BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Glazer, Chair
2015 - 2016 Regular
Bill No: SB 1150 Hearing Date: April 6,
2016
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|Author: |Leno |
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|Version: |March 28, 2016 Amended |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Eileen Newhall |
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Subject: Mortgages and deeds of trust: mortgage servicers and
lenders: successors in interest
SUMMARY Requires mortgage servicers and lenders to provide
successors in interest to deceased borrowers, as defined, with
key information about outstanding mortgages previously held by
the deceased borrowers; requires servicers and lenders to allow
successors in interest to assume those mortgages, as specified,
and to apply and be considered for foreclosure prevention
alternatives in connection with those mortgages, as specified;
and provides judicial enforcement mechanisms for use by
successors in interest to compel lenders and servicers to comply
with the bill's provisions.
DESCRIPTION
1. Contains findings and declarations regarding passage of the
California Homeowner Bill of Rights (HBOR), the inability of
surviving heirs to use HBOR to help avoid foreclosure
following the death of a borrower named on a mortgage loan,
and the importance of providing surviving heirs the same
transparency and opportunity to save their homes that HBOR
gave the original borrower.
2. Provides that, upon notification of a borrower's death by
someone who is not named on the borrower's mortgage loan,
but who claims to be a successor in interest to that
borrower, a mortgage servicer or lender may not record a
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notice of default until that servicer or lender does all of
the following:
a. Requests reasonable documentation of the death of
the borrower from the claimant and provides that claimant
at least 30 days to provide this documentation following
written request by the servicer or lender.
b. Requests reasonable documentation of the status of
the claimant as such and of that claimant's interest in
the real property. A servicer or lender must provide the
claimant at least 90 days to provide this information.
c. Defines a "successor in interest" as a natural
person who notifies a mortgage servicer or lender
regarding the death of a borrower and provides reasonable
documentation showing that he or she is any of the
following:
i. The personal representative of the
borrower's estate, as defined in Section 58 of the
Probate Code.
ii. 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.
iii. The beneficiary of a Revocable Transfer
on Death Deed, as defined in Section 5608 of the
Probate Code.
iv. The surviving joint tenant of the
borrower.
v. The surviving spouse of the borrower if
the real property that secures the mortgage or deed
of trust was held as community property with right
of survivorship, as specified.
vi. The trustee of the trust that owns the
real property that secures the mortgage or deed of
trust or the beneficiary of that trust.
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d. Clarifies that there may be more than one successor
in interest.
e. Defines "reasonable documentation" of the status of
a claimant as a successor in interest as copies of the
following documents, as applicable, or other written
evidence of a person's status as successor in interest in
the real property that secures the mortgage or deed of
trust:
i. In the case of a personal representative,
letters as defined in Section 52 of the Probate
Code.
ii. In the case of a surviving joint tenant,
an affidavit of death of the joint tenant or a grant
deed showing joint tenancy.
iii. 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.
iv. In the case of a trustee of a trust, a
certification of trust pursuant to Section 18100.5
of the Probate Code.
v. In the case of a beneficiary of a trust,
relevant trust documents related to the
beneficiary's interest.
f. Provides that, within 10 days of a claimant being
deemed a successor in interest, a mortgage servicer or
lender must provide that successor in interest with the
following information in writing about the loan, at a
minimum: the loan balance; interest rate and interest
rate reset dates and amounts; balloon payments, if any;
prepayment penalties, if any; default or delinquency
status; monthly payment amount; and payoff amount.
g. Requires a mortgage servicer or lender to allow a
successor in interest to assume the deceased borrower's
loan, unless such assumption is prohibited by the terms
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of the deceased borrower's loan. In the alternative,
where a successor in interest of an assumable loan also
seeks a foreclosure prevention alternative in connection
with that loan, requires a mortgage servicer or lender to
allow that successor in interest to simultaneously apply
to assume the deceased borrower's loan and apply for a
foreclosure prevention alternative in connection with
that loan, to the extent permitted by that loan or
applicable loss mitigation rules. Provides that if the
successor in interest qualifies for the foreclosure
prevention alternative, the mortgage servicer or lender
must allow the successor in interest to assume the loan.
3. Provides a successor in interest who is eligible to assume
a deceased borrower's outstanding mortgage loan and who
wishes to apply for a foreclosure avoidance alternative in
connection with that loan all of the same rights and
remedies as a borrower under HBOR, as specified. For
purposes of those rights and remedies, "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.
