BILL ANALYSIS
AB 2678
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2678 (Fuentes) - As Amended: March 23, 2010
SUBJECT : Mortgages: Notice of sale.
SUMMARY : Makes changes related to a notice of sale during the
foreclosure process. Specifically, this bill :
1)Prohibits a mortgagee, trustee, beneficiary, or authorized
agent from giving notice of sale if the mortgagee, trustee,
beneficiary, or authorized agent is currently in negotiations
to modify the existing loan.
2)Provides that if sale proceedings have been postponed, the
borrower shall receive a new notification of the notice of
sale before the date of the actual sale.
3)Repeals a duplicative provision in law.
EXISTING FEDERAL GUIDANCE establishes the federal Making Home
Affordable Program developed by the U.S. Department of the
Treasury (Treasury), in an effort to help borrowers avoid
foreclosure. The program includes several components, such as
the Home Affordable Modification Program (HAMP), Home Affordable
Refinancing Program (HARP), Second Lien Modification Program
(2MP), and Home Affordable Foreclosure Alternatives (HAFA)
Program.
EXISTING STATE LAW
1)Regulates the non-judicial foreclosure process pursuant to the
power of sale contained within a mortgage contract, and
provides that in order to commence the process, a trustee,
mortgagee, or beneficiary must record a notice of default
(NOD) and allow three months to lapse before setting a notice
of sale for the property. [Civil Code Section 2924, all
further references are to the Civil Code].
2)Provides that the mortgagee, trustee or other person
authorized to make the sale must give notice of sale, and
requires notice of the sale to be made, as specified, at least
20 days prior to the date of sale. [Section 2924f].
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3)Provides that a mortgage, trustee, beneficiary, or authorized
agent (entities) may not file a NOD until 30 days after
contact has been made with the borrower who is in default.
[Section 2923.5a1].
4)Requires entities to contact a borrower in default in person
or by telephone and inform them of their right to a subsequent
meeting, and telephone number of the United States Department
of Housing and Urban Development (HUD) to find a HUD certified
housing counselor. [Section 2923.5a2].
5)Allows a borrower to assign a HUD-certified counselor,
attorney or other advisor to discuss with the entities options
for the borrower to avoid foreclosure. [Section 2923f].
6)Provides that a NOD may be filed when an entity has not
contacted the borrower provided that the failure to contact
the borrower occurred despite reasonable due diligence on the
part of the entity and that "due diligence" means and requires
the following:
a) The entity sends a first class letter that includes the
toll-free number available for the borrower to find a
HUD-certified housing counseling agency; and,
b) Subsequent to the sending of the letter the entity
attempts to contact the borrower by telephone at least
three times at different hours and on different days.
[Section 2923g].
7)Requires an entity to maintain a toll-free number for
borrowers that will provide access to a live representative
during business hours and requires the entity to maintain a
link on the main page of its Internet Web site containing the
following information:
a) Options that may be available to borrowers who are
unable to afford their mortgage payments and who wish to
avoid foreclose, and instructions to borrowers advising
them on steps to take to explore these options; and,
b) A list of documents borrowers should collect and be
prepared to submit when discussing options to avoid
foreclosure. [Section 2923g (5)].
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8)Specifies that the notice and contact requirements do not
apply in the following circumstances:
a) The borrower has surrendered the property as evidenced
via a letter or delivery of keys to the property to the
entity;
b) The borrower has contacted a person or organization
whose primary business is advising people who have decided
to leave their homes on how to extend the foreclosure
process and avoid the contractual obligations; or,
c) The borrower has filed for bankruptcy. [Section 2923h].
9)Makes a legislative findings and declarations that a loan
servicer acts in the best interest of all parties if it agrees
to, or implements a loan modification or workout plan in one
of the following circumstances:
a) The loan is in payment default, or payment default is
reasonably foreseeable; or,
b) Anticipated recovery under the loan modification or
workout plan exceeds the anticipated recovery through
foreclosure on a net present value basis. [Section 2923.6].
10)Provides that a notice of sale may not be given for 90 days
in order for parties to pursue a loan modification. [Section
2923.52].
