BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 1275 (Leno)
As Amended April 8, 2010
Hearing Date: April 20, 2010
Fiscal: Yes
Urgency: No
SK:jd
SUBJECT
Mortgage Foreclosure Relief
DESCRIPTION
This bill would require a mortgagee, trustee, beneficiary, or
authorized agent - before recording a Notice of Default (NOD) on
a loan covered by the bill - to comply with the bill's
provisions, as specified, which require: (1) written
communication and statutory notice; (2) contact and borrower
outreach; (3) a declaration of compliance; and (4) a denial
explanation letter. This bill would sunset on January 1, 2013.
BACKGROUND
In California, mortgages typically contain a "power of sale"
clause that pre-authorizes the sale of property to pay off the
loan balance in the event of default. Lenders exercising that
power of sale must first record an NOD with the county recorder
(typically after the loan is three or more months delinquent).
The lender or servicer must then wait three months after filing
the NOD before setting a sale date for the property by filing a
notice of sale. The borrower retains the right to cure the
default up until five days before the foreclosure sale. In
response to the present housing and economic crisis outlined
below, this bill would require servicers to complete certain
actions before recording an NOD. Several of those actions are
already required of those participating in federal foreclosure
relief programs.
California, as well as the nation, is facing an unprecedented
threat to the economy and housing market due to increasing
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numbers of foreclosures caused by mortgage payment defaults.
Over 1.2 million California homeowners have received NODs from
their lenders over the past three years. More than 500,000
California homes have been foreclosed upon. Across the state,
housing values have plummeted, and areas hardest hit by
foreclosure have become blighted with vacant, uncared-for homes.
Although the earliest mortgage defaults and foreclosures were
limited to risky sub-prime mortgages originated during the boom
years of 2005 and 2006, California's high unemployment rate has
caused defaults and foreclosures to spread to all types of
loans, and to all types of borrowers.
Over the past few years, the California Legislature has passed
legislation in an effort to respond to the ongoing foreclosure
crisis. In 2008, the Legislature passed and the Governor signed
SB 1137 (Perata, Corbett, Machado, Chapter 69, Statutes of
2008), an urgency measure intended to encourage loan
modifications in order to prevent avoidable foreclosures. SB
1137, which sunsets January 1, 2013, required the lender or loan
servicer, at least 30 days prior to filing an NOD, to contact
the borrower, or try with due diligence to contact the borrower
in order to assess the borrower's financial situation and
explore options for the borrower to avoid foreclosure. SB 1137
also required that an NOD include a declaration by the lender or
servicer that it had either contacted the borrower, or tried
with due diligence to contact the borrower.
In February 2009, the Legislature approved and the Governor
signed SBx2 7 (Corbett, Chapter 4, Statutes of 2009) and ABx2 7
(Lieu, Chapter 5, Statutes of 2009) which enacted the California
Foreclosure Prevention Act. The bills require, until January 1,
2011, that mortgage servicers wait 90 days before recording an
NOD in an effort to provide borrowers with additional time to
work out a loan modification with their lender. The bills
permitted servicers to apply for an exemption from this 90-day
delay by demonstrating to their relevant regulator that they
have implemented a comprehensive loan modification program.
Federal efforts to help borrowers avoid foreclosure have been
ongoing as well. The federal Making Home Affordable
Modification Program was developed by the Obama administration
and includes several components including the Home Affordable
Modification Program (HAMP). Financial institutions that
received funding under the Troubled Asset Relief Program (TARP)
must comply with HAMP. Additionally, any institution that
voluntarily agrees to participate in the program must comply
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with its requirements. Under HAMP, servicers apply a uniform
loan modification process that is intended to provide borrowers
with sustainable mortgage payments.
This bill, which was approved by the Banking, Finance and
Insurance Committee on April 7, 2010 by a vote of 7-2, would
require servicers to complete specified actions before filing an
NOD.
CHANGES TO EXISTING LAW
Existing law regulates the nonjudicial foreclosure of properties
pursuant to the power of sale contained within a mortgage
contract. To commence the process, existing law requires the
trustee, mortgagee, or beneficiary to record an NOD and allow
three months to lapse before setting a date for sale of the
property. Existing law requires a notice of nonjudicial
foreclosure sale to be officially noticed in a newspaper of
general circulation, posted on the property, and recorded at
least 20 days before the sale date. (Civ. Code Secs. 2924,
2924f.)
Existing law , pursuant to SB 1137, provides the following:
A mortgagee, trustee, beneficiary, or authorized agent may not
file an NOD until 30 days after the mortgagee, beneficiary, or
authorized agent contacts the borrower in person or by
telephone to assess the borrower's financial situation and
explore options for the borrower to avoid foreclosure or 30
days after the mortgagee, beneficiary, or authorized agent has
tried with due diligence, as defined, to contact the borrower.
