BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 1470 (Leno et al.) Hearing Date: April 18,
2012
As Amended: April 10, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would enact several changes to the rules governing the
nonjudicial foreclosure process for residential real property,
establish an Office of Homeowner Protection to help respond to
borrower inquiries about and complaints regarding compliance
with the new rules, and provide for enforcement mechanisms, as
specified.
DESCRIPTION
OFFICE OF HOMEOWNER PROTECTION
1. Would create an Office of Homeowner Protection, and state
legislative intent that the Office be funded through
payments made available to the Attorney General via the
Special Deposit Fund (a fund created pursuant to the
nationwide mortgage settlement, into which approximately
$370 million is expected to be deposited for use by the
Attorney General for purposes specified in the settlement;
page B2-3 of the settlement). Would give the Office of
Homeowner Protection responsibility for all of the
following:
a. Responding to inquiries and complaints from
individuals about the provisions of the bill.
b. Attempting to seek compliance by mortgagees,
trustees, beneficiaries, and authorized agents with the
provisions of the bill.
c. Maintaining an Internet Web site that is capable of
receiving inquiries and complaints from individuals, and
that provides information to the public about publicly
available resources intended to help individuals avoid
foreclosure.
SB 1470 (Leno et al.), Page 2
d. Providing an annual report to the Legislature,
summarizing its activities during the prior year.
BORROWER NOTIFICATIONS
2. Would delete the sunset date on the provisions of existing
law known colloquially as "SB 1137," and expand the
mortgages and deeds of trust to which that law applies by
deleting the limitation restricting SB 1137 to mortgages and
deeds of trust recorded from January 1, 2003 through
December 31, 2007. Would also require two additional items
of information to be provided by mortgagees, trustees,
beneficiaries, or authorized agents when they initiate
contact with borrowers in the manner required by SB 1137:
a) the phone number for the Office of Homeowner Protection,
and b) if applicable, the deadline by which a borrower must
submit an initial application for a loan modification.
3. Would require several additional items of information to be
included in the declaration that must be included with
notices of default recorded on owner-occupied, single family
residential real property pursuant to SB 1137. In addition
to the items already required to be included in the
declaration, the declaration would have to include
statements that:
a. The borrower is not a servicemember or the dependent
of a servicemember who is entitled to the benefits of the
Servicemembers Civil Relief Act (This requirement is
based on provisions of the settlement, which require
servicers to determine whether borrowers may be eligible
for the protections of the Servicemembers Civil Relief
Act and for additional servicemember protections
available pursuant to the terms of the settlement; page
A-32).
b. The mortgagee, beneficiary, or authorized agent has
possession of the note and mortgage or deed of trust and
evidence of its right to foreclose, including
documentation of any assignments and endorsements of the
mortgage note or deed of trust. This evidence must be
attached to or specifically described in the declaration.
(The settlement requires servicers to ensure that they
have reviewed competent and reliable evidence to
substantiate the borrower's default and right to
SB 1470 (Leno et al.), Page 3
foreclose �page A-1]; it also requires servicers to
implement processes to ensure that the servicer or the
foreclosing entity has a documented enforceable interest
in the promissory note and mortgage or deed of trust
under applicable state law �page A-8]).
If proof of the foreclosing entity's right to foreclose
cannot be located, the mortgagee, trustee, beneficiary,
or authorized agent must include a separate declaration
signed either by an individual with personal knowledge of
the facts in the declaration, or by an individual with
authority to bind the mortgagee, trustee, beneficiary, or
authorized agent, who certifies that the declaration is
based upon records that were made in the regular course
of business at or near the time of the events, and which
states all of the following:
i. Facts sufficient to show that the
mortgagee, trustee, beneficiary, or authorized agent
has the right to enforce the note.
ii. A statement that the person cannot
reasonably obtain possession of the note, and a
description of the reasonable efforts made to obtain
the note.
iii. A description of the terms of the note
and any of its riders, including all of the
following about the note, at a minimum: the date of
execution, the parties, the principal amount, the
amortization period, the initial interest rate and,
if applicable, the initial date and frequency of any
adjustments to the interest rate, and the index and
margin used to calculate the interest rate at the
time of any scheduled adjustment; and the expiration
of any interest only period, as applicable.
(The settlement defers to state law regarding lost notes,
but differs from this bill in that the settlement refers
only to notes lost while in the servicer's control. It
states that if the original note is lost or otherwise
unavailable, servicers must comply with applicable law in an
attempt to establish ownership of the note and the right to
enforcement. In the event that servicers prepare or cause
to be prepared a lost note or lost assignment affidavit with
respect to an original note or assignment lost while in the
SB 1470 (Leno et al.), Page 4
servicer's control, the servicer must use good faith efforts
to obtain or locate the note or assignment in accordance
with its procedures; page A-8. This bill appears to cover
situations in which notes are lost prior to the servicer
taking control, in addition to situations under the
servicer's control).
