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), et al.
Amended: 5/26/16
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.
Senate Floor Amendments of 5/26/16 modify eligibility for
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Homeowner Bill of Rights (HBOR) protections. The amendments
provide that a spouse, child, or grandchild of a deceased
borrower, who is eligible to assume the deceased borrower's
mortgage loan and who wishes to apply for a foreclosure
prevention alternative in connection with that loan, is eligible
for HBOR protections. That spouse, child, or grandchild need
not have lived in the property at the time of the borrower's
death nor plan to live in the property following the borrower's
death. The amendments further provide that a successor in
interest who is not a spouse, child, or grandchild of the
deceased borrower, but who is eligible to assume the deceased
borrower's mortgage loan and who wishes to apply for a
foreclosure prevention alternative in connection with that loan,
is eligible for HBOR protections, if that successor in interest
occupied the property as his or her principal residence at the
time of the deceased borrower's death or will occupy the
property as his or her principal residence within 60 days of
loan assumption.
Senate Floor Amendments of 5/16/16 add an additional statement
of legislative intent and clarify that, except as otherwise
provided, the bill does not affect the obligations arising from
a mortgage or deed of trust.
ANALYSIS:
Existing law:
1)Provides for 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
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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,
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:
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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;
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
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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 that a successor in interest who meets specified
criteria shall have all of the rights and remedies of 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. To be eligible for HBOR rights and remedies under
this bill, a successor in interest must meet all of the
following criteria:
a) Be eligible to assume the deceased borrower's
outstanding mortgage loan.
b) Wish to apply for a foreclosure prevention alternative
in connection with the deceased borrower's mortgage loan.
c) Be one 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;
iii) A person who will occupy the property as his or
her principal residence within 60 days of loan
assumption.
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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.
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.
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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
_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.
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FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified5/26/16)
California Alliance for Retired Americans (co-source)
California Reinvestment Coalition (co-source)
Housing and Economic Rights Advocates (co-source)
Attorney General Kamala Harris
AARP
AIDS Legal Referral Panel
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
Center for California Homeowner Association Law
Center for Responsible Lending
Central Valley Realtist Board
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
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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
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: (Verified5/26/16)
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
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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
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
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"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."
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."
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Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
5/28/16 17:08:36
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