BILL ANALYSIS Ó
SB 1150
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Date of Hearing: June 28, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
1150 (Leno) - As Amended June 23, 2016
As Proposed to be Amended
SENATE VOTE: 21-14
SUBJECT: MORTGAGES AND DEEDS OF TRUST: MORTGAGE SERVICERS AND
LENDERS: SUCCESSORS IN INTEREST
KEY ISSUE: IN ORDER TO HELP KEEP A FAMILY IN THEIR HOME AFTER
THE DEATH OF THE HOMEOWNER, SHOULD THE IMPORTANT PROTECTIONS
ENACTED BY the LEGISLATURE IN the HOMEOWNERS' BILL OF RIGHTS BE
EXTENDED TO THE SURVIVING SPOUSE, A CHILD, OR OTHER INDIVIDUALS
WHO RESIDE IN the HOME AND WHO may QUALIFY AS A SUCCESSOR IN
INTEREST, AS SPECIFIED?
SYNOPSIS
In 2012, the Legislature enacted and the Governor signed the
Homeowners' Bill of Rights (HBOR), landmark legislation that
provided important due process protections to homeowners and
established rules and procedures to facilitate communication
between mortgage servicers and borrowers regarding options for
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borrowers to avoid foreclosure. According to the author,
however, the law is not working as well as it should because
banks and loan servicers commonly refuse to extend the
protections of HBOR to surviving spouses and other successors in
interest. Proponents of the bill, representing a broad
coalition of consumer advocates, housing advocates, labor
unions, legal aid providers, and the Attorney General's office,
report that the shortcomings of the HBOR typically arise when a
family member who is the sole borrower named on a home loan
passes away. A surviving family member, often a widow or
widower, who wishes 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.
To address this problem and prevent unnecessary foreclosures,
the bill seeks to clarify the responsibilities of a lender when
a borrower dies leaving a surviving homeowner who wishes to
assume the loan. This bill would address the lack of remedies
under HBOR for such individuals by authorizing a successor in
interest, as defined, to receive information about a deceased
borrower's mortgage loan, assume the loan in certain
circumstances, and utilize HBOR's foreclosure prevention tools.
The protections contained in this bill are enforceable by a
private right of action to successors in interest modeled on the
private right of action afforded to homeowners under HBOR.
After extensive negotiations with opponents of the bill, led by
mortgage servicers and bankers, the author has proposed several
amendments to be taken in this Committee that do the following:
(1) require the successor in interest to be a person currently
living in the residence; (2) clarify conditions for assumption
of the loan, including a creditworthiness check of the proposed
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successor in interest; and (3) clarify the operative date of the
bill's safe harbor provisions, pending the date that expected
new federal regulations by the Consumer Financial Protection
Bureau (CFPB) become effective. At the time of this analysis,
there was not yet mutual agreement on proposed amendments to
address the concern of servicers that the bill inadequately
informs the servicer how to comply with the law when there are
multiple successors in interest. After much discussion of the
issue, both sides have committed to continue working together on
potential amendments should the bill move forward. This bill
previously was approved by the Assembly Banking Committee by an
8-2 vote after the author agreed to several amendments requested
in that Committee.
SUMMARY: Extends existing protections in the Homeowners Bill of
Rights to successors in interest, as defined, when certain
conditions are satisfied. Specifically, this bill:
1)Provides that upon notification by someone claiming to be a
successor in interest that a borrower has died, and where the
person claiming to be a successor is not a party to the loan
or promissory note, the mortgage servicer shall not record a
notice of default (NOD) until the servicer does both of the
following:
a) Request 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. The servicer is required to provide the
claimant a minimum of 30 days to respond to the request for
information; and,
b) Request reasonable documentation from the claimant
regarding the status of the claimant as a successor in
interest. The servicer is required to provide the claimant
at least 90 days from the date of the written request.
2)Specifies that upon receipt by the mortgage servicer of the
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reasonable documentation of the claimant as successor in
interest the claimant shall be deemed a "successor in
interest."
3)Defines "successor in interest" as 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 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 and currently resides in the
property.
4)Allows for more than one successor in interest and requires a
servicer to apply the provisions of this bill to multiple
successors in interest.