4. Would prohibit a notice of default from being recorded,
unless the mortgagee, beneficiary, or authorized agent sends
a separate written notice to the borrower, which includes
all of the following, at least 14 days prior to recording
the notice of default:
a. A statement setting forth facts supporting the right
of the mortgagee, beneficiary, or authorized agent to
foreclose on the borrower's loan note. (This language is
based on the settlement, which requires servicers to set
forth the information establishing the foreclosing
party's right to foreclose, at least 14 days prior to
referring a loan to foreclosure; pages A-4 and A-8).
b. Notification that the borrower may receive, upon
written request to the mortgagee, beneficiary, or
authorized agent, or to any assigned single point of
contact, a copy of the borrower's payment history since
the borrower was last less than 60 days past due, a copy
of the borrower's loan note, copies of any assignments of
the note and of the mortgage or deed of trust that would
evidence a right to foreclose on the borrower's property,
and, if applicable, the name of the investor that holds
the borrower's loan note (This language is based on the
settlement; pages A-4 and A-6).
c. An itemized plain language account summary setting
forth specified information about the terms of the loan
and the date on which the last full payment was made;
providing contact information for use by the borrower to
obtain information about the mortgage; a statement that
if the borrower is a servicemember or a servicemember's
dependent, he or she may be entitled to certain
additional protections; a summary of the loss mitigation
efforts that have already been undertaken with respect to
the borrower and, if no loss mitigation efforts were
offered or undertaken, a statement, if applicable, giving
the reason why the borrower is ineligible for a loan
modification or other loss mitigation option; and the
SB 1470 (Leno et al.), Page 5
phone number for the Office of Homeowner Protection.
(This language is based on the settlement, pages A-4, A-7
and A-21).
5. Would require a mortgagee, trustee, beneficiary, or
authorized agent to send a written communication to the
borrower within five calendar days after recording a notice
of default, in which the borrower is informed that he or she
may still be evaluated for alternatives to foreclosure, and
is provided with information regarding the way in which that
borrower would go about applying for such an alternative.
(This language is based on the settlement; page A-24).
DUAL TRACK
6. Would establish the following rules for borrowers who
submit an application for a loan modification within 120
days after becoming delinquent, and before a notice of
default has been recorded:
a. A mortgagee, trustee, beneficiary, or authorized
agent may not record a notice of default while the loan
modification application is pending, and until either:
i) it makes a determination that the borrower is
ineligible for a loan modification, or ii) if a borrower
does not accept an offered trial or permanent loan
modification or other foreclosure prevention alternative,
the earlier of the date on which the borrower declines or
the borrower's deadline for accepting the offer, as
specified.
b. If a borrower accepts an offered trial or permanent
loan modification, the mortgagee, trustee, beneficiary,
or authorized agent may not record a notice of default
until the borrower fails to timely submit the first
payment or otherwise breaches the terms of the offer.
c. If the loan modification requested by a borrower is
denied, the mortgagee, trustee, beneficiary, or
authorized agent may not record a notice of default until
the later of: i) 30 days after the borrower is notified
in writing of the denial; or ii) if the borrower appeals
the denial, the later of 15 days after denial of the
appeal or 14 days after a post-appeal offer is declined
by the borrower, or iii) if the appeal leads to the offer
of a trial or permanent loan modification, until the
SB 1470 (Leno et al.), Page 6
borrower timely fails to submit the first payment or
otherwise breaches the terms of the offer.
(These timelines are based on the settlement �page A-17],
but the settlement applies these timelines to complete loan
modification applications, while the bill applies the
timelines to any loan modification application submitted by
a borrower, whether or not it has been deemed complete by
the servicer).
7. Would establish the following rules for borrowers who
submit an application for a loan modification within 60 days
following the recordation of a notice of default, and before
the recordation of a notice of sale:
a. A mortgagee, trustee, beneficiary, or authorized
agent may not record a notice of sale, until either: i)
it makes a determination that the borrower is ineligible
for a loan modification, or ii) if a borrower does not
accept an offered trial or permanent loan modification or
other foreclosure prevention alternative, the earlier of
the date on which the borrower declines or the borrower's
deadline for accepting the offer, as specified.
b. If a borrower accepts an offered trial or permanent
loan modification, the mortgagee, trustee, beneficiary,
or authorized agent may not record a notice of sale until
the borrower fails to timely submit the first payment or
otherwise breaches the terms of the offer.
c. If the loan modification requested by a borrower is
denied, the mortgagee, trustee, beneficiary, or
authorized agent may not record a notice of sale until
the later of: i) 30 days after the borrower is notified
in writing of the denial; or ii) if the borrower appeals
the denial, the later of 15 days after denial of the
appeal or 14 days after a post-appeal offer is declined
by the borrower, or iii) if the appeal leads to the offer
of a trial or permanent loan modification, until the
borrower timely fails to submit the first payment or
otherwise breaches the terms of the offer.
(These timelines are based on the settlement �page A-18],
but, as described above, the settlement applies these
timelines to complete loan modification applications, while
the bill applies the timelines to any loan modification
SB 1470 (Leno et al.), Page 7
application submitted by a borrower, whether or not it has
been deemed complete by the servicer).