11)Specifies that a servicer can get an exemption from the
90-day foreclosure moratorium if they demonstrate proof of a
comprehensive modification program. [Section 2923.53]
12)Requires that upon posting of a notice of sale, an entity
shall mail to the borrower a notice in English and Spanish,
Chinese, Tagalog, Vietnamese, or Korean that states:
"Foreclosure process has begun on this property, which
may affect your right to continue to live in this
property. Twenty days or more after the date of this
notice, this property may be sold at foreclosure. If you
are renting this property, the new property owner may
either give you a new lease or rental agreement or
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provide you with a 60-day eviction notice. However,
other laws may prohibit an eviction in this circumstance
or provide you with a longer notice before eviction. You
may wish to contact a lawyer or your local legal aid or
housing counseling agency to discuss any rights you may
have." [Section 2924.8].
13)Provides that a notice of sale postponement may occur at any
time prior to the completion of a sale for any period of time
not to exceed a total of 365 days from the date set in the
notice of sale. [Section 2924g]
14)Specifies that if sale proceedings are postponed for a period
totaling more than 365 days, the scheduling of any further
proceedings shall be preceded by giving a new notice of sale.
[Section 2924g]
FISCAL EFFECT : None.
COMMENTS :
BACKGROUND: AB 2678 stems from an informational hearing
conducted on December 14, 2009 by the Assembly Select Committee
on the Safety and Protection of At-Risk Communities. This
hearing examined the worsening mortgage loan and foreclosure
crisis in California's underserved communities. During the
hearing, a homeowner testified that her home was foreclosed upon
and sold while her loan modification application was still
pending. Following the hearing, the author concluded that more
needs to be done to protect families from losing their homes.
The foreclosure crisis has raised a number of issues related to
the loan modification and foreclosure process. This bill
attempts to cure two issues which continue to be raised by
homeowners. First, homeowners continually testify that
following the notice of default and while in the loan
modification process lenders and/or servicers move forward with
notice of sale proceedings. While homeowners are actively
attempting to stay in their home and receive help, they also
receive notices that their home will be auctioned off in 20
days. AB 2678 states that if a borrower is in the process of
trying to get a loan modified, the servicer can not move forward
with foreclosure proceedings. The second issue involves notice
of sale notifications. Often a notice of sale is postponed for
various reasons. Under existing law, a homeowner must be
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notified 20 days before the notice of sale is set, but the law
is unclear on whether this 20 day requirement applies if a
notice of sale is postponed. While homeowners receive the
initial notification of the notice of sale, it seems many do not
receive another notification of the new notice of sale date and
instead find out after the fact that their home has been
auctioned off. This measure clarifies that a homeowner must
receive a new notice of sale notification if a notice of sale is
postponed making the homeowner aware of the new notice of sale
date. This measure may prolong the foreclosure process if a
notice of sale is postponed and another 20 days must lapse
before a new notice of sale can be determined. Many would say
the severity of this crisis and the number of homeowners who
have had their homes auctioned off without proper advance notice
outweighs the additional 20 days a notice of sale postponement
would cause. Under existing law, there may be a postponement or
postponements of the sale proceedings, including a postponement
upon instruction by the beneficiary to the trustee that the sale
proceedings be postponed, at any time prior to the completion of
the sale for any period of time not to exceed a total of 365
days from the date set forth in the notice of sale. The trustee
can postpone the sale for any of the following reasons: upon the
order of any court of competent jurisdiction; if stayed by
operation of law; by mutual agreement, whether oral or in
writing, of any trustor and any beneficiary or any mortgagor and
any mortgagee; at the discretion of the trustee. While
requiring additional notices if a notice of sale is postponed
could further slow down the foreclosure process, considering
current law allows for the postponement of a sale up to an
additional 365 days without another notice requirement, AB 2678
will provide additional notices to homeowners who are going to
lose their home in a timely manner.
AB 2678 seems to follow in line with the new federal guidelines
under the federal Making Home Affordable Program. Servicers
should not proceed with the foreclosure process if homeowners
and servicers are actively seeking alternatives for homeowners
to stay in their home. AB 2678 only applies post-NOD and only
applies to homeowners who are negotiating a loan modification
with their servicer. AB 2678 does not take into consideration
homeowners who may be eligible for other alternatives such as:
short sales, deed in lieu of foreclosure, or forbearance. AB
2678 also does not take into consideration the scenarios where
homeowners are using a third party to help get a loan
modification.
