BILL ANALYSIS �
AB 2425
Page 1
Date of Hearing: April 16, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2425 (Mitchell) - As Amended: April 9, 2012
SUBJECT : Mortgages and deeds of trust: foreclosure
SUMMARY : Requires a mortgage servicer to provide a delinquent
borrower with a single point of contact (SPOC) for the purpose
of expediting loss mitigation evaluation and activities.
Additionally, prohibits use of robosigned documents in the
foreclosure process. Specifically, this bill :
1)Provides for a borrower that is 60 days or more delinquent,
the mortgage servicer shall inform the borrower that if they
wish to pursue loss mitigation, the servicer shall establish a
SPOC for the borrower.
2)Requires that, upon written or telephonic request by the
borrower requesting loss mitigation assistance and who is 60
days or more delinquent, the servicer shall provide the
borrower with the contact information of the SPOC within 10
business days.
3)States that if a SPOC changes the borrower shall be informed
of the new contact information no later than five business
days after the change.
4)Provides that the SPOC is responsible for the following
activities:
a) Communicating the options available to the borrower, the
actions the borrower must take to be considered for those
options, and the status of the mortgage servicer's
evaluation of the borrower for those options;
b) Coordinating receipt of all documents;
c) Maintaining and providing accurate information about the
borrower's situation and current status in the loss
mitigation process;
d) Ensuring that a borrower, who is not eligible for the
federal Making Home Affordable (MHA) program, is considered
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for proprietary or other investor loss mitigation options;
and
e) Having access to individuals with the ability to stop
foreclosure proceedings.
5)Requires the SPOC to remain assigned to the borrower's
account until the mortgage servicer determines that all loss
mitigation options have been exhausted, the borrower's account
becomes current, or, in the case of a borrower in bankruptcy,
the borrower has exhausted all loss mitigation options for
which the borrower is potentially eligible and has applied;
6)Provides that the mortgage servicer shall ensure that a SPOC
refers and transfers a borrower to an appropriate supervisor
upon request of the borrower;
7)Prohibits an entity from recording a notice of default (NOD)
or otherwise initiating the foreclosure process unless it is
the beneficial interest under the deed of trust.
Additionally, provides that an agent shall not record an NOD
with specific direction of the actual holder of the beneficial
interest under the deed of trust.
8)Provides an operative date of July 1, 2013 for the SPOC
provisions.
9)Defines a "robosigned document" as any document that contains
factual assertions that are not accurate, are incomplete, or
are unsupported by competent, reliable evidence. A
"robosigned document" also means any document that has not
been reviewed by its signer to substantiate the factual
assertions contained in the document. For purposes of this
definition, multiple people may verify the document or
statement so long as the document or statement specifies the
portions verified by each signer.
10)Specifies that any entity that records a robosigned document
or files a robosigned document in any court relative to a
foreclosure proceeding shall be liable for a civil penalty of
$10,000 per robosigned document.
11)Provides that the Department of Real Estate, Department of
Corporations and Department of Financial Institutions may
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enforce civil penalties against their respective licensees for
a violation.
12)Allows a borrower to seek an injunction to halt a pending
trustee sale if the notice of sale (NOS) has been recorded and
the borrower reasonably believes that the mortgagee, trustee,
beneficiary, or authorized agent failed to comply with the
requirement to appoint a SPOC, or following the statutory
requirements of the foreclosure process. The injunction would
remain in place until the aforementioned provisions are
complied with.
13)Provides that if a trustee sale has been completed and the
borrower reasonably believes the mortgagee, trust,
beneficiary, or authorized agent failed to comply, the
borrower may seek the greater of actual damages or $10,000
plus attorney's fees and costs. For violation that are
intentional, reckless, or resulted from willful misconduct,
damages are treble actual damages or $50,000 plus attorney's
fees and costs.
14)Defines "Mortgage servicer" as a person or entity responsible
for the day-to-day management of a mortgage loan account,
including collecting and crediting periodic loan payments,
managing any escrow account or enforcing mortgage loan terms
either as the holder of the loan note or on behalf of the
holder of the loan note.