8. Would establish the following rules for borrowers who
submit an application for a loan modification less than
fifteen days before a notice of sale may be recorded:
a. A mortgagee, trustee, beneficiary, or authorized
agent may not record a notice of sale, until either: i)
it makes a determination that the borrower is ineligible
for a loan modification, or ii) it notifies the borrower
whether it can conduct an expedited review of the loan
modification application, or, if not, the reasons it
cannot complete the review of the loan modification
application.
b. If a borrower accepts an offered trial or permanent
loan modification, the mortgagee, trustee, beneficiary,
or authorized agent may not record a notice of sale until
the borrower fails to timely submit the first payment or
otherwise breaches the terms of the offer.
(These timelines are based on the settlement; pages A-19 and
A-20. However, the settlement language on this topic states
that if a servicer receives a complete loan modification
application less than 15 days before a scheduled foreclosure
sale, the servicer must notify the borrower before the sale
date regarding its determination �if its review was
completed] or its inability to complete its review).
9. Would provide that, if a borrower utilizes the process
described in Number 6 above, he or she may not reapply for
relief using the process described in Numbers 7 or 8 above,
unless the borrower's application reflects a material change
in the borrower's financial circumstances since the date of
the borrower's previous application. Similarly, if a
borrower utilizes the process described in Number 7 above,
he or she may not reapply for relief using the process
described in Number 8 above, unless the borrower's
application reflects a material change in the borrower's
financial circumstances since the date of the borrower's
previous application.
(This language differs from the language of the settlement;
page A-29. The settlement expressly states that its
provisions in this area are intended "to minimize the risk
SB 1470 (Leno et al.), Page 8
of borrowers submitting multiple loss mitigation requests
for the purpose of delay." The bill contains no such
language.
Additionally, the settlement's language relieves servicers of
obligations to evaluate requests for loss mitigation options
from: a) borrowers who were already evaluated or afforded a
fair opportunity to be evaluated consistent with the
requirements of the Making Home Affordable Modification
program or proprietary modification programs prior to the
implementation date of the settlement, and b) borrowers who
were evaluated after the implementation date of the
settlement, consistent with the settlement, unless there was
a material change in the borrower's financial circumstances
that is documented by the borrower and submitted to the
servicer. This bill contains language similar to "b" but
does not contain language similar to "a." Thus, unlike the
settlement, this bill appears to require servicers to
re-evaluate borrowers who were previously evaluated pursuant
to HAMP or a proprietary loan modification program, prior to
the bill's implementation date).
10. Would prohibit a mortgagee, trustee, beneficiary, or
authorized agent from recording a notice of sale under any
of the following circumstances:
a. The borrower is in compliance with the terms of a
trial or permanent loan modification, forbearance, or
repayment plan (This language comes directly from the
settlement; page A-20).
b. A short sale or deed-in-lieu of foreclosure has been
approved by all parties, including the first lien
investor, the junior lienholder, and the mortgage insurer,
as applicable, and proof of funds or financing has been
provided to the mortgagee, trustee, beneficiary, or
authorized agent (This language comes directly from the
settlement; page A-20).
11. Would require a mortgagee, trustee, beneficiary, or
authorized agent to record a rescission of a notice of
default, when a borrower executes a permanent loan
modification. (This language is not in the settlement).
DOCUMENTATION AND RECORDKEEPING REQUIREMENTS
SB 1470 (Leno et al.), Page 9
12. Would establish timelines that must be followed by
mortgagees, trustees, beneficiaries, and authorized agents
with respect to acknowledging the receipt of written
information, providing information about application
deadlines, providing deadlines for submitting missing
documentation, identifying expiration dates for submitted
documents, documenting nonapproval of a loan modification
application, and processing appeals from borrowers resulting
from nonapproval of loan modification applications, as
specified. (This language closely tracks the language of
the settlement; pages A-25 through A-28, except that the
settlement applies these requirements to first-lien
modifications only, while this bill is not similarly limited
in its application).
13. Would require the mortgagee, trustee, beneficiary, or
authorized agent to provide the borrower with a copy of the
fully executed loan modification agreement, when a borrower
accepts an offered loan modification in writing. Would
require the mortgagee, trustee, beneficiary, or authorized
agent to provide the borrower with a written summary of the
terms of a proffered loan modification, if the modification
was not made in writing. (This language is based on the
terms of the settlement; pages A-28 and A-29. The
settlement requires these documents to be provided within 45
days. The bill requires them to be provided as soon as
possible).
14. Would prohibit a mortgagee, trustee, beneficiary, or
authorized agent from charging any application, processing,
or other fee for a proprietary loan modification (based on
language in the settlement; page A-29), and from collecting
any late fees for periods during which a complete loan
modification is under consideration or a denial is being
appealed, the borrower is making timely trial or permanent
modification payments, or a short sale offer is being
evaluated (similar to language in the settlement, but the
settlement does not expressly prohibit the imposition of
late fees while a denial is being appealed; page A-36).