(Civ. Code Sec. 2923.5(a).)
An NOD must include a declaration that the mortgagee,
beneficiary, or authorized agent has contacted the borrower,
has tried with due diligence to contact the borrower, or that
no contact was required because the borrower has filed for
bankruptcy, surrendered the property, or contracted with an
entity to extend the foreclosure process. (Civ. Code Secs.
2923.5(a), 2923.5(h).)
"Due diligence" is defined to require that the mortgagee,
beneficiary, or authorized agent send a first-class letter to
the borrower and then call the borrower at least three times
at different hours and on different days. If the borrower
does not respond within two weeks after the phone calls have
been made, the mortgagee, beneficiary, or authorized agent
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must send a certified letter, return receipt requested. (Civ.
Code Sec. 2923.5(g).)
The above-described provisions sunset on January 1, 2013 and
apply only to loans originated between January 1, 2003 and
December 31, 2007, which are secured by owner-occupied
residential real property containing no more than four
dwelling units. (Civ. Code Secs. 2923.5(i), 2923.5(j).)
This bill would require a mortgagee, trustee, beneficiary, or
authorized agent - before recording an NOD on a loan covered by
the bill - to comply with the bill's provisions, as specified,
which require: (1) written communication and statutory notice;
(2) contact and borrower outreach (3) a declaration of
compliance; and (4) a denial explanation letter. This bill
would sunset on January 1, 2013.
Written communication and statutory notice
This bill would require a mortgagee, trustee, beneficiary, or
authorized agent to provide a borrower with a specified
statutory notice and written communication, described below.
This notice and written communication must be provided to the
borrower after a loan becomes 31 days delinquent, but not later
than 10 days after the loan becomes 60 days delinquent.
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This bill would require that the written communication include
all of the following:
in the case of a mortgagee, trustee, beneficiary, or
authorized agent that is participating in HAMP, or is
otherwise required to review the borrower's loan under HAMP, a
description of HAMP and a list of the documents and other
information the borrower is required to submit for the loan
modification;
in the case of a mortgagee, trustee, beneficiary, or
authorized agent that is not participating in HAMP and is not
otherwise required to review the borrower's loan under HAMP, a
description of the loan modification program that is available
to the borrower, if any, and a list of the documents required
for the loan modification. If no programs are available to
the borrower, the communication must state that fact;
a toll-free telephone number providing access to a live
representative during business hours for borrowers who wish to
discuss options for avoiding foreclosure; and
the Internet Web site, if any, of the mortgagee, trustee,
beneficiary, or authorized agent where a borrower may obtain,
among other things, information on foreclosure avoidance
options and a list of documents needed to pursue those
options.
This bill would provide for a statutory notice that would: (1)
inform borrowers of their foreclosure-related rights (including
the right to have a loan modification application reviewed
before an NOD may be filed and the right to an explanatory
denial letter if the borrower's application is denied); (2)
refer to the written communication described above; (3) explain
the foreclosure process; and (4) advise borrowers that it is
illegal for any person to charge the borrower for help with
foreclosure avoidance efforts, including a loan modification
before providing the promised services.
This bill would require that the above-described notice be made
available by an unspecified state entity in English and each of
the five foreign languages described in Civil Code Section 1632
(Spanish, Tagalog, Korean, Vietnamese, and Chinese). The notice
must be made available on or before January 1, 2011.
Contact and borrower outreach
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This bill would require that for all first lien mortgage loans
covered by the bill an NOD may not be filed until reasonable
borrower solicitation efforts have failed or a borrower who
applies for a loan modification has been evaluated and
determined to be ineligible.
a. HAMP participants
This bill would provide that if the mortgagee, trustee,
beneficiary, or authorized agent is participating in HAMP, or is
otherwise required to review the borrower's loan under HAMP
guidelines, compliance with all borrower outreach and loan
application review procedures and timelines set forth in the
applicable HAMP guidelines constitutes reasonable borrower
solicitation efforts.
b. Non-HAMP participants
This bill would provide that if the mortgagee, trustee,
beneficiary, or authorized agent is not participating in HAMP
and is not otherwise required to review the borrower's loan
under HAMP, the mortgagee, beneficiary, or authorized agent must
comply with the borrower contact requirements enacted pursuant
to SB 1137 with several modifications as follows:
the first contact with the borrower must be the written
communication and statutory notice described above. After
these have been sent, there must be an attempt to contact the
borrower in person or by telephone, pursuant to SB 1137, in
order to assess the borrower's financial situation and explore
options for the borrower to avoid foreclosure; and
the in-person or telephone contact must be clearly identified
as an attempt to initiate discussion with the borrower about
foreclosure avoidance options and may not include a demand for
immediate payment of any past-due amounts.
