BILL ANALYSIS Ó
SB 1150
Page 1
SENATE THIRD READING
SB
1150 (Leno and Galgiani)
As Amended June 30, 2016
Majority vote
SENATE VOTE: 21-14
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Banking |8-2 |Dababneh, Bonilla, |Travis Allen, Kim |
| | |Brown, Chau, Gatto, | |
| | |Low, | |
| | | | |
| | | | |
| | |Ridley-Thomas, Mark | |
| | |Stone | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Judiciary |7-3 |Mark Stone, Alejo, |Wagner, Gallagher, |
| | |Chau, Chiu, Cristina |Maienschein |
| | |Garcia, Holden, Ting | |
| | | | |
| | | | |
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SB 1150
Page 2
SUMMARY: Requires mortgage servicers and lenders to provide
successors in interest with key information about outstanding
mortgages previously held by a deceased borrower; 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.
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
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
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residence within the last six continuous months prior to the
deceased borrower's death and currently resides in the
property.
4)Requires a servicer to apply the provisions specified 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.
6)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.
7)Requires a mortgage servicer, with 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.
8)Specifies that a mortgage servicer shall allow a successor in
interest to:
a) Apply to assume the deceased borrower's loan.
b) 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) Assume the loan if the successor qualifies for a
foreclosure prevention alternative.
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9)Allows the servicer to evaluate the creditworthiness of the
successor in interest that wishes to assume the loan and/or
apply for a foreclosure prevention alternative subject to
applicable investor requirements and guidelines.
10)Requires the servicer to allow the successor in interest to
assume the loan if they qualify for a foreclosure prevention
alternative.
11)Provides that a successor in interest shall have all the
rights and remedies available under the California Homeowner
Bill of Rights (HBOR).
12)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
the relevant provisions regarding successors in interest of
Part 1024 of Title 12 of the Code of Federal Regulations (CFR)
(12 CFR Part 1024), known as Regulation X, and Part 1026 of
Title 12 of the Code of Federal Regulations (12 CFR Part
1026), known as Regulation Z, including any revisions to those
regulations, shall be deemed to be in compliance with this
section.
13)Specifies that the provisions of the bill shall not apply to
a successor in interest who is engaged in a legal dispute over
the property that is security for the borrower's outstanding
mortgage loan and has filed a claim raising this dispute in a
legal proceeding.
14)Provides for the following enforcement mechanisms:
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a) 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.
b) 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.
c) A prevailing successor in interest may be awarded
reasonable attorney's fees and costs. A successor in
interest is considered to be prevailing if they have
obtained injunctive relief or damages.
d) A servicer is not liable for a violation that it has
corrected and remedied prior to recordation of the
trustee's deed upon sale.
15)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.
16)Defines "reasonable documentation" as copies of the following
documents:
a) In the case of a personal representative, letters as
defined in Probate Code Section 52;
b) In the case of devisee or an heir, a copy of the
relevant will or trust document;
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c) In the case of a beneficiary of a revocable transfer on
death deed, a copy of that deed;
d) In the case of a surviving joint tenant, an affidavit of
death of the joint tenant or a grant deed showing joint
tenancy;
e) In the case of a surviving spouse where the real
property was held as community property with right of
survivorship, an affidavit of death of the spouse or a deed
showing community property with right of survivorship;
f) In the case of a trustee of a trust, a certification of
trust pursuant to Probate Code Section 18100.5; and,
g) In the case of a beneficiary of a trust, relevant trust
documents related to the beneficiary's interest.
17)Specifies that if the documents in 16)a) through g) above,
are not available then "reasonable documentation" may include
other written evidence of the person's status as a successor
in interest.
18)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.
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19)Makes the following findings and declarations:
a) Beginning in 2008, California faced a foreclosure
crisis, with rapidly dropping home values and skyrocketing
job losses. Indiscriminate foreclosure practices of major
mortgage servicers compounded the problem as they created a
labyrinth of red tape, lost documents, and erroneous
information, and then they started foreclosure proceedings
while borrowers and their families were in the middle of
applying for a loan modification.
b) The California Legislature responded with a
first-in-the-nation HBOR, which requires mortgage servicers
to provide borrowers a fair and transparent process, a
single point of contact (SPOC), and the opportunity to
finish applying for a loan modification before foreclosure
proceedings can start. HBOR stabilized families,
neighborhoods, and local communities by slowing down
indiscriminate foreclosures.
c) Now, however, district attorneys and legal aid
organizations are reporting an increasing number of cases
in which mortgage servicers use a loophole in HBOR to
foreclose on certain homeowners - people who survive the
death of a borrower and have an ownership interest in the
home but are not named on the mortgage loan. Most often,
the "survivor" is the borrower's spouse and is over 65
years of age.