15. Would require a mortgagee, trustee, beneficiary, or
authorized agent to make information about its qualification
processes, all required documentation and information
necessary for a complete loan modification application, and
key eligibility factors for all proprietary loan
modifications publicly available (based on the terms of the
SB 1470 (Leno et al.), Page 10
settlement that apply to first- and second-lien proprietary
loan modifications; pages A-29 and A-30. The bill does not
limit this provision to proprietary loan modifications, as
does the settlement).
16. Would require a mortgagee, trustee, beneficiary, and
authorized agent to track outcomes and maintain records
regarding characteristics, as specified, and performance of
proprietary loan modifications, and to provide a description
of modification waterfalls, eligibility criteria, and
modification terms on a publicly available Internet Web site
(based on language in the settlement, which covers
information that must be provided about first-lien
proprietary loan modifications; page A-30. The bill does
not limit this requirement to proprietary first-lien
modifications).
TRUSTEE SALE POSTPONEMENTS
17. Would require homeowners to be informed in writing, as
specified, whenever the trustee sale date set for the sale
of their property is postponed by ten calendar days or more.
(This is not based on the settlement).
REMEDIES (not based on the settlement)
18. Would authorize a borrower, who reasonably believes that a
mortgagee, trustee, beneficiary, or authorized agent has
failed to comply with the requirements of the bill, to seek
an order to enjoin any pending trustee's sale in any court
having jurisdiction, if a notice of sale has been recorded.
Would entitle borrowers who obtain injunctions to reasonable
attorneys' fees and costs, and would provide that any
injunction must remain in place until the mortgagee,
trustee, beneficiary, or authorized agent has complied with
the provisions of the bill. Would not allow a borrower to
obtain relief for any violation that is technical or de
minimis in nature, such that it did not impact the
borrower's ability to pursue an alternative to foreclosure.
19. Following a trustee's sale, would authorize a borrower, who
reasonably believes that a mortgagee, trustee, beneficiary,
or authorized agent has failed to comply with the
requirements of the bill, to seek to recover the greater of
actual damages or $10,000, plus reasonable attorneys' fees
and costs, in any court of competent jurisdiction. Would
SB 1470 (Leno et al.), Page 11
authorize a court to award a borrower the greater of treble
actual damages or statutory damages of $50,000, plus
attorneys' fees and costs, if it finds that a violation of
the bill was intentional, reckless, or resulted from willful
misconduct by a mortgagee, trustee, beneficiary, or
authorized agent. Would not allow a borrower to obtain
relief for any violation that is technical or de minimis in
nature, such that it did not impact the borrower's ability
to pursue an alternative to foreclosure.
20. Would provide that a violation of the provisions of the
bill shall not affect the validity of a sale in favor of a
bona fide purchaser and any of its encumbrancers for value
without notice (i.e., that arms' length sales of foreclosed
properties to third party purchasers will not be deemed
invalid as a result of any violation of the bill, and that
the interests of parties who hold liens secured by those
properties, following the sales of those properties to bona
fide third party purchasers, will not be invalidated).
21. Would provide an affirmative defense to liability for
violations of the bill to signatories to the settlement
agreement, which are in compliance with that agreement, as
specified.
EXISTING LAW
1. Prescribes rules that govern the nonjudicial foreclosure
process in California (Civil Code Section 2924 et seq.). A
layman's description of the portions of the process that are
relevant to this bill follows immediately below. Modifications
that were made to this process by SB 1137 (Chapter 69, Statutes
of 2008) are described in Number 2, immediately below. SB 1137
will sunset on January 1, 2013, unless its provisions are
extended.
a. The nonjudicial foreclosure process begins with the
recordation of a notice of default by a mortgagee, trustee,
beneficiary, or authorized agent. The notice of default must
be recorded in the county in which the property securing the
defaulted loan is located, and must be mailed to specified
persons with a financial interest in the property, including
the property owner. Existing law does not prescribe the
minimum amount of time that must pass between a delinquency
and the recordation of a notice of default, although notices
SB 1470 (Leno et al.), Page 12
of default are commonly recorded only after a borrower is at
least 90 days delinquent on his or her mortgage loan.
b. At least three months must pass after recordation of a
notice of default, before the mortgagee, trustee,
beneficiary, or authorized agent may record a notice of sale.
Notices of sale must be recorded in the county in which the
property securing the defaulted loan is located, mailed to
the property owner and other specified persons with a
financial interest in the property, published in a newspaper
of general circulation, and posted on the property that is
the subject of the sale.
c. At least 20 days must pass after recordation of a notice
of sale, before a property may be sold. However, sale dates
may be, and often are, postponed. Under existing law, a sale
date may be postponed for any of the following reasons: 1)
upon the order of any court of competent jurisdiction; 2) if
stayed by operation of law; 3) by mutual agreement, whether
oral or in writing, of any trustor and any beneficiary or any
mortgagor and any mortgagee (i.e., by mutual agreement
between a borrower and his or her lender); and/or 4) at the
discretion of the trustee. A new notice of sale must be
recorded, if a postponement or postponements delay the sale
for more than 365 days following the first scheduled sale
date.
d. Effective April 1, 2012, each notice of trustee sale
must include the following language, pursuant to SB 4
(Calderon and Vargas, Chapter 229, Statutes of 2011):
"NOTICE TO PROPERTY OWNER: The sale date shown on this notice
of sale may be postponed one or more times by the mortgagee,
beneficiary, trustee, or a court, pursuant to Section 2924g
of the California Civil Code. The law requires that
information about trustee sale postponements be made
available to you and to the public, as a courtesy to those
not present at the sale. If you wish to learn whether your
sale date has been postponed, and, if applicable, the
rescheduled time and date for the sale of this property, you
may call � telephone number ] for information regarding the
trustee's sale or visit � this Internet Web site address ] for
information regarding the sale of this property, using the
file number assigned to this case � case file number ].