4. Provides the following mechanisms with which to enforce the
provisions of the bill:
a. 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 the
bill. Any injunction remains in place, and any trustee's
sale is enjoined, until the court determines that the
mortgage servicer or lender 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 was been corrected or remedied.
b. After a trustee's deed upon sale has been recorded,
a successor in interest may bring an action to recover
actual economic damages resulting from a material
violation of the bill that is not corrected and remedied
by a servicer or lender prior to the recordation of the
trustee's deed upon sale. If the court finds that the
material violation was intentional or reckless or
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resulted from willful misconduct by a servicer or lender,
the court may award the successor in interest the greater
of treble actual economic damages or statutory damages of
$50,000.
c. Authorizes a court to award a prevailing successor
in interest reasonable attorney's fees and costs in an
action brought pursuant to the provisions of the bill,
and provides that a successor in interest has been deemed
to have prevailed for purposes of the bill if the
successor in interest obtained injunctive relief or
damages pursuant to the bill.
5. Clarifies that the Department of Business Oversight and
Bureau of Real Estate may adopt regulations applicable to
any entity or person under their respective jurisdictions
that are necessary to carry out the bill.
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EXISTING FEDERAL LAW
1. Defines a due-on-sale clause, pursuant to the Garn-St.
Germain Depository Institutions Act of 1982 (Garn St.
Germain; 12 USC Section 1701j-3), as a contract provision
which authorizes a lender, at its option, to declare due and
payable sums secured by the lender's security instrument if
all or any part of the property, or an interest therein,
securing the real property loan is sold or transferred
without the lender's prior written consent, and authorizes
lenders to enter into and enforce real property loan
contracts containing due-on-sale clauses. The existence of
this federal act is the primary reason that existing
mortgages must usually be fully paid off when a house is
sold to a new owner.
2. Provides, pursuant to Garn-St. Germain, that a due-on-sale
may not be enforced on a loan secured by residential real
property containing fewer than five dwelling units, when
that real property is transferred in any one of the
following ways: a transfer by devise, descent, or operation
of law on the death of a joint tenant or tenant by the
entirety; a transfer to a relative resulting from the death
of a borrower; a transfer where the spouse or children of
the borrower become an owner of the property; a transfer
resulting from a decreed of dissolution of marriage, legal
separation agreement, or from an incidental property
settlement agreement, by which the spouse of the borrower
becomes an owner of the property; or a transfer into an
inter vivos trust in which the borrower is and remains a
beneficiary and which does not relate to a transfer of
rights of occupancy in the property. Because of these
exceptions, lenders commonly allow successors in interest to
assume an outstanding mortgage secured by property they
obtain through one of the transfer mechanisms listed
immediately above.
EXISTING LAW
1. Provides for HBOR, which contains numerous provisions
intended to facilitate communication between mortgage
servicers and borrowers regarding options for borrowers to
avoid foreclosure. The following provisions apply to
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servicers with respect to first-lien mortgages secured by
owner-occupied principal residences containing one- to
four-dwelling units:
a. Servicers may not record a notice of default (NOD)
until at least 30 days after making initial contact with
a borrower to discuss options for that borrower to avoid
foreclosure or, if contact with the borrower cannot be
made, until at least 30 days after the servicer satisfies
specified due diligence requirements to establish contact
(Civil Code Section 2923.5 and Civil Code Section
2923.55; all further code section references are to the
Civil Code).
b. Until January 1, 2018, servicers may not record a
NOD before sending specified documents to delinquent
borrowers informing them of certain rights and providing
a toll-free telephone number that can be used by
borrowers to identify nearby housing counseling agencies
(Section 2923.55).
c. Until January 1, 2018, servicers that offer one or
more foreclosure prevention alternatives must send the
following to a borrower in writing, within five business
days after recording a NOD, unless that borrower has
previously exhausted the first lien loan modification
process: a statement that the borrower may still be
evaluated for one or more alternatives to foreclosure; a
statement informing the borrower whether an application
is required to be considered for this alternative/these
alternatives; and information on the means and process by
which a borrower may obtain an application, if one is
required (Section 2924.9).
d. Until January 1, 2018, servicers must acknowledge
receipt of any document received in connection with a
first lien loan modification application within five days
of receipt of that document (Section 2924.9).