5)States that an affirmative duty is not on a servicer to
provide a loan modification to a successor in interest, and
provides that a successor in interest that assumes the loan
may be required to otherwise qualify for available foreclosure
prevention alternatives offered by the mortgage servicer.
6)Requires a mortgage servicer, within 10 days of a claimant
being deemed a successor in interest to provide the successor
in interest with information in writing about the loan,
including loan balance, interest rate, interest reset dates
and amounts, balloon payments, if any, prepayment penalties if
any, default or delinquency status, the monthly payment
amount, and payoff amounts.
7)Specifies that a mortgage servicer shall allow a successor in
interest to:
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a) Apply to assume the deceased borrower's loan. The
servicer may evaluate the creditworthiness of the successor
in interest subject to applicable investor requirements and
guidelines.
b) 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 may be offered by, or available through,
the mortgage loan servicer.
c) If the successor in interest qualifies for the
foreclosure prevention alternative, assume the loan. The
servicer may evaluate the creditworthiness of the successor
in interest subject to applicable investor requirements and
guidelines.
8)Provides that a successor in interest shall have all the
rights and remedies available under the California Homeowner
Bill of Rights (HBOR).
9)Provides that if a trustee's deed upon sale has not been
recorded, a successor in interest may bring an action for
injunctive relief. 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.
10)Provides that 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 resulting from a
material violation. If the material violation is found to be
intentional or reckless, or resulted from willful misconduct
the court may award the successor in interest the greater of
treble actual damages of statutory damages of $50,000.
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11)Allows a prevailing successor in interest to be awarded
reasonable attorney's fees and costs. Clarifies that a
successor in interest is considered to be prevailing if they
have obtained injunctive relief or damages.
12)Makes a servicer not liable for a violation that it has
corrected and remedied prior to recordation of the trustee's
deed upon sale.
13)Provides the Department of Business Oversight and the Bureau
of Real Estate with power to adopt regulations applicable to
any entity or person under their respective jurisdictions that
are necessary to carry out the provisions of this bill.
14)Identifies the specific documents that are sufficient to
constitute "reasonable documentation" for different types of
successors in interest, and allows that if they are not
available then "reasonable documentation" may include other
written evidence of the person's status as a successor in
interest.
15)Exempts from its provisions a depository institution
chartered under state or federal law, a person licensed under
the California Finance Lenders Law, or the California
Residential Mortgage Lending Act or a person licensed under
the real estate law that during its immediate preceding annual
reporting period foreclosed on 175 or fewer residential real
properties, containing no more than four dwelling units that
are located in California.
16)Provides that any mortgage servicer, mortgagee, or
beneficiary of the deed of trust, or an authorized agent
thereof, who, with respect to the successor in interest or
person claiming to be a successor in interest, complies with
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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
bill.
17)Clarifies that the safe harbor described above in Item 16)
does not become operative until the effective date of any
revisions to the relevant provisions regarding successors in
interest of Regulation X and Regulation Z, issued by the
Consumer Financial Protection Bureau that revise the Final
Servicing Rules in 78 Federal Register 10,696, of February
14th, 2013.
18)Exempts from its provisions 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.
EXISTING LAW, the Homeowners' Bill of Rights (HBOR), generally
provides guidelines to facilitate communication between mortgage
servicers and borrowers regarding options for borrowers to avoid
foreclosure. Pursuant to the HBOR, the following rules apply to
servicers with respect to first-lien mortgages secured by
owner-occupied principal residences containing one- to
four-dwelling units:
1)Servicers may not record a 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 Sections 2923.5 and 2923.55.
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All further references are to this Code unless otherwise
stated.)
2)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.)
3)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.)
4)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 2924.10.)
5)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 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. (Sections 2924.10. and 2924.11.)
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6)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 2924.17.)
7)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.)
8)Creates a private right of action that authorizes borrowers to
bring judicial actions against servicers to enforce the
aforementioned provisions. Specifically:
a) 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.