Information about postponements that are very short in
duration or that occur close in time to the scheduled sale
may not immediately be reflected in the telephone information
SB 1470 (Leno et al.), Page 13
or on the Internet Web site. The best way to verify
postponement information is to attend the scheduled sale."
The wording of the notice immediately above was facilitated by
other provisions of SB 4, which require that trustees make
postponement information available via an Internet Web site,
telephone recording that is accessible 24 hours a day, seven
days a week, or via any other means that allows 24/7 no-cost
access to updated information about postponements.
2. Pursuant to SB 1137 (Chapter 69, Statutes of 2008), the
following is required, before a notice of default may be
recorded on a mortgage or deed of trust, which was recorded
between January 1, 2003 and December 31, 2007, and was secured
by single-family, owner-occupied residential real property:
a. A mortgagee, beneficiary, or authorized agent (i.e., the
mortgage lender or its representative) must contact the
borrower in person or by telephone, in order to assess the
borrower's financial situation and explore options for the
borrower to avoid foreclosure. Contact (or attempted
contact, if a borrower is unreachable) must be made
telephonically and in writing, as specified. During the
initial contact, the mortgagee, beneficiary, or authorized
agent must advise the borrower that he or she has the right
to request a subsequent meeting, which, if requested, must
occur within 14 days of request. The mortgagee, beneficiary,
or authorized agent must also provide the borrower with a
toll-free telephone number that can be used by the borrower
to contact a U.S. Department of Housing and Urban Development
-certified housing counseling agency.
b. A mortgagee, beneficiary, or authorized agent must wait
at least 30 days after making initial contact with a
borrower, or satisfying specified due diligence requirements
to make contact, before it can record a notice of default on
a loan covered by SB 1137.
c. Each notice of default that is recorded on a loan
covered by SB 1137 must include a declaration stating that
the mortgagee, beneficiary, or authorized agent contacted the
borrower, tried with due diligence to contact the borrower,
or that no contact was required, because one of the
exemptions applied. Exemptions from SB 1137's contact
requirements are provided, in cases where a borrower has
already surrendered the property, contracted with an
SB 1470 (Leno et al.), Page 14
organization or other entity that advises borrowers on how to
"game" the foreclosure process, or filed for a bankruptcy
that is still before a court.
COMMENTS
1. Purpose: The author states, "California is the midst of a
major crisis in homeownership. It is estimated that 500,000
more homes will be subject to foreclosure in the next year
to eighteen months. According to the Attorney General,
there are wide-spread problems in the mortgage servicing
industry involving distressed homeowners pursuing loan
modification discussions with a bank while at the same time
the bank is pursuing foreclosure on a separate track. This
is known as "dual tracking." As a result, discussions that
in many cases will lead to a successful loan modification
are cut off by a foreclosure sale. In some instances,
borrowers have even made modified loan payments for a period
of months, as agreed upon with the bank, when the
foreclosure sale occurs.
Under the recently-concluded National Mortgage Settlement, the
five largest banks have entered into consent judgment under
which dual tracking will be stopped. All Californians are
entitled to expect the same fair treatment.
The bill also contemplates the establishment of an Office of
Homeowner Protection that would act as an ombudsperson to
facilitate the resolution of borrower-servicer disputes and
reduce the need for litigation. This would be funded with
proceeds from the National Mortgage Settlement."
2. Background and Discussion: On March 12, 2012, the United
States Department of Justice, U.S. Department of Housing and
Urban Development, and 49 state Attorneys General, including
California's Attorney General Kamala Harris, announced the
filing of a settlement agreement with the nation's five
largest mortgage servicers (Ally/GMAC, Bank of America,
Citi, JPMorgan Chase, and Wells Fargo). As part of the
settlement, six documents were filed with the court: a
complaint, which details the bad acts alleged by the
plaintiffs to have been committed by the servicers, and five
separate consent judgments (one for each of the servicers),
in which the terms of the agreement between each servicer
and the plaintiffs is detailed. All of these documents can
be downloaded from www.nationalmortgagesettlement.com .
SB 1470 (Leno et al.), Page 15
Although the terms of each of the five consent judgments are
slightly different, each of the judgments shares many
similarities. Three elements of the judgments which are
identical, and which are relevant for purposes of this
analysis, include the settlement term sheet (referenced in
each of the settlements as Exhibit A), the enforcement
provisions (Exhibits E and E-1), and the releases from
prosecution that were granted to the servicers (Exhibits F
and G). Other key elements of the judgments, which will not
be discussed further in this analysis, include discussions
of how much money each of the servicers must pay in
connection with the settlement, how that money is allocated
among states, how credit toward servicers' monetary
obligations is calculated under the settlement (different
types of consumer relief count differently toward servicers'
monetary obligations), and how servicemembers and their
dependents are covered by the settlement.