e. Once a borrower submits a complete first lien loan
modification application, a servicer may not take the
next step in the nonjudicial foreclosure process while
that application is pending, as specified. If a
borrower's first lien loan modification application is
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denied, servicers must send written notice of denial to
the borrower, identifying the reasons for denial with
specificity and informing the borrower how to appeal the
denial, including the date by which the appeal must be
submitted (Section 2923.6, 2924.10. and 2924.11).
f. Before recording any one of several different types
of documents that are required in the context of
nonjudicial foreclosure, servicers must ensure that they
have reviewed competent and reliable evidence to
substantiate the borrower's default and the servicer's
right to foreclose. Any of these documents that are
recorded by or on behalf of a mortgage servicer must be
accurate and complete and must be supported by competent
and reliable evidence (Section 2923.17).
g. Servicers must assign a single point of contact
(SPOC) upon request by any borrower who requests a
foreclosure prevention alternative. The SPOC is either
an individual or a team of personnel, each of whom has
the ability and authority to undertake several specified
responsibilities, and each of whom is knowledgeable about
the borrower's situation and current status in the loss
mitigation process. The requirement to provide a SPOC
concludes when the servicer determines that all loss
mitigation options offered by or through that servicer
have been exhausted, or when the borrower's mortgage
becomes current (Section 2923.7).
2. Authorizes borrowers to bring judicial actions against
servicers to enforce the aforementioned provisions. If a
trustee's deed upon sale has not been recorded (i.e., if a
foreclosure has not been completed), a borrower may bring an
action for injunctive relief to enjoin an uncorrected,
material violation of the aforementioned provisions; this
injunction remains in place, and any trustee's sale is
enjoined, until the court determines that the servicer has
corrected and remedied the violation or violations giving
rise to the action for injunctive relief. After a
foreclosure is completed, a former borrower may bring an
action for actual economic damages resulting from an
uncorrected, material violation of any of the aforementioned
provisions. Courts are authorized to award a prevailing
plaintiff reasonable attorney's fees and costs for actions
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brought to enforce the aforementioned provisions; a
plaintiff is deemed to have prevailed for purposes of HBOR
if that plaintiff obtained injunctive relief or was awarded
damages (Sections 2924.12 and 2924.19).
COMMENTS
1. Purpose: This bill is intended to protect the rights of
successors in interest to real property on which there is an
outstanding mortgage or mortgages by requiring lenders and
servicers to provide those successors in interest with key
information about those mortgages; allowing successors in
interest to assume those mortgages; allowing successors in
interest to apply and be considered for foreclosure
avoidance alternatives in connection with those mortgages;
and providing judicial enforcement mechanisms for use by
successors in interest to compel lenders and servicers to
comply with the bill's provisions.
2. Background: In July 2012, the California Legislature
passed, and Governor Brown signed, two identical pieces of
legislation that became effective January 1, 2013. AB 278
(Eng et al., Chapter 86, Statutes of 2012) and SB 900 (Leno
et al., Chapter 87, Statutes of 2012), collectively known as
HBOR, enacted comprehensive mortgage loan servicing reforms,
established mortgage loan borrower protections, and modified
California's nonjudicial foreclosure process. Key
provisions of HBOR are summarized above in the Existing
State Law section.
AB 278 and SB 900 were the culmination of several years of
debate within the California Legislature regarding the
appropriate response to problems that had plagued California
borrowers during the mortgage crisis. For years, borrowers
had complained of losing their homes to foreclosure while
simultaneously engaging in discussions with their mortgage
servicers about loan modifications (a practice known as
dual-tracking). Many borrowers also complained of receiving
the runaround when they called their servicers to inquire
about loan modifications or other forms of mortgage loan
forbearance or forgiveness - long hold times ended in
disconnections or voicemail boxes that were too full to
accept messages; borrowers who got through to a live
representative would often have to re-educate servicer
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personnel about their situations, every time they called;
continuity among servicer personnel was limited or
nonexistent. Borrower paperwork was repeatedly lost,
resulting in the need to submit multiple copies of the same
documents; by the time servicers acknowledged receipt of
those documents, borrowers were often told that the
documents were out of date, and were asked to submit updated
copies. Borrowers were verbally offered loan modifications,
but never provided with anything in writing. Borrowers
would receive a loan modification denial from one department
of a servicer, while another department of the servicer
assured them that their modification application was still
under review. The list of complaints was long, and
frustration among borrowers and legislators was high. HBOR
was intended to reduce the incidence of these problems in
California and provide a strong enforcement mechanism for
use by borrowers to compel lender and servicer compliance
with its provisions.