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b) 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 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.)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: In 2012, the Legislature enacted and the Governor
signed the Homeowners' Bill of Rights (HBOR), a landmark package
of legislation that provided important due process protections
to homeowners and established rules and procedures to facilitate
communication between mortgage servicers and borrowers regarding
options for borrowers to avoid foreclosure. According to the
author, however, the law is not working as well as it should
because banks and loan servicers commonly refuse to extend the
protections of HBOR to surviving spouses and other so-called
"successors in interest." As specified, this bill would extend
existing protections in the Homeowners Bill of Rights to
successors in interest, as defined, and clarify the
responsibilities of a lender when a borrower dies leaving a
surviving homeowner who wishes to assume the loan. According to
the author:
California led the nation in 2012 with its Homeowners'
Bill of Rights (HBOR), requiring a single point of
contact and prohibiting dual-tracking of borrowers, a
practice of driving owners to foreclosure even while
working on loan modifications. HBOR is credited with
having slowed down foreclosures in 2013 as servicers
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attended to the new homeowner protections. HBOR helps
stabilize families, neighborhoods, and local economies.
However, there's more to be done.
In California and across the country, legal aid
organizations have documented that the very abuses HBOR
prohibits are being endured by widows, widowers, and
other survivors who are losing their homes to
foreclosure because the mortgage servicer refuses to
consider them for a loan assumption or modification.
The servicers maintain that surviving homeowners who
aren't listed on the mortgage note have no protections
under HBOR, even though the intent of the bill was to
protect all homeowners.
Unnecessary foreclosures devastate families' ability to
build for their financial future. As homeownership
remains the primary way that Americans build wealth for
themselves and their offspring, our continued failure
to protect surviving spouses and children only
exacerbates the racial wealth gap in society. Further,
foreclosures on survivors thwart the intent of
property, and wills and estates laws. And, unnecessary
foreclosures also are secret, silent killers. Seniors
forced from their home are likely to suffer devastating
health impacts, and with dramatically high and still
rising rents across California, homelessness.
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SB 1150 clarifies the responsibilities of a lender when
a borrower dies leaving a surviving homeowner who
wishes to assume the loan. This bill would address the
lack of remedies under HBOR for such individuals by
authorizing a successor in interest, as defined, to
receive information about a deceased borrower's
mortgage loan, assume the loan in certain
circumstances, and utilize HBOR's foreclosure
prevention tools.
In support of the bill, the California Alliance for Retired
Americans (CARA) writes to explain the most common shortcoming
under HBOR that arises, and that the bill is intended to
address:
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.
This 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
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loan, even when the surviving family member has a legal
property interest in the home.
During this difficult and unfortunate period when the
loss of a loved one is still fresh, family members
should not have to deal with the added stress of losing
their homes. In 2012, with the passage of the Homeowner
Bill of Rights (HBOR), the state of California provided
strong due process protections to similar vulnerable
homeowners. But banks and loan servicers argue that
HBOR does not protect surviving spouses and other
successors in interest.
The effect of all this is that survivors and successors
in interest have FEWER rights and LESS ability to
retain their homes than other homeowners. This is a
horrible outcome that the Legislature did not foresee
when HBOR was debated and passed.
This bill would extend existing protections in HBOR to help
protect unnecessary foreclosures against qualified successors in
interest. Generally speaking, HBOR creates requirements
intended to facilitate communication between mortgage servicers
and borrowers regarding options for borrowers to avoid
foreclosure. HBOR restricts servicers from recording a Notice
of Default (NOD) under California's non-judicial foreclosure
process until at least 30 days after contacting a borrower to
discuss options for that borrower to avoid foreclosure. HBOR
requires servicers to send specified documents to delinquent
borrowers informing them of their rights and to provide a
toll-free telephone number that can be used by borrowers to
identify nearby housing counseling agencies before recording a
NOD. Importantly, once a borrower submits a loan modification
application, the servicer is prohibited from taking any further
steps in the non-judicial foreclosure process while that
application is pending. If the loan modification application is
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denied, the servicer must send a written notice of denial to the
borrower, identifying the reasons for the denial and informing
the borrower how the denial decision may be appealed.