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HOME AFFORTABLE MODIFICATION PROGRAM (HAMP): On February 18th,
2009, President Barack Obama announced a multi-pronged approach
to deal with the foreclosure crisis through the use of mortgage
refinancing and mortgage modification.
To be eligible under HAMP, a servicer must verify all the
following criteria are met: the mortgage loan is a first lien
mortgage loan originated on or before January 1, 2009; the
mortgage loan has not been previously modified under the HAMP;
the mortgage loan is delinquent or default is reasonably
foreseeable; loans currently in foreclosure are eligible; the
mortgage loan is secured by a one- to four-unit property, one
unit of which is the borrower's principal residence. Cooperative
share mortgages and mortgage loans secured by condominium units
are eligible for the HAMP. Loans secured by manufactured housing
units are eligible for the HAMP; the property securing the
mortgage loan must not be vacant or condemned; the borrower
documents a financial hardship and represents that (s)he does
not have sufficient liquid assets to make the monthly mortgage
payments by completing a HAMP Hardship Affidavit and provides
the required income documentation. The documentation supporting
income may not be more than 90 days old (as of the date the
servicer is determining HAMP eligibility); the borrower has a
monthly mortgage payment ratio of greater than 31 percent; a
borrower in active litigation regarding the mortgage loan is
eligible for the HAMP; the servicer may not require a borrower
to waive legal rights as a condition of the HAMP; a borrower
actively involved in a bankruptcy proceeding is eligible for the
HAMP at the servicer's discretion. Borrowers who have received a
Chapter 7 bankruptcy discharge in a case involving the first
lien mortgage who did not reaffirm the mortgage debt under
applicable law are eligible, provided the Home Affordable
Modification Trial Period Plan and Home Affordable Modification
Agreement are revised as outlined in the Acceptable Revisions to
HAMP Documents section of this Supplemental Directive; the
borrower agrees to set up an escrow account for taxes and hazard
and flood insurance prior to the beginning of the trial period
if one does not currently exist, borrowers may be accepted into
the program if a fully executed Home Affordable Modification
Trial Period Plan is in the servicer's possession on December
31, 2012.
Over a year after its implementation the reviews are mixed as
over a million trial modifications have been offered, yet only
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169,000 have been made permanent as of February, 2010. Several
factors have contributed to this performance such as program
guidelines that have changed many times. A major change just
recently announced is the requirement of income verification at
the time of starting the trial modification, which is set to
begin mid-April of 2010. Prior to this change, servicers were
allowed to use undocumented income declarations from the
borrower to make a determination for a trial modification.
During the three month trial period servicers attempt to verify
income through proper documentation. This process may have been
a contributing factor to the low permanent loan modification
numbers thus far.
Servicer guidance on the implementation of HAMP is governed by
Supplemental Directives issued by the Treasury Department.
The most recent changes to HAMP, announced on March 26, 2010
involves program changes intended to address unemployed
borrowers, negative equity and the concurrent pursuant of a
foreclosure while a loan is being reviewed for modification.
According the limited details released, the new enhancements
will require servicers to provide 3-6 months of temporary
forbearance for eligible unemployed borrowers, after which they
will be evaluated for a HAMP modification. Second, servicers
will be encouraged through various incentives to consider
principle reductions for loans that are over 115% of current
value of the property. Finally, guidance will be forthcoming on
the issue of borrowers who continue to face the foreclosure
process while under evaluation for a HAMP modification. These
guidelines will provide clarification on protections for
borrowers from foreclosure actions who are under consideration
for a modification.
The HAMP supplemental directives clarified that those borrowers
who are currently at risk of foreclosure should have the
opportunity to apply for the HAMP. Servicers should not proceed
with a foreclosure sale until the borrower has been evaluated
for the program and, if eligible, an offer to participate in the
HAMP has been made. Servicers must use reasonable efforts to
contact borrowers facing foreclosure to determine their
eligibility for the HAMP, including in-person contacts at the
servicer's discretion. Servicers must not conduct foreclosure
sales on loans previously referred to foreclosure or refer new
loans to foreclosure during the 30-day period that the borrower
has to submit documents evidencing an intent to accept the Trial
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Period Plan offer. Any foreclosure sale will be suspended for
the duration of the Trial Period Plan, including any period of
time between the borrower's execution of the Trial Period Plan
and the Trial Period Plan effective date. Although it seems,
the federal government has issued orders for servicers to not
proceed with the foreclosure process during the period of a
homeowner trying to receive a loan modification, AB 2678 further
reinstates in state law that these actions should not be
tolerated.