This bill would require a mortgagee, beneficiary, or authorized
agent, concurrently with filing an NOD, to record a declaration
of compliance and mail the borrower a notice stating that the
contact requirements have been met. That notice must be sent by
certified mail and must include the dates and times of the
contact, or attempted contact, as well as the phone numbers and
addresses used for that contact.
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This bill would provide that if the mortgagee, trustee,
beneficiary, or authorized agent has already filed an NOD prior
to the enactment of SB 1137, then the mortgagee, trustee,
beneficiary, or authorized agent must, as part of the notice of
sale, include a declaration that the denial explanation letter
requirements of this bill were satisfied at least 45 days before
filing the notice of sale.
This bill would revise the application of SB 1137 to apply to
mortgages and deeds of trust recorded prior to January 1, 2009.
Declaration of compliance
This bill would provide that, in order to initiate the
foreclosure process, a mortgage servicer must transmit to the
foreclosure trustee a declaration of compliance that contains
specified information. The declaration must be signed on behalf
of the mortgage servicer by an individual who has personal
knowledge of the facts contained in the declaration and must be
included as part of, or attached to an NOD.
This bill would require that the declaration of compliance, a
"check the box" document, contain the following items: (1) which
of several specific provisions of law apply to the loan; (2)
which of several specific provisions of law regarding borrower
contact and foreclosure avoidance review were followed in
connection with the loan; and (3) which of several specific
options occurred with respect to foreclosure avoidance efforts.
Denial explanation letter
If the borrower expresses an interest in applying for a loan
modification and is not offered a trial or permanent
modification, this bill would require a mortgagee, beneficiary,
or authorized agent to send a borrower a denial explanation
letter by certified mail no later than 10 business days
following the denial decision.
If the borrower fails to provide the information required for a
loan modification by the applicable deadlines, this bill would
require that the denial explanation letter include information
regarding the deadlines and documents required that were not
provided.
If the borrower submits all required loan modification
application materials on time and the application is denied,
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this bill would require that the denial letter include specified
information such as the loan program(s) for which the borrower
was considered and the final decision regarding each of those
loan programs.
This bill would require that the denial letter include other
specified information such as the name and contact information
of the holder of the note for the borrower's loan and
instructions regarding how to dispute the denial.
This bill would specify particular deadlines for the submission
of information from the borrower and subsequent action by the
mortgagee, trustee, beneficiary, or authorized agent as follows:
If the mortgagee, trustee, beneficiary, or authorized agent is
participating in HAMP or is otherwise required to consider the
borrower under HAMP guidelines, the deadlines for the borrower
to submit information and the mortgagee, trustee, or
beneficiary to review and respond to the borrower's
information are those set forth in the applicable HAMP
guidelines.
If the mortgagee, trustee, beneficiary, or authorized agent is
not participating in HAMP and is not otherwise required to
review the borrower's loan under HAMP, the mortgagee, trustee,
beneficiary, or authorized agent must communicate the deadline
for submitting an initial application which shall not be less
than 45 days from the borrower's receipt of the statutory
notice. If the borrower submits an incomplete initial
application, the mortgagee, beneficiary, or authorized agent
must provide the borrower with written notice describing any
additional documentation needed to consider the borrower for a
loan modification and the deadline for providing that
documentation, which may not be less than 25 days from the
date the borrower receives the notice.
This bill would permit a mortgagee, beneficiary, or authorized
agent to record an NOD and declaration of compliance after
sending a denial explanation letter even if the borrower
disputes the denial and the dispute has not yet been resolved.
Remedies
This bill would provide that failure to record a declaration of
compliance, recording a false declaration of compliance, or
failure to materially comply with the bill's provisions is
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grounds for a borrower to pursue either of the following options
after a trustee sale:
if the property is sold to a bona fide purchaser, the borrower
may recover the greater of treble damages or statutory damages
of $10,000;
if the lender takes the property back after a trustee sale and
then sells it to a bona fide purchaser, the borrower may
recover the greater of treble damages or statutory damages of
$10,000. If the lender had notice of the borrower's claim
prior to selling the party to the bona fide purchaser, the
borrower may recover the greater of treble damages or
statutory damages of $25,000.
This bill would provide that if title to the property is
transferred back to the lender at a trustee sale, the borrower
may bring an action to void the foreclosure sale.
Other provisions
This bill would specify that, except for the provisions
regarding the declaration of compliance, the bill would apply to
mortgages or deeds of trust recorded prior to January 1, 2009,
which are secured by owner-occupied residential real property
containing no more than four dwelling units.
This bill would extend exemptions provided under SB 1137 to the
following provisions of this bill: (1) written communication and
statutory notice; (2) contact and borrower outreach; and (3)
denial explanation letter. Thus these three provisions would
not apply in cases in which the borrower has surrendered the
property, contracted with an organization that advises borrowers
how to extend the foreclosure process and avoid their
contractual obligations, or filed for bankruptcy that is still
before the court.