This Committee held two oversight hearings to study the impact
of HBOR, in October 2013 and May 2014. During the May 2014
hearing, consumer advocates testified about a problem they
had begun to see, involving successors in interest.
Specifically, when a mortgage loan borrower died, the
successors in interest to that borrower were having
difficulty obtaining information about the outstanding
mortgage loan from the deceased borrower's loan servicer.
Successors in interest were also having trouble applying for
foreclosure prevention alternatives in connection with the
outstanding mortgages and, because they were not considered
"borrowers" for purposes of HBOR, were not entitled to the
protections against foreclosure that are afforded to
borrowers under HBOR.
Last year, two of this bill's sponsors (the California
Reinvestment Coalition and Housing and Economic Rights
Advocates) sponsored AB 244 (Eggman), which, as proposed,
would have granted HBOR borrower status to persons who could
demonstrate that they were successors in interest. Because
of significant opposition to that bill from financial
services groups and the California Chamber of Commerce, AB
244 was never taken up by its author in the Assembly Banking
and Finance Committee.
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SB 1150 is similar to last year's AB 244, but provides greater
clarity regarding how one who claims to be a successor in
interest should go about proving that fact, and regarding
exactly what information about a deceased borrower's
outstanding mortgage loan must be provided by mortgage
lenders and servicers to successors in interest to a
deceased borrower.
3. It's All About Enforcement: As discussed below, several
federal rules already exist to help the successors in
interest who are the subject of this bill, and more federal
rules to help this group are expected to become final later
this year. However, the federal rules summarized below are
enforceable through a combination of
administratively-enforced civil penalties, restitution
orders, and mortgage loan buyback requirements. They do not
expressly authorize a successor in interest to go to court
to seek an injunction to compel a servicer to comply with
the rules, nor to petition that court for damages resulting
from a foreclosure caused by a servicer's noncompliance with
the rules.
This bill, in contrast, contains a private right of action
modeled on the private right of action that was added to
state law by HBOR. The arguments for and against this bill
hinge on this private right of action. This bill's sponsors
believe that the federal rules summarized below, while
helpful, are insufficient, because borrowers lack a strong
mechanism with which to compel servicers to comply with
them. This bill's opponents oppose new state law on this
topic, in part because they believe it is unnecessary given
the existence of federal rules, and in part because they
believe that a new private right of action will lead to
costly and potentially frivolous litigation.
4. Existing Rules Regarding The Rights Of Successors In
Interest : If enacted, this bill will add to requirements
that are already in place at the federal level around
transfers in interest of real property to successors in
interest. Federal rules generally require financial
institutions to treat successors in interest as borrowers,
both in terms of communicating with them about outstanding
mortgage loans and considering them for foreclosure
avoidance alternatives in connection with those loans.
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a. Under regulations implementing the federal Real
Estate Settlement Procedures Act (RESPA), effective
January 10, 2014, servicers are required to have policies
and procedures in place to, "upon notification of the
death of a borrower, promptly identify and facilitate
communication with the successor in interest of the
deceased borrower with respect to the property secured by
the deceased borrower's mortgage loan" (12 CFR 1024.38).
Pursuant to the RESPA regulations, those policies and
procedures must be reasonably designed to ensure that a
servicer can do all of the following: (1) provide
accurate information to a borrower regarding loss
mitigation options available to that borrower; (2)
identify with specificity all loss mitigation options for
which a borrower may be eligible; (3) identify documents
and information that a borrower is required to submit to
complete a loss mitigation application; (4) provide
prompt access to all documents and information submitted
by a borrower in connection with a loss mitigation option
to servicer personnel that are assigned to assist the
borrower; and (5) properly evaluate a borrower who
submits an application for a loss mitigation option for
all loss mitigation options for which the borrower may be
eligible, as specified.