RELATED LEGISLATION:
AB 1720 (Galgiani), The Buyer's Choice Act prohibits a
mortgagee who acquired title to residential real property at a
foreclosure sale from requiring, as a condition of selling the
property, that the buyer purchase title insurance or escrow
services in connection with the sale from a particular title
insurer or escrow agent. The bill would prohibit a seller from
conditioning approval of the sale of residential real property
that is in foreclosure on the selection made by the buyer as
indicated on the notification form.
AB 2024 (Blumenfield) provides that any lender or servicer that
rejects a loan modification request shall respond to the
borrower making the request within 7 days via certified mail
with the specific reasons why the request was rejected.
Additionally requires that the response must comply with certain
language translation requirements.
AB 2043 (Torrico), redefines the term "redevelopment" to include
the provision of loan assistance to qualified homeowners
participating in the federal Home Affordable Modification
Program. Authorizes a redevelopment agency to use redevelopment
funds to issue loans, up to a maximum of $75,000, to reduce the
principal mortgage balance of a borrower that has received a
mortgage modification under the federal Home Affordable
Modification Program and meets other specified requirements.
AB 2189 (Ma), requires a loan modification agreement to be
translated into one of five non-English languages if the
original mortgage was negotiated in that language.
AB 2236 (Monning), requires a mortgagee, trustee, or
beneficiary, or an authorized agent of that person, to include
on all notices informing a borrower that he or she has either
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failed to make a required minimum payment or failed to make a
payment when due, the name and the contact information,
including the address and telephone number, of the mortgagee,
trustee, beneficiary, or authorized agent who has the authority
pursuant to state and federal law to modify the terms and
conditions of the borrower's loan.
SB 1275 (Leno, Steinberg), requires a mortgagee, trustee,
beneficiary, or authorized agent, prior to the filing of a
notice of default, to provide the borrower with an application
for a loan modification and other foreclosure avoidance options
and a specified notice regarding the borrower's rights during
the foreclosure process. Prohibits the mortgagee, beneficiary,
or authorized agent from combining collections activity with
communication with the borrower about foreclosure avoidance
options. Deletes the requirement that the notices of default
contain a specified declaration, and would instead require the
mortgagee, beneficiary, or authorized agent to, concurrently
with the filing of a notice of default, record a declaration of
compliance that attests to specified facts, and mail the
borrower a notice stating that these requirements have been met.
Provides that failure to record a declaration of compliance, or
recordation of a declaration of compliance that fails to meet
the specified requirements, would constitute grounds for the
borrower to bring an action to void the foreclosure, or to
recover either treble damages or statutory damages in the amount
of $10,000, whichever is greater, from the mortgagee, trustee,
beneficiary, or authorized agent.
SB 1427 (Price), requires a notice of default to include a
statement that identifies the name, address, telephone, and
e-mail address of any person or entity that is designated to be
responsible for the maintenance of the property for which the
deed of trust is recorded. Existing law requires a legal owner
to maintain vacant residential property purchased at a
foreclosure sale, or acquired by that owner through foreclosure
under a mortgage or deed of trust; authorizes a governmental
entity to impose civil fines and penalties for failure to
maintain that property of up to $1,000 per day for a violation;
and provides that these statutory provisions do not preempt any
local ordinances and prohibits a governmental entity from
imposing fines on a legal owner under both these provisions and
a local ordinance. This bill would provide that these statutory
provisions preempt any local ordinance and provides that any
fines or penalties imposed for failure to maintain a property
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are the obligation of the legal owner and that these fines would
be treated as a lien against the property in a foreclosure sale.
PREVIOUS LEGISLATION:
AB 69 (Lieu), Debt management and settlement: credit counselors:
This requires mortgage lenders to report to their respective
regulatory agency information regarding loan loss mitigation
efforts.