d) When the surviving widow or widower, domestic partner,
children, or other heirs attempt to obtain basic
information about the loan from the servicer, they face the
same kind of barriers and abuses - and, finally foreclosure
- that convinced the Legislature to pass HBOR.
e) Home ownership is the primary avenue for most Americans
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to build generational wealth. Indiscriminate foreclosures
on surviving heirs destroy a family's ability to build for
its financial future. Foreclosures also exacerbate the
racial wealth gap - and overall wealth inequality - in
society, and force seniors who want to "age in place" into
the overheated rental market instead, with devastating
health impacts.
f) Surviving heirs deserve the same transparency and
opportunity to save their home as HBOR gave the original
borrower. This act would stem a disturbing nationwide
trend and help keep widows and widowers, children, and
other survivors in their homes-without requiring mortgage
servicers to do anything more than they already do for
other homeowners.
g) It is the intent of the Legislature that this act work
in conjunction with federal Consumer Financial Protection
Bureau (CFPB) servicing guidelines.
FISCAL EFFECT: None. The bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
Need for the bill.
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
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driving owners to foreclosure even while working on loan
modifications. HBOR is credited with having slowed down
foreclosures in 2013 as servicers 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.
In the most common scenario, a surviving widow owns her
home, but is not listed on its mortgage loan. She attempts
to apply for a loan assumption and to get information on
loan modification options, just as her spouse could have
done under HBOR. At that point, she faces a mortgage
servicer who exhibits the same problematic behaviors that
convinced the legislature to pass HBOR: refusing to talk to
the homeowner, creating a confusing labyrinth of processes,
losing documents repeatedly, transferring responsibilities
between multiple employees, giving inaccurate information,
and foreclosing on the homeowner without ever considering
her for a loan modification.
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
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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.
Surviving homeowners deserve a fair chance to take
responsibility for their mortgage loan attached to their
homes. They deserve the respect of receiving clear
communication and accurate information, especially during
the stressful time following the death of a loved one. SB
1150 clarifies the responsibilities of a lender when a
borrower dies leaving a surviving homeowner who wishes to
assume the loan.
On June 27, 2012, the Conference Committee on the California
Foreclosure Crisis passed HBOR in order to protect homeowners in
the mortgage market, help keep families in their homes, and
revive the state's economy following historic foreclosure rates
and rampant abuse, fraud, and deception that caused more than
one million Californian's to lose their homes. That bill
package sought to: 1) stop the practice of "dual-tracking;" 2)
establish a SPOC for homeowners with their lenders; and 3)
mandate a chain of title of the property.
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 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
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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 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. HBOR includes
various consumer remedies for violations of its provisions,
including treble and statutory damages.
SB 1150 seeks to extend the protections of HBOR to successors in
interest as defined including a right to seek injunctive relief
and economic damages under certain scenarios.
Existing Rules Concerning Successors in Interest.
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
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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 CFPB prior to
the operative date of the regulations
(http://files.consumerfinance.gov/f/201310_cfpb_mortgage-servicin
g_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_mortgage
-lending-rules_successors.pdf) as the ability to repay rule is
far more cumbersome and restrictive than simply evaluating basic
creditworthiness and affordability that is required by Fannie
Mae and Freddie Mac for loan assumptions.
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 first and subordinate liens),
which are made by state- or federally-regulated lenders.
Fannie Mae has also issued guidance around the successor in
interest issue, which must be followed by entities that service
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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/pdf/bll13
03.pdf).
Finally, the Home Affordable Modification Program (HAMP),
designed by the United States Department of the Treasury and
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applicable to many mortgages not owned or guaranteed 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_servicer/mhah
andbook_5.pdf; see Section 8.8).
Pending Action from CFPB:
On October 15, 2013, CFPB issued Bulletin 2013-12 to provide
guidance regarding the RESPA or Regulation X and The Truth in
Lending Act (TILA or Regulation 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 Regulation Z and Regulation 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
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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 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?"
Prior and Related Legislation:
AB 244 (Eggman) of 2015: Would have included 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. AB 244 was not taken up by
its author in the Assembly Banking & Finance Committee.
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
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nonjudicial foreclosure process. Although certain provisions
sunset on January 1, 2018, the majority remain in force past
that sunset date.
SB 7 (Corbett), Chapter 4, Statutes of 2009-10 Second
Extraordinary Session, and AB 7 (Lieu), Chapter 5, Statutes of
2009-10 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.
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).
Analysis Prepared by:
Mark Farouk / B. & F. / (916) 319-3081 FN:
0003604