These regulations, and servicers' responsibilities under
them, were clarified in a bulletin issued by the federal
Consumer Financial Protection Bureau (CFPB) prior to the
operative date of the regulations
(http://files.consumerfinance.gov/f/201310_cfpb_mortgage-s
ervicing_bulletin.pdf). The following year, the CFPB
also clarified that where a successor in interest obtains
title to a dwelling and agrees to be added onto a
mortgage secured by that dwelling, the lender is not
required to evaluate that successor's ability to repay
that mortgage using CFPB's Ability-to-Repay Rule
(http://files.consumerfinance.gov/f/201407_cfpb_bulletin_m
ortgage-lending-rules_successors.pdf)
The RESPA rules are broadly applicable to all
"federally-related mortgage loans," which, generally
speaking, include all single-family residential mortgages
(both purchase money and refinanced mortgages, and both
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first and subordinate liens), which are made by state- or
federally-regulated lenders.
b. Fannie Mae has also issued guidance around the
successor in interest issue, which must be followed by
entities that service loans owned or guaranteed by that
government-sponsored enterprise. In a Lender Letter
issued in February 2013, Fannie Mae requires servicers to
"implement policies and procedures to promptly identify
and communicate with the new property owner in connection
with a property transfer that is an exempt transaction.
These policies and procedures must allow the new owner to
continue making mortgage payments and pursue an
assumption of the mortgage loan as well as a foreclosure
prevention alternative, if applicable. This includes a
widow, executor, or administrator of the borrower's
estate, or other authorized representative of the
borrower upon notification of the borrower's death." The
Lender Letter's reference to "exempt transaction" refers
to transfers protected under Garn-St. Germain.
In its Lender Letter Fannie Mae goes on to say, "If the
mortgage loan is delinquent and the new property owner is
unable to bring the mortgage loan current but may be able
to resolve the delinquency with a foreclosure prevention
alternative and assume the mortgage loan, the servicer
must collect a Borrower Response Package from the new
property owner and evaluate the request as if they were a
borrower. If the servicer determines that a foreclosure
prevention alternative is appropriate, it must submit its
recommendation to Fannie Mae for written approval. Fannie
Mae will determine the terms of the foreclosure
prevention alternative and any related assumption."
Fannie Mae's most recently-issued servicing guide reflects
the guidance first issued in February 2013. Freddie Mac
has issued similar guidance for entities that service
mortgages which are owned or guaranteed by it
(http://www.freddiemac.com/singlefamily/guide/bulletins/pd
f/bll1303.pdf).
c. Finally, the Home Affordable Modification Program
(HAMP), designed by the U.S. Department of the Treasury
and applicable to many mortgages not owned or guaranteed
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by Fannie Mae or Freddie Mac, instructs servicers subject
to its rules to consider non-borrower successors in
interest for HAMP modifications as if they were borrowers
and to suspend any ongoing foreclosure while doing so.
The HAMP servicer handbook also states that
"Non-borrowers who inherit or are awarded sole title to a
property may be considered for HAMP even if the borrower
who previously owned the property was not already in a
Trial Payment Plan. Such titleholders may be considered
for HAMP if they meet all applicable eligibility
criteria. In this case, servicers should collect an
Initial Package from the non-borrower who now owns the
property and evaluate the request as if he or she was the
borrower. The servicer should process the assumption and
loan modification contemporaneously if the titleholder is
eligible for HAMP and investor guidelines and applicable
law permit an assumption of the loan."
( https://www.hmpadmin.com/portal/programs/docs/hamp_servic
er/mhahandbook_5.pdf; see Section 8.8 ).
5. New Rules Regarding The Rights Of Successors In Interest:
On December 15, 2014, the CFPB proposed new rules to address
the successor in interest issue
(http://files.consumerfinance.gov/f/201411_cfpb_proposed-rule
_mortgage-servicing.pdf). As described by the CFPB, "the
Bureau is proposing to apply all of the Bureau's Mortgage
Servicing Rules to a successor in interest once a servicer
confirms that a person is a successor in interest. Second,
the Bureau is proposing rules relating to how a mortgage
servicer makes this confirmation. Third, the Bureau is
proposing that, to the extent that the Mortgage Servicing
Rules apply to successors in interest, the rules would apply
with respect to all successors in interest who acquired an
ownership interest in a transfer protected from acceleration
and therefore foreclosure, under Federal law. The new
definition of successors in interest would include
homeowners who receive a property through inheritance from a
family member or upon the death of a joint tenant, after a
divorce or legal separation, through a family trust, or
through a transfer from a spouse or from a parent to a
child."