The settlement term sheet formed the basis for many of the
provisions of this bill and its companion, SB 1471, and is
widely expected to form the basis for national servicing
standards that the federal Consumer Financial Protection
Bureau is expected to propose sometime this summer.
3. How will the settlement be enforced/How does the settlement
handle private rights of action? Responsibility for
enforcing the terms of the settlement agreement rests with a
federal enforcement monitor (Joseph Smith, former banking
commissioner of North Carolina) and a Monitoring Committee,
which consists of state attorneys general, state financial
regulators, the U.S. Department of Justice, and the U.S.
Department of Housing and Urban Development. This
Monitoring Committee or any party to the consent judgments
are the only entities that may bring actions to enforce the
judgments. All actions must be brought in the U.S. District
Court for the District of Columbia. Actions may only be
brought if the time to cure a potential violation (see
discussion below) has expired.
When people assert that the settlement preserves private rights
of action, they are not referring to private rights to
enforce the provisions of the settlement. Instead, they are
referring to the fact that the state and federal releases in
the settlement preserve individuals' ability to file suit
for violations of residential mortgage loan origination and
SB 1470 (Leno et al.), Page 16
servicing laws, and for violations of residential
foreclosure practices. The releases from prosecution
contained in the settlement prohibit any of the 49 state
attorneys general, any other state government entities in
any of the 49 states signing the agreement, or the federal
government from prosecuting civil claims related to the
residential mortgage loan servicing, residential mortgage
loan origination practices, and residential foreclosure
practices of the signatories prior to the date of the
settlement. Because these releases did not cover individual
claims, individuals may continue to sue the signatories for
violating state or federal law governing residential
mortgage loan servicing, residential mortgage loan
origination practices, or residential foreclosure practices.
It is these private rights of action that the settlement
preserved, not private rights of action to enforce the terms
of the settlement.
If individuals can't enforce the provisions of the settlement
agreement, how will it be enforced? As noted immediately
above, the terms of the settlement are enforced by the
federal enforcement monitor and the Monitoring Committee.
Attorney General Harris has also appointed Irvine Law School
Professor Katherine Porter to assist her in monitoring
servicers' commitments to California.
Under the terms of the settlement, only two types of relief may
be granted by the court (page E-15):
a. Non-monetary equitable relief, which may
include injunctive relief, direct certain specific
actions be taken under the terms of the consent
judgment, or comprise other non-monetary corrective
action; and
b. Civil penalties of not more than $1 million
per uncured violation ($5 million in the event of a
second uncured violation, when the first uncured
violation involves widespread noncompliance). Civil
penalties are distributed either to the United States,
the state that prosecuted the violation, or to all
states in proportion to their payouts under the terms
of the settlement, depending on the nature of the
violation.
Identifying Potential Violations: Each servicer is
SB 1470 (Leno et al.), Page 17
required to establish an internal quality control (QC)
group that is independent from the line of business whose
performance is being measured under the terms of the
consent judgment. The settlement contains a series of
metrics, each of which must be measured by these internal
QC groups and reported upon quarterly to the monitor (page
E-3).
These metrics cover all stages of the loss mitigation and
foreclosure process, from initial contact through loan
modification review, decision, and appeal, through
foreclosure sale, as well as other topics of the consent
judgment outside of the foreclosure process, such as the
calculation of fees and imposition of force-placed
insurance. Generally speaking, the metrics are designed to
numerically evaluate servicers' performance across all
aspects of the consent judgment. Small error rates require
remediation, but do not trigger official violations. Error
rates in excess of the threshold error rates identified in
the consent judgment trigger official violations (what the
settlement defines as potential violations; Exhibit E-1).
Servicer Right to Cure: Whenever a potential violation
occurs (i.e., whenever a servicer exceeds the threshold
error rate for a given metric in a given quarter), the
servicer must meet and confer with the Monitoring Committee
within 15 days of the submission of a report showing the
violation. Servicers have a right to cure any potential
violation. Potential violations are deemed cured if: a) a
corrective action plan approved by the monitor is
determined by the monitor to have been successfully
completed, b) a quarterly report covering the cure period
shows that the threshold error rate has not been exceeded
for that same metric during that period, and c) the monitor
confirms the accuracy of that quarterly report (pages E-11
and E-12).
In addition to a servicer's obligation to cure a potential
violation via a corrective action plan, servicers must
remediate any material harm to particular borrowers
identified through work performed by the servicer.
Furthermore, if a servicer has a potential violation so far
in excess of the threshold error rate that the monitor
concludes the error is widespread, the servicer must
identify other borrowers who may have been harmed by such
noncompliance and remediate all such harms (page E-12).