HBOR requires servicers to ensure that they have competent and
reliable evidence to substantiate a borrower's default and the
servicer's right to foreclose before recording documents in the
non-judicial foreclosure process. HBOR also requires servicers
to assign SPOC to any borrower who requests a foreclosure
prevention alternative, and states that the contact must have
authority to act on behalf of the servicer, as specified, and be
knowledgeable about the borrower's situation and current status
in the servicer's loss mitigation process.
Like the HBOR, this bill extends a similar private right of
action to a successor in interest. In order to incentivize
servicers to comply with the law, HBOR provides powerful
consumer remedies, including a private right of action and
statutory damages. This bill would extend these same
protections to successors in interest, as defined and under
certain conditions. Under this bill, successors will be able to
obtain basic information about the status of a decedent's loan,
assume the loan subject to applicable investor requirements and
guidelines, and, if necessary, seek a loan modification using
all the tools provided under HBOR. These protections are all
enforceable by a private right of action to successors in
interest modeled on the private right of action given to
homeowners under HBOR.
Opponents characterize the private right of action as
"draconian" and contend that it "will lead to unnecessary
litigation as parties pursue court action as a means to clarify
the law." In response the author simply notes that the
objective of this bill is to extend existing HBOR protections to
successors in interest, including the existing private right of
action, and to exclude the private right of action from this
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bill would potentially create a perverse two-tiered system where
original homeowners could avail themselves of HBOR, but their
successors in interest could not for exactly the same
protections.
Proposed amendment to narrow definition of "successor in
interest." The bill was recently amended to define a successor
in interest as "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
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."
Opponents of the bill, led by the California Bankers
Association, contend that even this definition is too broad and
unacceptably allows a person who does not reside at the home to
become a successor in interest and seek a modification of the
loan for the purposes of making the home a more attractive
investment property. Although the successor would have to have
lived at the home for the previous six months before the death
of the homeowner, the opponents contend, there is no requirement
that the person currently live at the residence while seeking
better loan terms; he or she could move out and use the HBOR to
his or her benefit with the intent of renting out the home.
Opponents state, "Application to potential investment property
for the successor in interest is a significant departure from
the existing law and defeats a threshold principle of focusing
on avoiding foreclosure on owner-occupied, principal
residences."
Accordingly, the author now proposes to amend the bill to
further narrow the definition of "successor in interest" to
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require the person to currently reside in the property. By
doing so this amendment shrinks the pool of people who
potentially qualify as a successor-in-interest to only relatives
or joint tenants who lived in the house for at least six months
before the death of the borrower and who continue to reside in
the house currently. As this amendment was suggested by the
opponents, it is believed sufficient to address their concerns
on the definition of successor in interest.
Proposed amendment to clarify the creditworthiness check for
assumption of the loan. The bill was recently amended to
provide that the mortgage servicer shall allow a successor in
interest to 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. These amendments were necessary to ensure that the
bill complies with Section 341 of the federal Garn-St. Germain
Act, which explicitly provides that all delinquency remedies are
governed by the mortgage contract, and not by a state law, such
as SB 1150. As recently amended, the servicer may evaluate the
creditworthiness of the successor in interest before making a
credit decision to allow assumption of the loan.
Proposed amendments to the bill make technical revisions to
those recent amendments to further clarify that the servicer may
evaluate the person's creditworthiness subject to the applicable
investor requirements and guidelines (i.e. Fannie Mae and
Freddie Mac guidelines); however, this evaluation is not
intended to be performed at the discretion of the servicer, but
rather when the investor requirements call for it to be done
(which is assumed to be true in the vast majority of cases.)
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Proponents of the bill are concerned that, unless clarified, the
previous set of amendments may be interpreted to allow a
creditworthiness check that would not otherwise be conducted.
The proposed amendments are believed to address those concerns;
in addition, they reorganize the paragraphs and acknowledge that
the successor in interest can apply for foreclosure prevention
alternatives that are not strictly "offered by" the servicer
(e.g. offered by a government agency.) Such a program would,
however, still be "available through" the servicer.
Proposed amendments clarifying application of the safe harbor
provisions. On October 15, 2013 CFPB issued Bulletin 2013-12 to
provide guidance regarding the RESPA or Reg X and The Truth in
Lending Act (TILA or Reg Z). This bulletin provided guidance
for mortgage services on policies and procedures servicers must
maintain regarding the identification of and communication with
any successor in interest of a deceased borrower.