This bill would specify that its provisions are not intended to
be and shall not be deemed to be retroactive.
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COMMENT
1. Stated need for the bill
The author writes:
. . . delinquencies and foreclosures in California continue
to increase - and appear likely to increase into the
foreseeable future. Meanwhile, data shows that the rate of
permanent loan modifications offered to borrowers has lagged
in comparison. The California non-governmental agencies
providing housing counseling services have seen many cases in
which foreclosures are initiated and/or homes sold in
foreclosure while a borrower is still under review for a loan
modification - or even while a borrower is making payments on
a trial modification plan. . . .
Borrowers and housing counselors throughout the State report
that they regularly face seemingly insurmountable obstacles
when they contact loan servicers for assistance. These
include delays of many months to over a year in processing
applications; financial and other documentation lost by the
servicer; repeated requests from the servicer for the borrower
to send in additional documentation or to send in the same
documentation over and over again; miscalculations or
misreading of borrower income leading to mistaken denials;
misapplication and misrepresentation of investor guidelines
and restrictions leading to mistaken denials; inconsistent,
inaccurate and contradictory information provided to borrowers
about their rights and obligations; foreclosures conducted
while a modification application is pending (or while a trial
plan is in effect) because the servicer failed to instruct the
foreclosure trustee to postpone the sale; and unnecessary
foreclosures conducted after an erroneous denial.
In the vast majority of cases, borrowers and their advocates
are confronted with an overwhelming lack of information and
communication from the servicer - about the status of their
applications, the documentation they need to provide, and, in
the event a borrower is notified that an application has been
denied, about the reasons for the denial. This lack of
transparency makes it nearly impossible for borrowers to
figure out where they are in the review process or to assess
whether a denial is erroneous and to seek reconsideration of a
qualifying application. Because borrowers often arrive at
their foreclosure sale date without receiving a decision on a
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pending modification application, this lack of transparency
also denies borrowers the opportunity to explore alternatives
to foreclosure if they do not in fact qualify for a
modification.
In addition to the points made above by the author, Housing and
Economic Rights Advocates (HERA) notes that the bill will not
"require servicers to modify a loan where the borrower does not
qualify for assistance under an already existing modification
program. It will not require servicers to assist so called
'strategic defaulters,' borrowers who are not in financial
distress but voluntarily stop making payments on their mortgage
because keeping the home is no longer in their best interest."
The Center for Responsible Lending writes:
SB 1275 expands on existing laws to maximize the possibility
that a borrower who is seeking to avoid foreclosure under
existing law and programs will be treated fairly. Despite
some improvements, servicers continue to lack adequate
staffing and systems. As a result, eligible and qualified
homeowners are not receiving loan modifications, with some
losing their homes to foreclosure. . . . SB 1275 will reduce
the opportunity for servicers to make the kinds of mistakes
that are devastating California families.
2. Most recent amendments attempt to address various concerns
This bill was amended on April 8, 2010 and several of the
amendments were intended to address various concerns raised by
the opposition. Most significantly, the bill was amended to
provide that, if a mortgagee, trustee, beneficiary, or
authorized agent is participating in HAMP or is otherwise
required to review the borrower's loan under HAMP, compliance
with all borrower outreach and loan application review
procedures and timelines set forth in the applicable HAMP
guidelines constitutes reasonable borrower solicitation efforts
for purposes of the bill.
As introduced, this bill had provided that the required contact
could not be "combined with collections activity." After
opponents raised questions about the interaction of this
provision with the Fair Debt Collection Practices Act, the bill
was amended to make clear that contact with the borrower could
not include a demand for immediate payment of any past-due
amounts owed by the borrower.
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The supporters note that the following additional amendments
were intended to address concerns raised: (1) added language
specifying that the bill is not intended to be retroactive; (2)
allowed the declaration of compliance to be included as part of
an NOD; (3) clarified that the bill's remedies provisions apply
after a trustee sale; and (4) included language specifying the
violations that trigger the bill's remedies.
3. California's authority to regulate the right of federally
chartered financial institutions to collect debts
Although federal laws, regulations, and rules govern the lending
practices of national banks and thrifts, authority to regulate
the right of those financial institutions to collect on that
debt through foreclosure is within the jurisdiction of the
individual states. In Bank of America v. City & County of S.F.,
the Ninth Circuit noted:
State regulation of banking is permissible when it "does not
prevent or significantly interfere with the national bank's
exercise of its powers." Thus, states retain some power to
regulate national banks in areas such as contracts, debt
collection, acquisition and transfer of property, and
taxation, zoning, criminal, and tort law. (Bank of America
(2002) 309 F.3d 551, 558-59.) (Citations omitted.)