SB 1470 (Leno et al.), Page 18
4. Summary of Arguments in Support:
a. Attorney General Kamala Harris is sponsoring SB
1470, and sees the bill as an important part of her
Homeowner Bill of Rights legislative package. The
Attorney General took the first step in addressing the
mortgage crisis by signing the National Mortgage
Settlement, which includes mortgage servicing standards
that are designed to return integrity to the foreclosure
process. The next step is reforming California's laws to
ensure that these protections are made permanent, and
apply to other banks and servicers to re-establish
integrity and uniformity to the state's foreclosure
process. SB 1470 will accomplish these goals. The bill
will resolve the problem of dual-tracking and will
require servicers to provide documentation demonstrating
their right to foreclose, before the foreclosure process
may begin. The bill provides a private right of action
that will allow for meaningful enforcement when the
bill's provisions have been violated in a way that
prejudices the ability of homeowners to secure a loan
modification. These provisions will help ensure home
ownership for thousands of Californians who are able to
make payments under modified loan terms over the long
term, if given a chance.
b. The Center for Responsible Lending (CRL) observes
that an average of more than 500 California families have
lost their home every day since the fourth quarter of
2007, and that, although foreclosure activity has
retreated from peak levels, delinquencies and
foreclosures far exceed pre-crisis housing market levels.
Research by CRL suggests that California is barely
halfway through the foreclosure crisis. Among
Californians who received mortgage loans between 2004 and
2008, 9.3% have already lost their homes to foreclosure,
and another 8.9% are in default and at immediate, serious
risk of losing their homes.
Systemic servicing and foreclosure process problems
continue to lead to unnecessary foreclosures. Too many
California families are unnecessarily losing their homes
when they could have qualified for a mortgage
modification that would have saved their home, improved
returns for the owner of the mortgage, and avoided costs
SB 1470 (Leno et al.), Page 19
on neighbors, local governments, and California's economy
as a whole. SB 1470 would put into place measures to
promote transparency and fairness in the foreclosure and
loan modification process.
Consumers' Union echoes the support expressed by CRL and
adds that SB 1470 will create a much-needed safety net to
help struggling California homeowners avoid foreclosure,
if they qualify for a cost-effective loan modification.
Preventing unnecessary foreclosures at the earliest stage
possible is in everyone's best interest. The protections
in SB 1470 are seriously needed.
The California Public Interest Research Group adds, "It is
clear that the current system - proceeding with
foreclosure concurrent to any foreclosure-avoidance
discussions - is not working. No one benefits - not the
servicer, not the investors, not the homeowners, not the
community, and not the California economy, when a home
that is in the process of being saved through a loan
modification, is sold in foreclosure."
c. Numerous other consumer advocacy organizations,
religious organizations, and unions expressed support for
reasons similar to those summarized above.
d. The California Reinvestment Coalition and 57 of its
member organizations wish to be reflected as in support
of the bill, only if it is amended to strengthen its
private rights of action, and clearly apply the private
rights of action in the bill to settlement signatories.
These groups are not listed in the support section at the
bottom of this analysis, because they are technically not
in support at this time; they will only support of the
bill, if amendments are made, which are not currently in
the bill before this Committee.
5. Summary of Arguments in Opposition:
a. A coalition of trade associations representing the
financial services industry and the secondary mortgage
market raised several concerns in their letter of
opposition. The coalition is concerned about legislation
that will result in a de-facto moratorium on
foreclosures, as such a moratorium will result in a
further erosion of property taxes for local governments,
SB 1470 (Leno et al.), Page 20
perpetuate community blight for longer periods, act as a
disincentive for capital investments, and forestall
economic recovery. As collateral recovery becomes less
certain, investors in mortgage products will be less
inclined to employ their investment capital in mortgage
assets. This will have the effect of reducing the
availability of credit, as lenders restrict their
originations to higher credit quality borrowers, where
foreclosure is deemed less likely, and investors demand
higher returns on their investments, to compensate for
increased risk.
A few of the specific concerns cited in the coalition's
letter are summarized below.
i. SB 1470 exemplifies an overly
complicated formula, which will further frustrate and
prolong existing foreclosure and loss mitigation
efforts. The bill will add to the complexity of
navigating the nonjudicial foreclosure process by
servicers, creating a series of procedural traps that
will lead to ever increasing litigation.
ii. A temporary situation does not require
a permanent solution. SB 1470 proposes permanent
changes to law that are extraordinarily restrictive
and draconian. The nationwide mortgage settlement
has a sunset date, and SB 1470 should, as well.
iii. SB 1470 fails to narrowly target
at-risk borrowers, and applies too broadly. It
promotes strategic defaults, allows investors and
speculators to crowd out borrowers with financial
hardship, and fails to require tender by borrowers as
a symbol of good faith. For borrowers who
strategically default and have no intention of
remaining in their homes, the bill will be used as a
delay and a leveraging tactic.
iv. SB 1470 will invite litigation through
the inclusion of private rights of action. Exposing
entities and individuals to excessive litigation risk
will not attract and encourage creditors and
investors to inject the capital necessary to revive
California's residential housing marketplace.