EXISTING 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 NOD and allow three
months to lapse before setting a NOS 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 NOS, and requires the
NOS to be made, as specified, at least 20 days prior to the
date of sale. �Section 2924f].
3)Provides that a mortgage, trustee, beneficiary, or authorized
agent may not file a NOD until 30 days after contact has been
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made with the borrower who is in default. �Section 2923.5a1].
4)Requires the mortgagee, trustee, beneficiary or authorized
agent 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 U.S. 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 the mortgagee, trustee,
beneficiary or authorized agent 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 mortgagee, trustee, beneficiary or authorized agent
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 mortgagee,
trustee, beneficiary or authorized agent attempts to
contact the borrower by telephone at least three times at
different hours and on different days. �Section 2923g].
7)Requires the mortgagee, trustee, beneficiary or authorized
agent to maintain a toll-free number for borrowers that will
provide access to a live representative during business hours
and requires the mortgagee, trustee, beneficiary or authorized
agent 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
mortgagee, trustee, beneficiary or authorized agent ;
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 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)Requires that upon posting of a NOS, the mortgagee, trustee,
beneficiary or authorized agent 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
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].
11)Provides that a NOS postponement may occur at any time prior
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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 NOS.
�Section 2924g]
12)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 NOS. �Section
2924g]
FISCAL EFFECT : Unknown
COMMENTS :
AB 2425, sponsored by Attorney General Kamala Harris, contains
two distinct provisions relating the foreclosure process.
First, this bill requires servicers to establish a SPOC to
assist borrowers with the loan modification process. Second,
this bill provides prohibitions on robosigning.
On April 6th, a federal judge signed-off on the $25-billion
foreclosure settlement, first announced in February of 2012,
between banks (Citi, Wells Fargo, Bank of America, Chase and
Ally), federal agencies, and the state attorneys general from 49
states and the District of Columbia. The investigation began in
October of 2010 as media stories highlighted widespread
allegations regarding the use of "robo-signed" documents used in
foreclosure proceedings around the country. The attorneys
general formed working groups to investigate the widespread
allegations, however, further investigation led to a larger
discussion with the five largest mortgage loan servicers
regarding various facets of the foreclosure and loan
modification process. While conducting their investigation the
attorneys general identified deceptive practices regarding loan
modifications, foreclosures occurring due to the servicer's
failure to properly process paperwork, and the use of incomplete
paperwork to process foreclosures in both judicial and
non-judicial foreclosure cases.
The complaint filed by the attorneys general, provided a
detailed list of allegations concerning several key areas
related to foreclosure and servicing practices. The specific
allegations include:
Unfair, deceptive, and unlawful servicing process;
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Unfair, deceptive, and unlawful loan modification and
loss mitigation processes;
Wrongful conduct related to foreclosures;
Unfair and deceptive origination practices; and
Violation of the Servicemembers Civil Relief Act.
In resolving the aforementioned claims, the settlement provides
for relief for borrowers in the form of modifications, mortgage
loan servicing reforms, increased compliance monitoring and
enforcement.
The settlement requires a total of $17 billion to be allocated
to facilitate loan modifications to borrowers with the intent
and ability to stay in their homes. Of the $17 billion, 60%
must be allocated to principal reduction modifications.
Additionally, banks must offer refinance programs through the
use of $3 billion to assist borrowers with negative equity whom
otherwise would be unable to refinance. Additional settlement
monies are dedicated to borrowers who were wrongfully foreclosed
on after January 1, 2008 (Approx. $1.5 billion in relief), and
another $2.5 billion to the states for foreclosure relief and
housing programs.
The settlement also requires major changes concerning servicing
of the five banks party to the settlement. These changes
include:
Information in foreclosure affidavits must be personally
reviewed and based on competent evidence.
Holders of loans and their legal standing to foreclose
must be documented and disclosed to borrowers.
Borrowers must be sent a pre-foreclosure notice that
will include a summary of loss mitigation options offered,
an account summary, description of facts supporting
lender's right to foreclose, and a notice that the borrower
may request a copy of the loan note and the identity of the
investor holding the loan.