Importantly, as proposed by the CFPB, successors in interest
would obtain borrower protections regardless of whether they
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assume the mortgage loan obligation under state law. Thus,
one could apply for a loan modification in connection with a
mortgage loan before assuming that loan. Last fall, the
CFPB stated that it would issue final regulations on this
topic in mid-2016.
6. Summary of Arguments in Support:
a. SB 1150 is co-sponsored by the California Alliance
for Retired Americans, California Reinvestment Coalition,
and Housing and Economic Rights Advocates, and is
supported by Attorney General Harris and numerous
consumer advocacy, legal services, and housing rights
organizations and unions, including the Consumer
Federation of California, California Rural Legal
Assistance, Nehemiah Corporation of America, CALPIRG,
Western Center on Law & Poverty, SEIU California, UNITE
HERE, UDW/AFSCME Local 3930, California Professional
Firefighters, Public Law Center, Public Counsel, Justice
in Aging, Institute on Aging, Family Caregiver Alliance,
Capital Impact Partners, Renaissance Entrepreneurship
Center, Bay Area Legal Aid, Fair Housing of Marin,
Neighborhood Housing Services of Los Angeles County,
Project Sentinel, Rural Community Assistance Corporation,
The Arc and United Cerebral Palsy California
Collaboration, and others.
"Currently, widows, widowers, and certain heirs are being
denied a fair chance to remain in their homes, as
mortgage servicers deny them communication, information,
and the opportunity to be considered for a loan
modification. Without the right to basic information
about the loan, and the right to be considered for a loan
modification and a simultaneous loan assumption, family
members are being unfairly foreclosed upon and forced
from their homes during a difficult time in their lives.
"The issue presents itself when a family member who is the
sole borrower named on a home loan passes away. The
surviving family members who wish to continue paying the
mortgage loan may have difficulty assuming the deceased
borrower's loan and/or affording the current mortgage
payment with the loss of the deceased's income.
Surviving family members may then seek a loan assumption
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and modification, only to be refused by the mortgage
servicer because their name is not on the loan, even when
the surviving family member has a legal property interest
in the home.
"During the difficult time after the loss of a loved one,
family members should not have to deal with the added
stress of losing their home. In 2012, with passage of
the Homeowner Bill of Rights, California provided strong
due process protections to similar vulnerable homeowners.
Unfortunately, banks and loan servicers argue that HBOR
does not protect surviving spouses and other successors
in interest. The effect is that survivors and successors
in interest have fewer rights and less ability to retain
their homes than other homeowners. This is an
unfortunate outcome that the Legislature did not foresee
when HBOR was debated and passed."
7. Summary of Arguments in Opposition:
a. A coalition comprised of mortgage lenders, other
financial services providers involved in mortgage lending
and securitization, the California Chamber of Commerce,
Civil Justice Association of California, and California
Citizens Against Lawsuit Abuse submitted a group letter
of opposition to the bill, citing several concerns.
SB 1150 mandates an interference of contract rights by
allowing third parties not originally a party to a
mortgage contract to apply for a loan assumption and
foreclosure avoidance alternatives in connection with the
original contract. The bill imposes nonsensical due
diligence outreach requirements on mortgage servicers,
despite the fact that the third party has already
identified him or herself. The bill will likely delay
the foreclosure process by additional months, if not
years, if a property is involved in probate following a
borrower's death. The bill also establishes new,
lopsided private rights of action with draconian
penalties and attorney's fees only for a prevailing
successor in interest.
The coalition also believes that SB 1150 is premature given
pending regulations being promulgated by CFPB, which
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address the same underlying issue being addressed by SB
1150 and are scheduled to be finalized in mid-2016. The
CFPB's proposed regulations address the concerns raised
by proponents of SB 1150 and do so on a uniform, national
basis. "It is unclear what deficiencies exist in the
federal proposal to cause the proponents to seek a state
legislative solution. In fact, the supporting documents
provided by the CFPB indicated that the regulations are
prompted by concerns raised by consumer advocates...
advancing state legislation without the benefit of
understanding the final regulation is ill-advised and may
create conflict between state and federal law. In fact,
having a separate state rule is unnecessary unless one of
the key motivations is the creation of a private right of
action."