Status: Chaptered by Secretary of State, Chapter 277, Statutes
of 2008.
AB 529 (Torrico), Mortgages: adjustable interest rates:
notification: This bill requires a borrower to receive notice
if their loan is scheduled to switch from an initial fixed rate
to an adjustable rate, or set to reset to a fully amortizing
loan. This notification must occur between 90 and 120 days
before the loan is scheduled to switch or reset. The notice
must include the current payment, the month and year the loan
will change, an example of the potentially monthly payment after
reset, and a number the borrower may contact for more
information about the terms of the loan.
Status: Vetoed by the Governor.
AB 2187 (Caballero), Mortgages: foreclosure: This bill imposes
certain requirements on mortgage lenders that are foreclosing on
property. AB 2187 requires a lender foreclosing on real estate
property to include with the notice of default a foreclosure
statement of rights, which specifies the process of foreclosure
and sets forth the rights of the borrower regarding contracts
with mortgage foreclosure consultants. Also, requires that the
foreclosure notice be provided in the language of the borrower.
Provides, until January 1, 2013, a mortgage lender or other
person acquiring a property through the foreclosure process
maintain the exterior of vacant residential property. This bill
authorizes governmental entities to levy fines of up to $1,000
per day for violations. However, it requires the governmental
entity to provide the owner with notice of the claimed violation
and an opportunity to correct the violation within 30 days prior
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to levying the fine.
Status: Died in Assembly Appropriation Committee.
SB 1137 (Perata), Residential mortgage loans: foreclosure
procedures: This bill enacts changes related the foreclosure
process in response to the subprime lending/foreclosure crisis.
Requires face-to-face contact with a borrower at least 30 days
before the filing of a notice of default. Gives tenants of
foreclosure property additional time to vacate the property
after it has been sold at a foreclosure auction.
Status: Chaptered by Secretary of State, Chapter 69, Statues of
2008.
SB 1448 (Scott), Real estate brokers and salespersons: fines:
This bill increases the maximum fine for an unlicensed person
acting or advertising themselves as a real estate broker or a
real estate salesperson from $10,000 to $20,000 and for an
unlicensed corporation from $50,000 to $60,000, and requires any
fine collected in excess of $10,000 from an individual or in
excess of $50,000 from a corporation be deposited into the Real
Estate Fraud Prosecution Trust fund if one exists in the county
where the conviction occurs.
Status: Chaptered by Secretary of State, Chapter 156, Statues of
2008.
ABXX 7 (Lieu) & SB 7XX (Corbett), Residential mortgage loans:
foreclosure. Required loan servicers to provide evidence of a
comprehensive loan modification plan that meets specific
criteria. A servicer that does not have a comprehensive loan
modification plan would have to delay foreclosure on specified
properties for 90 days.
Status: Chaptered by Secretary of State, Chapter 5, Statues of
2009 - 2010 Extraordinary Session
RECOMMENDED AMENDMENTS:
1)These amendments are recommended to clear up a policy
question- as written, the legislation includes the word
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"negotiations" but the process of a loan modification is not a
negotiation process, a borrower either qualifies or does not
qualify under specified criteria. The amendment will clarify
that the notice of sale proceedings shall not start until a
loan modification has been denied.
On page 5, line 22, following, 2924f, "delete lines 22-25, and
insert:
"If a trustor or mortgagor applied for a loan modification on an
existing loan from the mortgagee, trustee, beneficiary or
authorized agent; the mortgagee, trustee, beneficiary or
authorized agent shall not give notice of sale until the loan
modification request has been denied."
2)The measure raises an alarming issue of homeowners not knowing
when their home will actually be sold due to notice of sale
postponements. Current law is vague as to whether or not a
homeowner must be notified again following a postponement
unless it is 365 days past the original sale date. The
recommended amendments make technical changes.
On page 7, on line 27, delete "borrower" on page 7, line 28,
delete "shall receive a new notification", and insert:
"trustor or mortgagor shall receive a new notice of sale
notification"
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Bankers Association
California Chamber of Commerce
California Credit Union League
California Financial Services Association
California Independent Bankers
California Land Title Association
California Mortgage Association
California Mortgage Bankers Association
United Trustees Association
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Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081