Borrowers must be thoroughly evaluated for all available
loss mitigation options before foreclosure referral, and
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banks must act on loss mitigation applications before
referring loans to foreclosure; i.e. "dual tracking" will
be restricted.
Denials of loss mitigation relief must be automatically
reviewed, with a right to appeal for borrowers.
Banks must implement procedures to ensure accuracy of
accounts and default fees, including regular audits,
detailed monthly billing statements and enhanced billing
dispute rights for borrowers.
Banks are required to adopt procedures to oversee
foreclosure firms, trustees and other agents.
Banks will have specific loss mitigation obligations,
including customer outreach and communications, time lines
to respond to loss mitigation applications, and e-portals
for borrowers to keep informed of loan modification status.
Banks are required to designate an employee as a
continuing SPOC to assist borrowers seeking loss mitigation
assistance.
Military personnel who are covered by the Servicemembers
Civil Relief Act (SCRA) will have enhanced protections.
Banks must maintain adequate trained staff to handle the
demand for loss mitigation relief.
Application and qualification information for
proprietary loan modifications must be publicly available.
Servicers are required to expedite and facilitate short
sales of distressed properties.
Restrictions are imposed on default fees, late fees,
third-party fees, and force-placed insurance.
For a detailed look at the complaint and resulting settlement, a
full list of documents can be found at
http://www.nationalmortgagesettlement.com/ .
SPOC .
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The mortgage settlement requires that the servicers party to the
settlement establish a SPOC for "each potentially eligible first
lien mortgage borrower so that the borrower has access to an
employee of the servicer to obtain information throughout the
loss mitigation, loan modification and foreclosure processes
(Exhibit A, page 21 of the settlement documents)."
The issues preceding the need for inclusion of a SPOC in the
loan modification process have been well documented. Borrowers
have reported via media outlets and in other forums regarding
frustration in seeking loss mitigation has resulted in numerous
phone calls with different people, each one not aware of the
efforts of the other. Additionally, borrowers have reported
submitting paperwork to one contact at a servicer to only get
passed on to another contact who then requests the same
information for submission. In the worst cases, paperwork is
lost, or the foreclosure process continues while the borrower
believes they are being genuinely evaluated for a loan
modification.
In April of 2011, Federal regulators (Office of Comptroller of
Currency, Office of Thrift Supervision, and Federal Reserve
System) issued enforcement orders against Ally Bank/GMAC, Aurora
Bank, Bank of America, Citibank, EverBank, HSBC, JPMChase,
MetLife, OneWest, PNC, Sovereign Bank, SunTrust, US Bank, and
Wells Fargo. These orders were based on a review conducted by
the regulators of the foreclosure policies and practices of
these servicers. The orders, among other things, mandated that
the servicers establish a SPOC for borrowers throughout the
modification process. The federal regulatory enforcement orders
require, in specific reference to SPOC, that
1)A SPOC is established for each borrower to remain with them
throughout the lost mitigation process;
2)Written communications with the borrower identify such SPOC
along with one or more direct means of communication with the
contact;
3)SPOC has access to current information and personnel (in-house
or third-party) sufficient to timely, accurately, and
adequately inform the borrower of the current status of the
Loss Mitigation, loan modification, and foreclosure
activities;
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4)Measures to ensure that staff are trained specifically in
handling mortgage delinquencies, Loss Mitigation, and loan
modifications;
5)Procedures and controls to ensure that a final decision
regarding a borrower's loan modification request (whether on a
trial or permanent basis) is made and communicated to the
borrower in writing, including the reason(s) why the borrower
did not qualify for the modification.
Following these enforcement guidelines, the United States
Treasury Department issued additional guidance under the Making
Home Affordable (MHA) modification program (Supplemental
Directive 11-04, issued May 11, 2011 and effective on September
1, 2011). The directive provided, "Each servicer subject to
this Supplemental Directive must establish and implement a
process through which borrowers who are potentially eligible for
HAMP, the Home Affordable Unemployment Program (UP) or Home
Affordable Foreclosure Alternatives (HAFA) are assigned a
relationship manager to serve as the borrower's single point of
contact through the entire delinquency or imminent default
resolution process."
