BILL ANALYSIS
SB 1275
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Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1275 (Leno and Steinberg) - As Amended: June 23, 2010
SENATE VOTE : 21-12
SUBJECT : MORTGAGE FORECLOSURE RELIEF
KEY ISSUE : SHOULD RESIDENTIAL MORTGAGE LENDERS AND RELATED
ENTITIES PROVIDE CERTAIN INFORMATION TO FAILING BORROWERS
REGARDING THEIR RIGHTS AND ALLOW THEM TO PURSUE POTENTIAL
OPTIONS SUCH AS ANY LOAN MODIFICATION FOR WHICH THE BORROWER MAY
BE ELIGIBLE IN ORDER TO ADDRESS PAYMENT PROBLEMS PRIOR TO
FORECLOSURE?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
The authors seek to improve the foreclosure process and help
prevent unnecessary foreclosures by requiring an early notice
for borrowers in default, describing the foreclosure process and
borrowers' rights together with instructions about applying for
foreclosure avoidance options. The bill would require mortgage
servicers to make contact with borrowers to discuss foreclosure
avoidance consistent with the requirements in existing
California law (enacted by SB 1137 (Perata) of 2008). In an
effort to avoid the need for foreclosure, the bill provides that
when a borrower applies for a loan modification, the loan
servicer must collect relevant documents and determine a
borrower's qualification for a loan modification prior to filing
a notice of default, subject to certain minimum timelines. The
bill does not require a servicer to offer or provide a loan
modification to a borrower who is not eligible, nor does it
impose any standards regarding the substance of, or
qualifications for, loan modifications. It simply requires the
servicer to follow its own guidelines for loan modification. If
the servicer has no loan modification option for a borrower, it
need not satisfy this requirement. Where the loan is subject to
the federal HAMP program, the servicer may satisfy any
obligation by simply adhering to HAMP guidelines. If the
servicer denies an application for a loan modification, the
servicer would be required to send the borrower a denial
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explanation letter.
The bill is vehemently opposed by the lending industry, which
contends that the bill is overly complicated, will lead to ever
increasing litigation, fails to narrowly target at-risk
borrowers, inappropriately protects the increasing population of
borrowers that strategically default, will further frustrate and
prolong existing foreclosure and loss mitigation efforts, is
unnecessary given recent and ongoing changes to the federal HAMP
program, and may conflict with federal programs. The industry
also asserts that the bill 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.
SUMMARY : Generally requires 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, regarding: (1) written communication and statutory
notice; (2) contact and borrower outreach; (3) a declaration of
compliance; and (4) a denial explanation letter. These
obligations would sunset on January 1, 2013. Specifically, this
bill :
1)Requires a mortgagee, trustee, beneficiary, or authorized
agent to provide a borrower with a written communication after
a loan becomes 31 days delinquent, but not later than 10 days
after the loan becomes 60 days delinquent. This written
communication is to include the following:
a) in the case of a mortgagee, trustee, beneficiary, or
authorized agent that is participating in the federal
Home Affordable Modification Program (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;
b) 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.
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If no programs are available to the borrower, the
communication must state that fact;
c) 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
d) 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.
2)Requires 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 notice is to 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) on or before January 1, 2011.
3)Requires 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.
4)Requires specified outreach to borrowers depending on whether
the loan is covered by the federal HAMP program. 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. If the
mortgagee, trustee, beneficiary, or authorized agent is not
participating in HAMP and is not otherwise required to review
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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:
a) 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
b) 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.
5)Requires 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. 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.
6)Provides 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. The declaration of compliance
is to contain a "check the box" of 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
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specific options occurred with respect to foreclosure
avoidance efforts.
7)Provides that if the borrower expresses an interest in
applying for a loan modification and is not offered a trial or
permanent modification, the mortgagee, beneficiary, or
authorized agent is required 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, the bill requires 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, the bill
requires 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. The bill also requires 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.
8)Specifies particular deadlines for the submission of
information from the borrower and subsequent action by the
mortgagee, trustee, beneficiary, or authorized agent as
follows:
a) 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.
b) 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,
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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.
9)Permits 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.
