BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       SB 1150|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
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                                   THIRD READING 


          Bill No:  SB 1150
          Author:   Leno (D) and Galgiani (D)
          Amended:  5/10/16  
          Vote:     21 

           SENATE BANKING & F.I. COMMITTEE:  4-3, 4/20/16
           AYES:  Galgiani, Hall, Hueso, Lara
           NOES:  Glazer, Vidak, Morrell

           SENATE JUDICIARY COMMITTEE:  4-1, 5/3/16
           AYES:  Jackson, Leno, Monning, Wieckowski
           NOES:  Anderson
           NO VOTE RECORDED:  Moorlach, Hertzberg

           SUBJECT:   Mortgages and deeds of trust:  mortgage servicers  
                     and lenders:  successors in interest


          SOURCE:    California Alliance for Retired Americans 
                     California Reinvestment Coalition 
                               Housing and Economic Rights Advocates 
          
          DIGEST:   This bill requires mortgage servicers to provide  
          successors in interest to deceased borrowers, as defined, with  
          key information about outstanding mortgages previously held by  
          the deceased borrowers; requires servicers 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 servicers to comply with the bill's  
          provisions.  

          ANALYSIS:  









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          Existing law:  


         1)Provides for the Homeowners Bill of Rights (HBOR), which  
            contains provisions intended to facilitate communication  
            between mortgage servicers and borrowers regarding options for  
            borrowers to avoid foreclosure; requirements prohibiting  
            mortgage servicers from moving forward in the foreclosure  
            process while a complete loan modification application from a  
            borrower is pending, while a borrower is in compliance with an  
            approved foreclosure prevention alternative, or while a  
            borrower is appealing the denial of a foreclosure prevention  
            alternative; and rules intended to ensure that all  
            foreclosure-related documents recorded by servicers are  
            accurate and complete (Civil Code Sections 2920.5, 2923.4,  
            2923.5, 2923.55, 2923.6, 2923.7, 2924, 2924.9, 2924.10,  
            2924.11, 2924.15, 2924.17, and 2924.18)


         2)Authorizes borrowers to bring judicial actions against  
            servicers to enforce HBOR.  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 HBOR;  
            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 HBOR. Courts are authorized to award a prevailing  
            plaintiff reasonable attorney's fees and costs for actions  
            brought to enforce HBOR; a plaintiff is deemed to have  
            prevailed for purposes of HBOR if that plaintiff obtains  
            injunctive relief or is awarded damages (Civil Code Sections  
            2924.12 and 2924.19).


          This bill:


          1)Contains findings and declarations regarding passage of HBOR,  








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            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 may not record a notice of default until  
            that servicer does both 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.


             b)   Requests reasonable documentation from the claimant  
               regarding the status of that claimant as a successor in  
               interest and provides that claimant at least 90 days to  
               provide this information.


          3)Defines a "successor in interest" as a natural person who  
            notifies a mortgage servicer regarding the death of a borrower  
            and provides reasonable documentation, as defined, showing  
            that he or she meets one of the criteria listed in the bill.


          4)Clarifies that there may be more than one successor in  
            interest.  


          5)Provides that, within 10 days of a claimant being deemed a  
            successor in interest, a mortgage servicer 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;  








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            default or delinquency status; monthly payment amount; and  
            payoff amount.  


          6)Requires a mortgage servicer to allow a successor in interest  
            to assume the deceased borrower's loan, unless such assumption  
            is prohibited by the terms 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 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 must allow the successor in interest to  
            assume the loan.


          7)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.


          8)Provides a private right of action with which to enforce its  
            provisions, as specified.  This private right of action  
            mirrors the private right of action available with which to  
            enforce HBOR.  



          9)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, which are  
            necessary to carry out the bill.








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          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.  


          After HBOR was enacted, housing counseling agencies encountered  
          problems following the death of a borrower, which mirrored many  
          of the problems they had seen involving borrowers prior to  
          enactment of HBOR.  For example, housing counseling agencies  
          observed that the successors in interest to a deceased 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 previously held by the deceased  
          borrowers 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.  This  
          bill extends HBOR protections to persons whose names do not  
          appear on a mortgage loan, but who are successors in interest to  
          deceased borrowers whose names did appear on the mortgage loan.   