On December 15, 2014 CFPB announced changes to the Mortgage
Servicing Rules and Reg Z and Reg X addressing many of the
issues previously offered in Bulletin 2013-12. Among these
proposed changes are three sets of rule changes with respect to
successors in interest - persons who inherit or receive property
when there is still an outstanding mortgage loan. First, the
CFPB is proposing that all of the existing Mortgage Servicing
Rules will apply to the successor once the servicer confirms
that they are, in fact, a successor in interest. Second, the
proposed amendments state how the determination of whether a
person is a successor is made. Third, the proposal ensures that
those confirmed as successors generally receive the same
protections under the CFPB's Mortgage Servicing Rules as the
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original borrower. The proposed new definition of successor in
interest would include homeowners who receive 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 parent to a child.
The background and justification for the proposed CFPB
regulations are contained in Federal Register, Vol. 79, No. 240.
In expanding the application of the mortgage servicing rules,
CFPB provides that it is "proposing to apply all of the Mortgage
Servicing Rules to successors in interest whose identify and
ownership interest in the property have been confirmed by the
servicer." Furthermore, the rules are designed to require
servicers to "maintain policies and procedures reasonable
designed to ensure that the servicer can, upon identification of
a potential successor interest, promptly provide to that person
a description of the documents the servicer reasonably requires
to confirm the person's identity and ownership interest in the
property."
Opponents of the bill state that they believe this bill to be
fundamentally premature given pending regulations being
promulgated by the federal Consumer Financial Protection Bureau
(CFPB) which, as described above, address similar underlying
issues about successors in interest as this bill. This bill was
recently amended to include a safe harbor provision intended to
eliminate a situation where loan servicers may be caught between
conflicting provisions of this bill and the prospective CFPB
regulations that are reportedly going to be published later this
summer. The opposition states: "If there are deficiencies in
the published regulations, we welcome a legislative opportunity
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to discuss further refinements, if necessary."
Proponents of the bill wish to clarify that under the safe
harbor language, as recently amended into the bill, a servicer
is deemed to comply with this bill if it complies with the
applicable regulations (known as Regulations X and Z) not
generally over a period of time, but rather comply with the
regulations specifically with respect to the individual
successor in interest, or person claiming to be the successor in
interest. Proposed amendments to the bill make this
clarification.
In addition, proponents note that the timing of the forthcoming
CFPB regulations is still an uncertainty, and they may come out
later than this summer or perhaps not at all under unforeseen
circumstances. In such a case, the entirety of this bill would
be mooted by the current safe harbor clause because compliance
with the existing 2013 regulations (which are much less robust
than the proposed new regulations) would be deemed compliance
with this bill. Therefore, they seek an amendment to clarify
that the safe harbor shall not become operative until the
effective date of any revisions to the relevant provisions
regarding successors in interest of Regulation X and Regulation
Z. Unless and until new CFPB regulations go into effect, there
is no potential conflict to resolve and therefore no need for a
safe harbor provision until that point. Proposed author's
amendments now clarify this rule regarding the operative date of
the safe harbor provisions.
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Efforts to develop rules for handling multiple successors in
interest. As currently in print, the bill states that there may
be more than one successor in interest and provides that "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." Opponents
of the bill contend that the bill fails to adequately inform the
servicer what is necessary to comply with the law when there are
multiple successors in interest. They state:
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?
Must the mortgage servicer assign one single point of
contact or must each successor in interest have their
own single point of contact? How does the mortgage
servicer evaluate multiple successors in interest for
consideration of a loan modification and/or loan
assumption? These are just a few of the questions for
which answers have not been provided.
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In response, the author states:
Servicers already face these situations - when a
homeowner leaves his or her home to two or more
children/people - and should have policies in place to
address them. Nothing in SB 1150 will change the
frequency of these cases. Additionally, because Fannie
Mae, Freddie Mac, and the Federal Housing
Administration currently require the types of
communication included in SB 1150, servicers should
already know how to communicate with multiple
successors and allow them to assume the loan. Put
another way, any servicer that does not have a
"multiple successors" policy in place is in violation
of existing federal rules [such as] CFPB Bulletin
2013-12.