10)Provides that a mortgagee, trustee, beneficiary, or
authorized agent shall have no civil liability if, prior to
the initiation of a legal action by the borrower, it satisfies
the requirements of either of the following paragraphs no
later than 180 days after the date of the trustee sale:
a) The mortgagee, trustee, beneficiary, or authorized
agent voluntarily rescinds the foreclosure sale prior to
filing an unlawful detainer action against the borrower;
within three days of the rescission, sends the borrower a
written communication informing the borrower of the
rescission and clearly explaining the steps the
mortgagee, trustee, beneficiary, or authorized agent will
take prior to filing a notice of sale; and materially
complies with all the requirements of subdivision (b) of
Section 2923.5 or subdivision (a) or (b) of Section
2923.73 that were not previously satisfied, and either
offer the borrower a loan modification if the borrower
qualifies for one, or send the borrower a written
communication informing the borrower of the steps that
were taken and the outcome, including any reason for the
denial of a loan modification, if applicable, at least 30
days before recording a notice of sale.
b) The mortgagee, trustee, beneficiary, or authorized
agent refrains from filing an unlawful detainer action
against the borrower until both of the following
requirements have been satisfied: prior to taking any
specified steps, the mortgagee, trustee, beneficiary, or
authorized agent shall send the borrower a written
communication informing the borrower that it is not
proceeding with an eviction, and clearly explain the
steps the mortgagee, trustee, beneficiary, or authorized
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agent will take prior to commencing the eviction process;
and the mortgagee, trustee, beneficiary, or authorized
agent materially complies with the requirements of
subdivision (b) of Section 2923.5 or subdivision (a) or
(b) of Section 2923.73 that were not previously
satisfied, and send the borrower a written communication
informing the borrower of the steps that were taken and
the outcome, including any reason for the denial of a
loan modification, if applicable. The mortgagee, trustee,
beneficiary, or authorized agent shall wait 30 days after
completing those requirements before filing an unlawful
detainer action against the borrower. However, if the
mortgagee, trustee, beneficiary, or authorized agent
determines that the borrower qualifies for a loan
modification, it shall rescind the sale and offer the
borrower the loan modification.
11)Provides 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 grounds for a
borrower to pursue either of the following options after a
trustee sale:
a) 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;
b) 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 $15,000.
12)Provides 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 and obtain injunctive relief
within one year.
13)Specifies 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.
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14)Extends exemptions provided under existing law (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.
15)Specifies that its provisions are not retroactive.
EXISTING LAW :
1)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.)
2)Pursuant to SB 1137, provides the following until January 1,
2013 and only with respect 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:
a) 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).)
b) 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
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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).)
c) "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 must send a
certified letter, return receipt requested. (Civ. Code
Sec. 2923.5(g).)
COMMENTS : The authors explain the need for the bill as follows:
In 2008, this legislature passed SB 1137 (Perata) as an
emergency measure, citing the 84,375 properties that were
lost to foreclosure in 2007. At the time, that bill noted
that California was "facing an unprecedented threat to its
state economy and local economies because of skyrocketing
residential property foreclosure rates in California." The
intent of SB 1137 was to provide stability to the
California economy and housing market "by requiring early
contact and communications between mortgagees,
beneficiaries, or authorized agents and specified borrowers
to explore options that could avoid foreclosure and by
facilitating the modification or restructuring of loans in
appropriate circumstances."
The evidence is lacking that the SB 1137 process has been
resulting in loan modifications even where such
modifications are appropriate and beneficial to both the
borrower and the owner of the loan. Last year SB2x7/AB2x7
would have extended the foreclosure process by 90 days to
encourage more loan modifications, but the bills provided
servicers with an exemption to that extension if they could
establish that they had a "comprehensive loan modification
program" in place. Most received that exemption, but still
are failing to prevent avoidable foreclosures through
appropriate modifications.
While the foreclosure crisis rages on, too many California
families are losing their homes when they could have and
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should have qualified for a mortgage modification that
would have saved their home. From the time the HAMP
program was initiated in May of 2009 through April 2010,
only 62,883 permanent loan modifications had been completed
in California through the HAMP program. Nationwide, just
17.35% of eligible 60+ day delinquent borrowers have been
placed in permanent loan modifications.
The stories about servicers mishandling borrower
applications, failing to properly communicate with
borrowers, and worst of all selling a borrower's home when
the borrower is still being considered for a loan
modification or is paying on a trial modification plan, are
seemingly endless. These problems are not sporadic, but
systemic.
Each unnecessary foreclosure weighs down the California
housing market and the California economy unnecessarily,
and will only further hinder the State's recovery. SB 1275
will allow the foreclosure process to function sensibly and
fairly, and prevent homes they can be saved from
foreclosure under existing programs from being sold
mistakenly.
Under current law, homeowners are the only ones who suffer
the consequences when a servicer breaks the rules or makes
a mistake, and the consequences can be devastating. SB
1275 attempt to deter improper conduct by servicers through
the private right of action, but if notwithstanding the
checks and requirements of SB 1275, a servicer fails to
follow the rules, and a borrower wrongfully loses her home,
SB 1275 provides a sorely needed remedy, albeit a limited
one. By setting forth specific and limited remedies for
violations, the bill provides servicers with the precise
scope of potential liability, something that is currently
lacking.
Housing and Economic Rights Advocates (HERA) note 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."
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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."