          Comments


          Several federal rules already exist to help the successors in  
          interest who are the subject of this bill (e.g., 12 CFR 1024.38,  
          the two guidance documents issued by the Consumer Financial  
          Protection Bureau (CFPB) to interpret that regulation,  
          http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicing 








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          _bulletin.pdf and  
          http://files.consumerfinance.gov/f/201407_cfpb_bulletin_mortgage- 
          lending-rules_successors.pdf, and servicing guidelines issued by  
          Fannie Mae and Freddie Mac).  More federal rules to help this  
          group are expected to become final later this year (e.g.,  
          http://files.consumerfinance.gov/f/201411_cfpb_proposed-rule_mort 
          gage-servicing.pdf).  


          However, the federal rules listed above 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 contained in HBOR.  The  
          arguments for and against this bill hinge on this private right  
          of action.  This bill's sponsors believe that the federal rules  
          listed above, 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.  


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified5/10/16)


          California Alliance for Retired Americans (co-source)
          California Reinvestment Coalition (co-source)








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          Housing and Economic Rights Advocates (co-source)
          AARP
          AIDS Legal Referral Panel
          Attorney General Kamala Harris
          Bay Area Legal Aid
          Burbank Housing Development Corporation
          California District Attorneys Association
          California Nurses Association
          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
          Consumers Union
          County of Alameda
          Courage Campaign
          Fair Housing Council of the San Fernando Valley
          Fair Housing of Marin
          Family Caregiver Alliance
          Housing California
          Inland Fair Housing and Mediation Board
          Institute on Aging
          Justice in Aging
          Law Foundation of Silicon Valley
          Legal Aid Foundation of Los Angeles
          Legal Services of Northern California
          Los Angeles County Democratic Party
          Montebello Housing Development Corporation
          National Center for Lesbian Rights
          National Council of La Raza
          National Housing Law Project
          Nehemiah Corporation of America
          Neighborhood Housing Services of Los Angeles County
          NeighborWorks HomeOwnership Center Sacramento Region
          Nonprofit Housing of Northern California
          People's Self-Help Housing
          Project Sentinel
          Public Counsel
          Public Law Center








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          Renaissance Entrepreneurship Center
          Retired Public Employees Association
          Rural Community Assistance Corporation
          SEIU California
          Shalom Center for T.R.E.E. of Life
          Tenants Together
          The Arc and United Cerebral Palsy California Collaboration
          UDW/AFSCME Local 3930
          UNITE HERE
          Valley Economic Development Centers
          Valley Industry and Commerce Association
          Western Center on Law & Poverty


          OPPOSITION:   (Verified5/10/16)


          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
          Securities Industry and Financial Markets Association
          Travis Credit Union
          United Trustees Association
           
          ARGUMENTS IN SUPPORT:  Supporters state, "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  








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          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 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."  


          ARGUMENTS IN OPPOSITION:     Opponents assert that 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 provisions  
          will likely delay the foreclosure process by additional months,  
          if not years, if a property is involved in probate following a  
          borrower's death and include a new minimum 90-day mandated  
          statutory timeframe to provide proof of the borrower's death and  
          proof of successor in interest status.  Finally, of great  
          concern is the fact that the bill establishes new, lopsided,  
          private rights of action with draconian penalties, injunctive  
          relief and attorney's fees only for the prevailing successor in  
          interest." 









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          Opponents also believe that SB 1150 is premature given pending  
          regulations being promulgated by CFPB, which address the same  
          underlying issue being addressed by SB 1150 and are scheduled to  
          be finalized in mid-2016.  "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."

          Finally, opponents observe that the bill's scope is far broader  
          than that of HBOR.  SB 1150 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... the bill would only  
          require that the property be the owner-occupied residence of the  
          original deceased borrower, not of the third party successor in  
          interest."  


          Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
          5/11/16 15:12:41


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