Furthermore, 12 C.F.R 34.4(b), implementing the National Bank
Act with regards to mortgage lending, states that state laws
governing the right to collect debts are not inconsistent with
the real estate lending powers of national banks, to the
extent that they only incidentally affect the exercise of the
national bank's lending powers. Based upon that authority,
each state has a different process by which the holder of a
note must proceed in order to collect upon debts through
foreclosure. Some states operate solely through judicial
foreclosure, some through nonjudicial foreclosure, and some
through both. While lenders have the option of proceeding
through judicial foreclosure in California, the vast majority
proceed through the nonjudicial foreclosure process, commenced
by filing an NOD.
In addition, last June the U.S. Supreme Court held invalid
action by the Office of Comptroller of the Currency extending
the definition of "visitorial powers"-which states may not
exercise over national banks-to also include prosecuting state
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laws. The Court held that the extension, which prohibited
states from enforcing state laws against national banks, was
invalid and instead ruled that states may enforce their valid,
non-preempted laws against national banks. (Cuomo v. Clearing
House Association (2009) 129 S. Ct. 2710.)
4. Delegation of legislative authority
Under the California Constitution, the legislative, lawmaking
power is vested in the Legislature. (Cal. Const. Art. 4, Sec.
1.) As a result, the Legislature cannot delegate its
law-making authority to any other agency, unless provided by the
constitution. While the Legislature may adopt by reference
existing statutes, rules, or regulations enacted by Congress, it
may not adopt future statutes, rules, or regulations; such an
adoption has been held to be an unconstitutional delegation of
legislative power. (Brock v. Superior Court of Los Angeles
County (1937) 9 Cal.2d 291, 296.)
In response to the potential concern that this bill's reliance
on certain HAMP requirements might raise an issue regarding a
delegation of legislative authority, the author and his
supporters argue that this bill would not raise such an issue
for two reasons: (1) entities have chosen to participate in HAMP
and therefore must comply with the requirements of that program
regardless of what California law requires; and (2) the bill
would create two "tracks" - one for entities participating in
HAMP and one for those who are not participating in HAMP.
Alternatively, if the bill were to codify future changes to HAMP
and apply them to everyone, however, a delegation issue would
likely arise.
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5. Requirements imposed on entities participating in HAMP
As a part of the foreclosure process, this bill would impose
certain requirements on entities that are either participating
in HAMP or that are required to review a borrower's loan under
HAMP. Some of those requirements must already be met by HAMP
participants while others would be newly imposed by this bill.
The following is intended to briefly elucidate this matter,
however it is worth noting that discussions between the author,
his supporters, and stakeholders are ongoing and are likely to
further explore the issue.
The U.S. Department of Treasury has issued a number of
Supplemental Directives intended to modify, augment, and clarify
HAMP since its introduction. Supplemental Directive 10-02
(Supp. Dir. 10-02), issued March 24, 2010, relates to borrower
outreach and communication. Under Supp. Dir. 10-02, which takes
effect June 1, 2010, a servicer must pre-screen a borrower for
initial HAMP eligibility and must then "proactively solicit for
HAMP any borrower whose loan passes this pre-screen," except as
specified. Servicers have to undertake reasonable efforts to
solicit a borrower, including making a minimum of four telephone
calls to the borrower at different times of the day and sending
at least two letters, one via regular mail and the other via
certified. Under this bill, HAMP participants would have to
comply with these HAMP requirements and additionally would have
to send the borrower the written communication and statutory
form after the loan becomes 31 days delinquent, but not later
than 10 days after the loan becomes 60 days delinquent.
Under Supp. Dir. 10-02 and Supplemental Directive 09-08, issued
November 3, 2009, a servicer must send a Borrower Notice to
every borrower who has been evaluated for HAMP and is not
offered a Trial Period Plan, is not offered an official HAMP
modification, or is at risk of losing HAMP eligibility because
they have not provided the required documentation. This
Borrower Notice must include specified information. For example,
in the case of a borrower who has not been approved for either a
Trial Period Plan or an official HAMP modification, the notice
must include the reason for the non-approval and, if the
borrower is eligible for other foreclosure alternatives, a
description of those alternatives. This bill would require that
the servicer send the borrower a denial explanation letter,
which contains much of the same information required under HAMP,
but requires the servicer to include additional information such
as: (1) the date the borrower's application was received; (2)
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the date on which a decision was made regarding the application;
(3) the name and contact information of the holder of the note
for the borrower's loan; and (4) instructions regarding how to
dispute the denial decision and to provide the denial letter in
plain English or one of the languages specified in Civil Code
Section 1632, as appropriate.
