be either of the following:

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

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

end delete

(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). Any
injunction shall remain in place and any trustee’s sale shall be
enjoined until the court determines that the mortgage servicer 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 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) by that
mortgage servicer if 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, 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 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.

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

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

(1) “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 servicer” shall have the same meaning as
provided in Section 2920.5.

(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.

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

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

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

(E) 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.

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

(G) 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 with notification of the death of the
mortgagor or trustor and reasonable documentation showing that
the person is begin delete any of the following: end delete begin insert the spouse, domestic partner,
joint tenant as evidenced by grant deed, parent, grandparent, adult
child, adult grandchild, or adult sibling of the deceased borrower,
who occupied the property as his or her principal residence within
the last six continuous months prior to the deceased borrower’s
death. end insert

begin delete

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

end delete begin delete

(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.

end delete begin delete

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

end delete begin delete

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

end delete begin delete

(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.

end delete begin delete

(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.

end delete

(j) 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.

begin insert

(k) Any mortgage servicer, mortgagee, or beneficiary of the
deed of trust, or an authorized agent thereof, who complies with
the relevant provisions regarding successors in interest of Part
1024 of Title 12 of the Code of Federal Regulations (12 C.F.R.
Part 1024), known as Regulation X, and Part 1026 of Title 12 of
the Code of Federal Regulations (12 C.F.R. Part 1026), known as
Regulation Z, including any revisions to those regulations, shall
be deemed to be in compliance with this section.

end insert begin insert

(l) This section shall not apply to a successor in interest who is
engaged in a legal dispute over the property that is security for
the borrower’s outstanding mortgage loan and has filed a claim
raising this dispute in a legal proceeding.

end insert begin delete

(k)

end delete

begin insert (m) end insert  This section shall not apply to a depository institution
chartered under state or federal law, a person licensed pursuant to
Division 9 (commencing with Section 22000) or Division 20
(commencing with Section 50000) of the Financial Code, or a
person licensed pursuant to Part 1 (commencing with Section
10000) of Division 4 of the Business and Professions Code, that,
during its immediately preceding annual reporting period, as
established with its primary regulator, foreclosed on 175 or fewer
residential real properties, containing no more than four dwelling
units, that are located in California.

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.