Furthermore, "as drafted, the measure mandates that a
mortgage servicer negotiate with more than one successor
in interest. And while the measure contemplates multiple
successors approaching a mortgage servicer, the measure
offers no clarity on how to manage such scenarios.
Accordingly, the measure may inappropriately circumvent a
necessary judicial process by forcing a mortgage servicer
into a situation normally left to a probate court when
attempting to settle an estate. In order to comply,
should the mortgage servicer work with the first
successor in interest or a subsequent successor? Does a
successor that is not a family member who approaches the
mortgage servicer first have priority over a family
member?"
The coalition also observes that the bill's scope is far
broader than that of HBOR. The bill applies to
circumstances where a successor in interest does not
occupy the property as their principal residence.
"Application to potential investment property for the
successor in interest, as an example, is a significant
departure from the existing law and defeats a threshold
principle of focusing on avoiding foreclosure on
owner-occupied principal residences. Recent amendments
make it explicit that the bill only would require that
the property be the owner-occupied residence of the
original deceased borrower, not of the third party
successor in interest."
SB 1150 (Leno) Page 18
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"We have long advocated for legislation that is clear and
unambiguous. The existing HBOR contains many imprecise
provisions, which will only be exacerbated by the lack of
specificity contained within SB 1150. Imprecision
combined with a private right of action for injunctive
relief, the greater of treble damages or $50,000, and
attorney's fees only for the prevailing successor in
interest will lead to unnecessary litigation as parties
pursue court action as a means to clarify the law. This
statement is not hyperbole and is supported by the
current flow of litigation resulting from enactment of
HBOR."
Finally, although not the basis for the coalition's
opposition, the organizations that signed on to the
coalition letter also take issue with several of the
findings and declarations in the bill.
8. Amendments: The following technical and clarifying
amendments have been agreed to by the author and are
intended to help ensure that the bill can be implemented, if
enacted. They are not expected to change the positions of
any of the supporters or opponents of the bill.
a. The author's office is proposing a technical
amendment to clarify the process by which a claimant may
provide a servicer or lender with reasonable
documentation regarding that claimant's status as a
successor in interest.
Page 4, line 11, after "documentation" insert: "from the
claimant regarding the status of that claimant as a
successor in interest" and strike "of the status of a
claimant as such, and that claimant's interest" on lines
11 through 13.
b. This bill defines what is meant by the term
"reasonable documentation" with respect to five of the
seven types of successors in interest, but it is silent
on what constitutes reasonable documentation for the
remaining two types. Clarifying amendments are necessary
to specify what constitutes reasonable documentation in
the case of a devisee, as defined in Section 34 of the
SB 1150 (Leno) Page 19
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Probate Code, of the real property that secures the
mortgage or deed of trust; an heir, as defined in Section
44 of the Probate Code, of the real property that secures
the mortgage or deed of trust; or a beneficiary of a
Revocable Transfer on Death Deed, as defined in Section
5608 of the Probate Code.
Page 9, between lines 13 and 14, insert:
(B) In the case of a 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.
c. The paragraph on page 7, lines 10 through 20,
contains a reference to a foreclosure avoidance
alternative, while the remainder of the bill and HBOR
refer to foreclosure prevention alternatives. An
amendment is necessary to standardize the reference.
Page 7, line 12, strike "avoidance" and insert: prevention
d. The same paragraph, found on page 7, lines 10
through 20, is intended to provide a successor in
interest that is eligible to assume a deceased borrower's
outstanding mortgage loan and that wishes to apply for a
foreclosure prevention alternative in connection with
that loan with all the same rights and remedies as are
provided to borrowers under HBOR. However, the list of
Civil Code Sections intended to reflect rights and
remedies provided under HBOR includes four code sections
that are not applicable and should be deleted (Civil Code
Sections 2923.5, 2923.55, 2924.6 and 2924.20).
Civil Code Sections 2923.5 and 2923.55 require servicers to
outreach to delinquent borrowers to discuss options for
avoiding foreclosure. These sections are inapplicable in
the context of this bill, because this bill is predicated
on claimants reaching out to servicers; once that
outreach and the subsequent communication between
servicers and claimants has occurred, it makes little
sense to require servicers to engage in due diligence to
outreach to those claimants.
SB 1150 (Leno) Page 20
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Section 2924.6 was added to the Civil Code in 1975 and was
not part of HBOR.