Supp. Dir. 10-02 prohibits servicers from "referring a borrower
to foreclosure" until either the borrower has been evaluated for
a loan modification and determined to be ineligible for HAMP or
reasonable solicitation efforts have failed. This bill would
prohibit servicers from filing an NOD before a borrower has been
evaluated and determined to be ineligible. This bill would also
require the denial explanation letter to be sent to the borrower
before an NOD may be recorded and would require that a separate
certified letter be sent to the borrower detailing the efforts
that the servicer made to contact the borrower.
6. Requirements imposed on entities not participating in HAMP
As a part of the foreclosure process, this bill would impose
certain requirements on entities that are either not
participating in HAMP or that are not otherwise required to
review a borrower's loan under HAMP. With respect to the
borrower outreach and communication requirements, many of these
provisions mirror SB 1137's contact requirements. In other
instances, the borrower outreach and communication requirements
differ. For example, in addition to the contact requirements
enacted by SB 1137, this bill would require that the in-person
or telephone communication be clearly identified as an attempt
to initiate discussion with the borrower about foreclosure
avoidance options. The communication cannot include a demand
for immediate payment of any past-due amounts owed by the
borrower.
7. Remedies
This bill contains various remedies intended to provide
borrowers with the ability to enforce the requirements of this
bill. It is important to note that all of these remedies apply
after a trustee sale. They do not, therefore, provide the
borrower with the ability to stop the foreclosure process.
The bill would provide that if the property is sold to a bona
fide purchaser, the borrower may recover the greater of treble
damages or statutory damages of $10,000. If the lender takes
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the property back after a trustee sale and then sells it to a
bona fide purchaser, the borrower may recover the greater of
treble damages or statutory damages of $10,000. If the lender
had notice of the borrower's claim prior to selling the party to
the bona fide purchaser, the borrower may recover the greater of
treble damages or statutory damages of $25,000. The bill would
also provide that if title to the property is transferred back
to the lender at a trustee sale, the borrower may bring an
action to void the foreclosure sale. This bill is intended to
provide that a borrower may pursue any one of the applicable
remedies, but the bill does not currently state this and should
thus be amended as follows:
Suggested amendment:
On page 18, line 3, delete "either" and insert "any one"
On page 18, line 4, after "following" insert "applicable"
The following clarifying amendments are needed:
Amendments:
On page 18, line 6, delete "that is the subject of the
declaration of compliance" and insert "at issue"
On page 18, line 9, after "treble" insert "actual"
On page 18, line 13, after "If" insert ", prior to the
initiation of an action under this section,"
On page 18, line 17, after "treble" insert "actual"
On page 18, line 23, after "treble" insert "actual"
On page 18, line 26, after the period insert "If, however, the
borrower initiated an action under this section prior to the
sale to a bona fide purchaser, subdivision (a)(3) shall
apply."
On page 18, line 27, delete "that is the subject of the
declaration of compliance" and insert "at issue"
On page 18, line 30, after "sale" insert ", except if
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subdivision (a)(2) applies"
8. Opposition
The following groups oppose the bill: American Council of
Engineering Companies of California, California Bankers
Association, California Building Industry 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, and Securities Industry and Financial Markets
Association and write:
While we believe that SB 1137 was a sound product, certain
provisions have resulted in class action litigation. Some of
those provisions that are subject to lawsuit are being amended
by SB 1275, which we believe would inappropriately intervene
in pending litigation. While we endeavor to understand the
intricacies of this measure and its impact, we argue that that
the bill exemplifies an overly complicated formula that will
be layered on to recently enacted borrower outreach efforts to
further frustrate and prolong existing foreclosure and loss
mitigation efforts. We believe the measure will result in
adding to the complexity of navigating these processes for
loan servicers to create a series of procedural traps that
will lead to ever increasing litigation. How this measure
interacts mechanically and chronologically with recent state
and federal regulatory and statutory changes is unclear. This
will result in compliance hurdles and a detrimental
distraction from our efforts to assist our customers.
Changes at the federal level are frequent and swift and make
this measure unnecessary. To further illustrate this point,
President Obama's and the United States Treasury Department's
Home Affordable Modification Program (HAMP) has continued to
evolve. In November 2009, Treasury released Supplemental
Directive 09-08 requiring participating servicers to provide
borrowers with a non-approval notice if they are denied for a
trial period plan or official HAMP modification (effective on
January 1, 2010). This disclosure provides detailed
information as to why the borrower was not eligible for a HAMP
modification.
On March 24, 2010, Treasury released Supplemental Directive
10-02. This directive precludes a servicer from foreclosing
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on a borrower until the borrower has been evaluated and
eligibility has been determined under HAMP. The directive
also includes a foreclosure process explanation letter to be
sent to borrowers detailing the HAMP eligibility consideration
process and advising borrowers to pay attention to foreclosure
notices. This directive is effective June 1, 2010. We
understand that additional changes to HAMP are forthcoming.