Does the assignment of a SPOC work to encourage greater
efficiency and outcomes in the foreclosure process? According
to Alan Jones, senior Vice President of Wells Fargo Home
Mortgage, while speaking on a panel at a Mortgage Bankers
Association servicing conference in 2011, "the single-point of
contact does work. It has helped to avoid foreclosures when the
borrower has one person to call while filling out their
documentation" (Wells Fargo Finalizing Electronic Mortgage
Modification Revamp, Housingwire-February 25th, 2011).
Robosigning .
AB 2425 prohibits the use of robosigned documents in the
foreclosure process. Robosigning has gained national attention
as reports revealed rampant shortcomings with foreclosing
processing.
Robosigning was first discovered in 2009 by Palm Beach, Florida
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Attorney Tom Ice after he deposed a bank employee who admitted
to signing hundreds of foreclosure documents in a day without
looking at them.
Often these problems appeared to be limited to judicial
foreclosure states where a foreclosure requires various court
filings. However, media reports demonstrated that the issue was
not limited to judicial foreclosure states. A January 20, 2011
article in American Banker (New Point of Foreclosure Contention:
Default Notice) provided the following:
At issue is the notice of default, the first letter that a
mortgage lender or servicer sends to a homeowner who has
fallen behind on payments. The notice typically starts the
formal foreclosure process in nonjudicial states such as
California, Arizona and Nevada.
Every notice of default has a signature on it. But just
like the infamously rubber-stamped affidavits in the
robo-signing cases, default notices, in at least some
instances, have been signed by employees who did not verify
the information in them, court papers show. In several
lawsuits filed in nonjudicial states, borrower attorneys
are arguing that this is grounds to stop a foreclosure.
"Whoever signs the NOD needs to have knowledge that there
is in fact a default," said Christopher Peterson, an
associate dean and law professor at the University of Utah.
The suits also argue that the default notices are invalid
because the employees who signed them worked for companies
that did not have standing to foreclose.
In a lawsuit against Wells Fargo & Co. in Nevada, an
employee for a title company who signed default notices
admitted in a deposition this month that he did not review
any documents or know who had the right to foreclose.
"They are starting foreclosures on behalf of companies with
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no authority to foreclose," said Robert Hager, an attorney
with the Reno, Nev., law firm Hager & Hearne, representing
the borrower in the case. "The policy of these companies is
to just have a signer execute a notice of default starting
foreclosure without any documentation to determine whether
they are starting an illegal foreclosure."
The Nevada nonjudicial foreclosure statute requires that
the company signing a notice of default have the authority
to foreclose, Hager said.
In a deposition on Jan. 4, Stanley Silva, a title officer
at Ticor Title of Nevada Inc., said he "technically signed"
default notices for clients, which were often acting as
agents of other parties, which in turn worked for others.
"The person at the bottom of the chain, by executing the
document, has taken an action on behalf of all of them
through their various agency agreements," Silva said. In
one case, for example, he said he had signed "on behalf of
Ticor Title of Nevada, who is agent for LPS Title, who is
agent for National Default Servicing."
"Who is agent for Fidelity National?" Hager asked.
"Apparently, yes," Silva replied.
"Which is a servicer for Wilshire?"
"Apparently."
Silva said under oath that he never reviewed any documents
or knew what company was the holder of the original note at
the time he signed the notice of default. He said he signed
about 200 default notices over a four-year period.
When asked by Hager if he signed notices of default
"without verifying the accuracy of the information," Silva
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replied: "Correct."
Representatives for Wells Fargo did not return calls
seeking comment. The intermediaries that Silva mentioned in
his testimony either did not return calls or declined to
comment.
Walter Hackett, a lawyer with Inland Counties Legal
Services, in San Bernardino, Calif., and a former banker
with Bank of America Corp. and Union Bank, has filed
several cases contesting notices of default, on the grounds
that the employees signing such notices were working for
companies that are not the note holders - or even their
appointed agents.