Opponents counter that suggestions that the servicer should do
what they may already be required to do under existing policies
and procedures is an insufficient response, and the bill should
be clearer on what constitutes compliance.
The Committee notes that the bill was recently amended to
provide that the bill does not apply when there is 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
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proceeding. In other words, there is no multiple successor in
interest problem for the servicer to deal with when there is a
legal dispute between the possible successors in interest. Only
disputes that do not rise to the level of becoming a legal
dispute are now at issue.
Additionally, the author's proposed amendment to narrow the
definition of "successor in interest" to require the person to
currently reside in the property should help alleviate some of
the opposition's concerns because it further reduces the
likelihood of a multiple successor in interest problem. Under
this proposed amendment, the pool of people who could possibly
be considered a successor in interest includes only those people
currently living in the home and who are most likely
related-perhaps making a mutually acceptable resolution more
likely.
At the time of this analysis, there was not yet an agreement on
proposed amendments to address the issue of multiple successors
in interest. After much discussion of the issue, both sides
have committed to continue working on potential amendments
should the bill move forward. It is also possible that the CFPB
regulations are published this summer before potential
amendments to this bill would have to be finalized, so a mutual
agreement to keep working on amendment language going forward is
a reasonable course of action.
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REGISTERED SUPPORT / OPPOSITION:
Support
California Alliance for Retired Americans (CARA) (co-sponsor)
California Reinvestment Coalition (CRC) (co-sponsor)
Housing and Economic Rights Advocates (HERA) (co-sponsor)
AARP California
AIDS Legal Referral Panel (ALRP)
Alameda County Board of Supervisors
Bay Area Legal Aid (BayLegal)
Burbank Housing Development Corporation
California Attorney General Kamala Harris
California District Attorneys Association (CDAA)
California Nurses Association
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California Professional Firefighters (CPF)
California Rural Legal Assistance, Inc.
California State Council of the Service Employees International
Union (SEIU)
CALPIRG
Capitol Impact Partners
Center for California Homeowner Association Law (CCHAL)
Center for Responsible Lending (CRL)
Central Valley Realtist Board (CVRB)
Community Legal Services in East Palo Alto
Consumer Attorneys of California
Consumer Federation of California (CFC)
Consumers Union
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County of Alameda
Courage Campaign
Fair Housing Council of San Fernando Valley Council
Fair Housing of Marin
Family Caregiver Alliance
Housing California
Inland Fair Housing and Mediation Board (IFHMB)
Institute on Aging Elder Abuse Prevention Program
Justice in Aging
Law Foundation of Silicon Valley
Legal Aid Foundation of Los Angeles (LAFLA)
Legal Services of Northern California (LSNC)
Los Angeles County Consumer & Business Affairs (DCBA)
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Los Angeles County Democratic Party (LACDP)
Montebello Housing Development Corporation (MHDC)
National Center for Lesbian Rights (NCLR)
National Council of La Raza (NCLR)
National Housing Law Project
Nehemiah Corporation of America
Neighborhood Housing Services of Los Angeles County (nhs)
NeighborWorks Homeownership Center Sacramento Region
Non-Profit Housing Association of Northern California (NPH)
Peoples' Self-Help Housing
Project Sentinel
Public Counsel
Public Law Center (PLC)
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Renaissance Entrepreneurship Center
Retired Public Employees Association (RPEA)
Rural Community Assistance Corporation (RCAC)
Shalom Center for T.R.E.E. of Life
Tenants Together
The Arc
Unite Here
United Cerebral Palsy California Collaboration
United Domestic Workers of America - AFSCME local 3930
Valley Economic Development Center (VEDC)
Valley Industry and Commerce Association (VICA)
Western Center on Law & Poverty
Opposition
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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 Financial Services Association
California Land Title Association
California Mortgage Association
California Mortgage Bankers Association
Civil Justice Association of California
Consumer Mortgage Coalition
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Securities Industry and Financial Markets Association
United Trustees Association
Analysis Prepared by:Anthony Lew / JUD. / (916)
319-2334