Given recent changes to HAMP, we believe that this measure is
unnecessary and may conflict with federal programs. At a
minimum, SB 1275 continues a trend of delaying or stretching
out the foreclosure process. This will delay economic
recovery, further frustrate local governments struggling with
properties in disrepair while continuing the trend of reduced
property tax revenue for local governments, and will
artificially sustain depressed property values.
9. Other technical or clarifying amendments
Because the California Foreclosure Prevention Act noted in the
statutory form sunsets on January 1, 2011, the effective date of
this bill, the reference to that act in the statutory notice
should be deleted. Otherwise the notice will be inaccurate.
Suggested amendments:
On page 5, line 40, delete "If your"
On page 6, delete lines 1-8 and insert "Your servicer must"
This bill would require the statutory notice form to be made
available on or before the effective date of this bill.
Although the state government entity tasked with translating and
making the form available could do so before or on the effective
date of the bill, the Legislature cannot require it to do so
before the bill takes effect. The author has agreed to amend
the bill to provide that the entity must make the form available
within 30 days of enactment and would like to specify when
entities are subject to its provisions.
SB 1275 (Leno)
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Suggested amendment:
On page 6, line 22, delete "1" and insert "31"
On page 6, line 22, after the period insert "A mortgagee,
beneficiary, or authorized agent shall be subject to the
requirements of this section thirty days following the
availability of the English and translated forms of the
notice, but in no event shall a mortgagee, beneficiary, or
authorized agent be subject to the requirements of this
section any earlier than January 1, 2011 or later than March
1, 2011."
The following amendments would clarify that non-HAMP
participants only need send the written communication and
statutory notice once:
Suggested amendments:
On page 9, line 3, after "send" insert "to the borrower"
On page 9, line 4, delete "described in" and insert "required
by"
On page 9, line 5, delete "to the borrower"
The following amendments would revise the notice to make clear
whether the mortgagee, beneficiary, or authorized agent is
participating in HAMP:
Suggested amendments:
On page 13, line 27, add new checkboxes to read:
? The mortgagee, beneficiary, or authorized agent is
participating in the Making Home Affordable Modification
Program (HAMP) or is otherwise required to review this loan
under HAMP guidelines.
? The mortgagee, beneficiary, or authorized agent is not
participating in the Making Home Affordable Modification
Program (HAMP) and is not otherwise required to review this
loan under HAMP guidelines.
The following amendments are needed to clarify the notice:
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Amendments:
On page 14, strike lines 29 and 30 and insert
? The mortgagee, beneficiary, or authorized agent satisfied
the applicable reasonable borrower solicitation efforts
described in Cal. Civil Code Sec. 2923.5(b), but failed to
establish contact with the borrower.
On page 14, revise lines 32 to 38 to read:
? The borrower was offered a HAMP trial period plan, but the
borrower did not accept the trial period plan or failed to
comply with the terms of the plan.
? The borrower was offered a permanent loan modification, but
the borrower did not accept the modification offered.
? The borrower was offered a permanent loan modification, but
the borrower failed to comply with the terms of the
modification.
The bills exceptions for instances where a borrower has filed
for bankruptcy, surrendered the property, or contracted with an
entity to extend the foreclosure process might inadvertently
offer less protection to borrowers because they are not
exceptions to HAMP and the following amendments are thus needed:
Suggested amendments:
On page 6, line 40, after the period, insert "(4) Nothing in
this subdivision shall be construed to alter in any way the
obligations of a mortgagee, trustee, beneficiary, or
authorized agent that is participating in the Making Home
Affordable Modification Program (HAMP) or is otherwise
required to review a loan under HAMP guidelines."
On page 13, between lines 2 and 3, insert: "(4) Nothing in
this subdivision shall be construed to alter in any way the
obligations of a mortgagee, trustee, beneficiary, or
authorized agent that is participating in the Making Home
Affordable Modification Program (HAMP) or is otherwise
required to review a loan under HAMP guidelines."
On page 17, between lines 27 and 28, insert: "(4) Nothing in
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this subdivision shall be construed to alter in any way the
obligations of a mortgagee, trustee, beneficiary, or
authorized agent that is participating in the Making Home
Affordable Modification Program (HAMP) or is otherwise
required to review a loan under HAMP guidelines."
The following amendment revises the denial explanation section:
Amendments:
On page 15, line 10, delete "does not offer the borrower a
trial or" and insert "denies either a"
On page 15, line 11, delete "according to applicable program
guidelines" and insert "or a HAMP trial period plan"
The trustee is inadvertently omitted in a number of instances in
the bill and inadvertently included in two others.