"A huge percentage of notices of default and notices of
trustee sales are legally questionable and probably void,"
Hackett said. "Nobody with the authority to trigger the
nonjudicial foreclosure process is triggering it - only
third parties who claim they have the right to do so are
triggering it."
After a notice of default is sent to the borrower and filed
at the county recorder's office, a notice of sale is
typically published in the local newspaper and the sale of
the property often takes place without the borrower even
knowing the home has been sold to another party.
O. Max Gardner 3rd, a consumer bankruptcy attorney at
Gardner & Gardner PLLC in Shelby, N.C., said the default
notice is "the key legal document that is sent to the
borrower" before a notice of sale.
Thousands of judicial-state foreclosures were halted last
year after several banks including Ally Financial Inc.'s
GMAC Mortgage and Bank of America Corp. admitted that
employees had signed affidavits without reviewing the
documents. In several judicial states, including New York
and Florida, sloppy paperwork by servicers has led courts
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to require that companies verify they have all the proper
documents, including proof they own the mortgage before
foreclosing.
This month, in a closely watched case, the Supreme Judicial
Court of Massachusetts (a nonjudicial state) rejected
claims made by U.S. Bancorp and Wells Fargo that the banks,
as securitization trustees, did not have to prove their
authority to foreclose on two separate homes.
Peterson, the law professor, said one difference between
the notice of default cases and the widely publicized
robo-signing incidents is that in the latter, affidavits
are given to judges whereas the notice of default is not
strictly a legal document.
But consumer lawyers said homeowners face a bigger legal
burden in nonjudicial sates because they have to file a
lawsuit against the holder of the note to bring any action
in court.
"Because there's no court reviewing anything in nonjudicial
states," abuses are "probably even more rampant," Gardner
said. "This is just another example of robo-signing in a
different context."
The United States Department of Housing and Urban Development,
Office of Inspector General (OIG) conducted a review of the
servicing practices of the five servicers party to the national
mortgage settlement. These reviews were conducted due to
reported allegations made in the fall of 2010 that servicers
were engaged in widespread foreclosure practices that involved
the use of robosigning of foreclosure documents. The five
servicers were examined based on their status as Federal Housing
Administration (FHA) direct endorsement lenders that can
originate, sponsor and service FHA-insured loans. Among the
findings included in one of the reports (Bank of America
Corporation Foreclosure and Claims Process Review. HUD, Office
of Inspector General, March 12, 2012) were the following
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"Bank of American did not establish effective
control over its foreclosure process."
"Bank of America did not establish a control
environment that ensured that's its notaries met their
responsibilities under State laws that required them to
witness affiants' signatures on documents they
notarized." The sample of documents reviewed by OIG
"included documents with notary stamps from Texas and
California." California law requires a notary to verify
the signature of signers.
"Bank of America's claim files for the 118 sample
loans did not consistently contain relevant pre-
foreclosure information that supported the legal basis
for foreclosure"
"Bank of America conveyed a property located in
Modesto, CA, to HUD with incorrect legal description.
California is a two-deed State, requiring a trustee deed
and grant deed. The grant deed conveying the property
title to HUD used a legal description for a property on
another street. Because the legal description was
incorrect, Bank of America did not give HUD good and
marketable title to the property."
Similar HUD OIG reports exist for Wells, Citi, Chase, and Ally
Financial.
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Justice, Attorney General (Sponsor)
California Professional Firefighters (CPF)
California School Employees Association
Cambridge Credit counseling
Center for Responsible Lending (CRL)
ClearPoint Financial Services
Coalition for Quality Credit Counseling (CQCC)
Consumer Credit Counseling Service of Orange County
Consumer Credit Counseling Service of San Francisco
Consumer Credit Counseling Service of the North Coast
Consumer Credit Counseling Service of the Twin Cities
GreenPath
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Home Strong USA
InCharge
Lutheran Office of Public Policy - California
Money Management International
Novadebt
Springboard Nonprofit Consumer Credit Management
SurePath Financial Solutions
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
Securities Industry and Financial Markets Association
United Trustees Association
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081