Has Existing Law Or Self-Regulation By The Industry Proved
Adequate To Respond to the Ongoing Foreclosure Crisis That Most
Observers Conclude Was Spawned By Irresponsible Industry Lending
Practices? 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 loan 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 continuing housing and economic crisis, 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.
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 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
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signed SBx2 7 and ABx2 7 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
with its requirements. Under HAMP, servicers apply a uniform
loan modification process that is intended to allow borrowers
with sustainable mortgage payments.
Does This Bill Conflict With Or Is It Pre-empted By Federal Law?
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
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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.
The U.S. Supreme Court recently 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 include prosecuting state 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.)
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 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
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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)
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.
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
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borrower.
Are the Remedies Allowed By This Bill Appropriate To The
Violations? 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
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 $15,000. 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. A borrower may pursue any
one of the applicable remedies.
ARGUMENTS IN OPPOSITION : An alliance of financial services
companies argues against the bill as follows:
While we endeavor to understand the intricacies of this
measure and its impact, 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.
The measure will result in adding to the complexity of
navigating these processes for loan servicers creating a
series of procedural traps that will lead to ever
increasing litigation.
SB 1275 fails to narrowly target at-risk borrowers and
applies broadly including the increasing population of
borrowers that strategically default. In these
circumstances, the borrower has the ability to pay their
mortgage but because their property has lost value, the
borrower ceases payments and uses the existing foreclosure
process and its timeline as a means to build savings. It
is unknown why the measure and its proponents would extend
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aid to these borrowers and divert resources from borrowers
who truly wish to avoid foreclosure.
The measure fails to require borrowers to tender any
portion of their monthly mortgage payment or arrears as a.
good faith effort demonstrating their desire to remain in
the property and will result in borrowers seeking to take
advantage of the convoluted process SB 1275 creates. For
those borrowers who strategically default and have no
intent to remain in their homes SB 1275 will be used as a
delay and a leveraging tactic.
SB 1275 grants a private right of action and awards damages
to borrowers irrespective of whether they have experienced
real harm. The remedies extended to borrowers under the
measure are not narrowly focused on circumstances where the
lender has ignored or failed to respond to the borrower but
grants remedies for failing to adequately complete
documents in the very precise manner proscribed by the
bill.
SB 1275 amends existing law Civil Code Section 2923.5 which
has been the subject of several legal claims and class
action litigation. The measure inappropriately intervenes
in pending litigation and attempts to change outcomes
associated with those cases. For example, plaintiffs have
alleged that Section 2923.5 requires the mortgage servicer
to record a declaration under penalty of perjury. In Terry
Mabry v. Aurora Loan Services, G042911 (2010), the court
ruled that "The idea that this `declaration' must be made
under oath must be rejected."
Yet, SB 1275 includes language requiring that the
"declaration shall be signed either by an individual having
personal knowledge of the facts stated within, or by an
individual with authority to bind the mortgage servicer,
who certifies that the declaration is based upon records
that were made in the regular course of the servicer's
business at or near the time of the events recorded." Even
under a less complicated code section enacted through SB
1137, the Mabry court recognized that "the way section
2923.5 is set up, too many people are necessarily involved
in the process for any one person to likely be in the
position where he or she could swear that all three
requirements of the declaration required by subdivision (b)
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were met."
Proponents have attempted to codify President Obama's and
the United States Treasury Department's Home Affordable
Modification Program (HAMP) but admit that their
codification exceeds HAMP requirements. Since HAMP is a
nationwide program, California-specific variations to the
program will result in compliance hurdles and a detrimental
distraction from our efforts to assist our customers. HAMP
has been successful showing improvements in the number of
trial and permanent loan modifications month-to-month.
Notwithstanding, federal data indicates that unemployment
and underemployment are the predominant reason why
borrowers seek a loan modification. Legislative efforts
are better directed at improving employment opportunities.
Changes to HAMP at the federal level are frequent and swift
and make this measure unnecessary. To further illustrate
this point, 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 HAND modification (effective on January 1,
2010). This disclosure provides detailed information as to
why the borrower was not eligible for a HAMP modification.
If enacted, given the outcome of recent court decisions, SB
1275 may be preempted for federally chartered lenders
through the Home Owners' Loan Act (HOLA) and the National
Bank Act thereby creating an unlevel playing field for
lenders left to comply. Federal preemption has been tested
recently by various courts pursuant to litigation stemming
from SB 1137. SB 1275 substantially amends Civil Code
Section 2923.5 expanding a mortgage servicers processing
and servicing of mortgage loans and arguments that Section
2923.5's application is narrow will be disputed.
Given recent and continual 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
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property values. At its core, the measure promotes
protracted litigation.
REGISTERED SUPPORT / OPPOSITION :
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
California Reinvestment Coalition
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
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 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
SB 1275
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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
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
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334