Suggested amendments:
On page 3, line 4, delete "trustee,"
On page 3, line 12, delete "trustee,"
On page 3, line 18, delete "trustee,"
On page 3, line 20, delete "trustee,"
On page 3, line 26, delete "trustee,"
On page 10, line 13, after "mortgagee," insert "trustee,"
On page 16, line 17, delete "trustee,"
On page 16, line 20, delete "trustee,"
On page 16, line 24, delete "trustee,"
On page 16, line 28, delete "trustee,"
On page 16, line 36, delete "trustee,"
On page 17, line 5, after "mortgagee," insert "trustee,"
The following are other technical amendments that should be made
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to the bill:
Suggested amendments:
On page 10, line 25, delete "enactment of this section" and
insert "amendments made by this bill"
On page 11, line 11, reinsert "paragraph 2 of"
On page 14, line 8 delete "2923.6" and insert "2923.4"
On page 17, line 4, delete "sending" and insert "the
mortgagee, beneficiary, or authorized agent sends"
On page 18, line 35, delete "deemed" and insert "construed"
In order to ensure that this bill does not affect any pending
litigation, the author has agreed to amend the bill as follows:
Suggested amendments:
On page 18, between lines 35 and 35 insert a new Section 7 to
read: "Nothing in this act shall affect any causes of action
or claims that are pending as of the effective date of this
act."
Support : Affordable Housing Services; California Alliance for
Retired Americans; California Capital Financial Development
Corporation; California Coalition for Rural Housing; California
Conference Board of the Amalgamated Transit Union; California
Conference of Machinists; California Human Development
Corporation; California Labor Federation, AFL-CIO; California
Reinvestment Coalition; California Rural Legal Assistance
Foundation; Causa Justa: Just Cause; Center for Responsible
Lending; City of Lakewood California; Community Financial
Resources; Community Housing Works, San Diego; Consumer
Federation of California; Consumers Union; Consumer Legal
Services in East Palo Alto; Contra Costa Interfaith Supporting
Community Organization; Council on Aging Silicon Valley; East LA
Community Corporation; East Palo Alto Council of Tenants
Education Fund; Engineers and Scientists of California, IFPTE
Local 20; Housing and Economics Rights Advocates; Inland Fair
Housing and Mediation Board; International Longshore and
Warehouse Union; JOLT, Coalition for Responsible Investing; Law
Foundation of Silicon Valley; Neighborhood Housing Services of
SB 1275 (Leno)
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Orange County; Novadebt; Oakland Community Organizations;
Opportunity Fund; Orange County Fair Housing Council, Inc.;
Professional and Technical Engineers, IFPTE Local 21; Public
Counsel; Rural Community Assistance Corporation; Sacramento Gray
Panthers; Sacramento Housing Alliance; Sacramento Mutual Housing
Association; Southern California Housing Rights Center; The
Mission Economic Development Agency; UNITE-HERE; United Food &
Commercial Workers Western States Council; Vallejo Neighborhood
Housing Services, Inc.; Vermont Slauson Economic Development
Corp.; Yolo Mutual Housing Association; Western Center on Law
and Poverty; one individual
Opposition : American Council of Engineering Companies of
California; California Bankers Association; California Building
Industry 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; Civil Justice Association of
California; Securities Industry and Financial Markets
Association; United Trustees Association
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HISTORY
Source : Author
Related Pending Legislation :
AB 1639 (Nava) would establish a Mediated Mortgage Workout
Program which would provide borrowers and lenders with the
option to enter into mediation to establish a loan modification
plan. This bill has been referred to the Assembly Banking and
Finance Committee and the Assembly Judiciary Committee.
AB 2024 (Blumenfield) would add a new section to the Civil Code,
requiring that any lender or servicer who rejects a loan
modification shall notify the borrower by certified mail,
specifying reasons for the loan modification rejection. This
bill is currently in the Assembly Banking and Finance Committee.
AB 2236 (Monning) would require that when a mortgagee, trustee,
or beneficiary notifies a borrower that he or she has failed to
make a required minimum payment, the notice must include the
name and contract information of the mortgagee, trustee, or
beneficiary who has the authority to modify the loans terms and
conditions. This bill is currently in the Assembly Banking and
Finance Committee.
AB 2678 (Fuentes) would prohibit a mortgagee, trustee, or
beneficiary from posting a notice of sale regarding a property
that is currently the subject of negotiations of a loan
medication. This bill is currently in the Assembly Banking and
Finance Committee.
Prior Legislation :
SB 1137 (Perata, Corbett, Machado, Ch. 69, Stats. 2008) (See
Background.)
SBx2 7 (Corbett, Ch. 4, Stats. 2009) (See Background.)
ABx2 7 (Lieu, Ch. 5, Stats. 2009) (See Background.)
Prior Vote : Senate Banking, Finance and Insurance Committee
(Ayes 7, Noes 2)
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