Section 2924.20 was part of HBOR but does not contain a
right or a remedy; it merely authorizes the adoption of
regulations.
Page 7, lines 14 through and 16, strike "2923.5,"
"2923.55," "2924.6" and "2924.20"
e. The following amendments are recommended to remove
confusing and conflicting definitions; they are not
intended to change the scope or application of the bill.
Page 8, strike lines 27 through 38
Page 9, strike lines 4 and 5 and insert: (2) "Mortgage
servicer" shall have the same meaning as provided in
Section 2920.5
Throughout the bill: strike references to "servicer or
lender" and replace them with references to "servicer"
f. HBOR applies to first lien mortgages or deeds of
trust that are secured by owner-occupied residential real
property containing no more than four dwelling units. As
drafted, SB 1150 is not limited in that way. Thus, this
bill applies to commercial property and multi-family
residential property like apartment buildings, as well as
single-family homes. An amendment is suggested to limit
this bill to the same mortgages to which HBOR applies.
Page 10, after line 6, insert: (g) 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.
Although the aforementioned amendment is acceptable to the
author, he also wishes to make the following additional
clarification to the bill after the sentence above:
"Owner-occupied" means that the property was the
principal residence of the deceased borrower.
SB 1150 (Leno) Page 21
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9. Prior and Related Legislation:
a. AB 244 (Eggman), 2015: Would have includes
successors in interest, as defined, within the HBOR
definition of borrower and thus provided those successors
with all of the rights that borrowers possess under that
law. Never taken up by its author in the Assembly
Banking & Finance Committee.
b. AB 278 (Eng et al., Chapter 86, Statutes of 2012)
and SB 900 (Leno et al., Chapter 87, Statutes of 2012):
Enacted comprehensive mortgage loan servicing reforms,
established mortgage loan borrower protections, and
modified California's nonjudicial foreclosure process.
Although certain provisions sunset on January 1, 2018,
the majority remain in force past that sunset date.
c. SB 7 (Corbett), Chapter 4, 2009-2010 Second
Extraordinary Session, and AB 7 (Lieu), Chapter 5,
2009-2010 Second Extraordinary Session: Required
mortgage loan servicers that lacked comprehensive
mortgage loan modification programs, as defined, to wait
an additional 90 days before recording a notice of sale
on mortgages or deeds of trust, which were recorded from
January 1, 2003 to January 1, 2008, and were secured by
single-family, owner-occupied residential real property.
d. SB 1137 (Perata), Chapter 69, Statutes of 2008:
Established the contact requirements summarized in
Existing Law 1a. Sunset on January 1, 2013 (though its
provisions were extended indefinitely through enactment
of HBOR, summarized above).
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Alliance for Retired Americans (co-sponsor)
California Reinvestment Coalition (co-sponsor)
Housing and Economic Rights Advocates (co-sponsor)
AIDS Legal Referral Panel
Attorney General Kamala Harris
Bay Area Legal Aid
SB 1150 (Leno) Page 22
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California Professional Firefighters
California Rural Legal Assistance, Inc.
California Rural Legal Assistance Foundation
CALPIRG
Capital Impact Partners
Community Legal Services in East Palo Alto
Consumer Attorneys of California
Consumer Federation of California
Courage Campaign
Fair Housing of Marin
Family Caregiver Alliance
Institute on Aging
Justice in Aging
Legal Services of Northern California
National Center for Lesbian Rights
Nehemiah Corporation of America
Neighborhood Housing Services of Los Angeles County
Project Sentinel
Public Counsel
Public Law Center
Renaissance Entrepreneurship Center
Rural Community Assistance Corporation
SEIU California
The Arc and United Cerebral Palsy California Collaboration
UDW/AFSCME Local 3930
UNITE HERE
Western Center on Law & Poverty
Opposition
American Securitization Forum
California Bankers Association
California Building Industry Association
California Business Roundtable
California Chamber of Commerce
California Citizens Against Lawsuit Abuse
California Community Banking Network
California Credit Union League
California Financial Services Association
California Land Title Association
California Mortgage Association
California Mortgage Bankers Association
Civil Justice Association of California
Consumer Mortgage Coalition
SB 1150 (Leno) Page 23
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Securities Industry and Financial Markets Association
United Trustees Association
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