SB 1470 (Leno et al.), Page 21
a. The California Land Title Association (CLTA)
acknowledges that the inclusion of language intended to
protect bona fide purchasers and bona fide encumbrancers
will provide them with an affirmative defense against
claims asserting the invalidity of title transfer. CLTA
notes, however, that this defense must be asserted by a
new homebuyer/BFP after he or she is sued, and will do
nothing to dissuade delinquent borrowers and their
attorneys from naming BFPs in litigation that is likely
to flow from the enactment of SB 1470. These new
homebuyers will be saddled with legal costs in the
thousands of dollars, simply to hire attorneys to file
motions to dismiss based on the BFP protections in the
bill. Homebuyers fortunate enough to have purchased a
homeowner's title policy following a foreclosure sale
will be able to have their title insurer defend them, but
they will have to pay a significant premium to obtain
their new title policies for that reason.
CLTA observes that SB 1470 will have a negative impact on
California's real estate economy and the secondary
market. Currently, lender's title policies (i.e.,
policies to protect the lender's security interest in a
home) attach to a borrower's loan and follow that loan,
if it is sold into the secondary market. SB 1470 will
introduce several new risks to title and will likely
cause the title industry to reevaluate what coverage it
will be able to offer to lenders. The likelihood that
lenders will be unable to obtain title policies that
limit their potential for risk and loss will translate to
diminished secondary market interest in the loans these
lenders make. Secondary market buyers seeking to
assemble securitized pools of loans will look less
favorably on loans that carry a potential for risk and
loss due to title challenges.
b. The California Association of Realtors (CAR) is
concerned that SB 1470 will reduce the availability of
mortgage credit and increase the cost of funds for
legitimate, qualified borrowers attempting to participate
in the emerging recovery of the California real estate
market. CAR believes that it is premature to lock into
California statute some version of the settlement before
it has been proven in the market. To the extent the
settlement is to be incorporated into California law, CAR
suggests it be done so in a way that creates more
SB 1470 (Leno et al.), Page 22
uniformity for all lenders and servicers rather than
less, and recommends that the bill track the settlement,
except as needed to modify terms to be consistent with
California's statutory usage.
c. The California Chamber of Commerce labels SB 1470 a
job-killer bill, because it will impede California's
housing market recovery by allowing all borrowers,
including strategic defaulters and investors, to
interrupt the foreclosure process to forestall legitimate
foreclosures. SB 1470 will continue a trend of delaying
or stretching out the foreclosure process. The measure
fails to narrowly target at-risk borrowers, and applies
broadly, allowing a borrower to apply for a loan
modification multiple times during the foreclosure
process, with each application adding a month or more to
the process.
The enforcement provisions of SB 1470 will incent
litigation by imposing strict liability with no right to
cure, and inflicting statutory, actual, treble, and
punitive damages. The measure will likely limit future
access to credit, discourage investment capital for the
purposes of residential mortgage lending, or impose a
significant risk-based premium, resulting in higher costs
for consumers. Forestalling the foreclosure process will
further frustrate local governments struggling with
properties in disrepair during the foreclosure process,
continue in the trend of reduced property tax revenue for
local governments, and artificially sustain depressed
property values.
d. The Civil Justice Association of California believes
that SB 1470 will force nonjudicial foreclosures into
court. The bill creates expansive, new obligations that
are enforceable with lucrative penalties, statutory
damages, and attorney's fees. The bill's requirements
and prohibitions are outside of the carefully negotiated
national mortgage settlement. California's foreclosure
process is already highly regulated. There is no need to
insert lawyers and lawsuits into the process.
6. Amendments:
a. This bill requires both clarification and
correction, to provide more clarity regarding the types
SB 1470 (Leno et al.), Page 23
of mortgages and deeds of trust to which its requirements
apply. Section 1 of this bill applies to mortgages and
deeds of trust secured by owner-occupied, residential
real property. Sections 2 through 9 of this bill apply
to mortgages and deeds of trust secured by single family,
residential real property (i.e., they lack the
owner-occupancy requirement).
The bill also contains language (likely inadvertent) which
limits Civil Code Section 2924 and 2924f (both of which
are sections of general applicability to all types of
nonjudicial foreclosures) to foreclosures on single
family, residential real property.
The provisions of the mortgage settlement that relate to
mortgage servicing apply to loans secured by
owner-occupied properties that serve as the principal
residence of the borrower.
To improve the clarity of the bill, and to ensure that it
does not unintentionally narrow certain sections of the
Civil Code which broadly apply to nonjudicial
foreclosures on all types of property, staff suggests the
following amendments. These amendments are drafted in a
manner intended to conform the bill to the
owner-occupied, residential real property scope of SB
1137 and the settlement. If the authors and sponsor wish
to select a different scope, they need only substitute
different language for the following:
Delete the language on page 19, lines 16 through 21, and
insert the following language on page 10, between lines
36 and 37; page 13, between lines 32 and 33; page 14,
between lines 34 and 35; page 15, between lines 22 and
23; page 17, between lines 2 and 3; and page 18, between
lines 7 and 8: "This section shall apply only to
mortgages and deeds of trust that are secured by
owner-occupied residential real property containing no
more than four dwelling units. For purposes of this
section, "owner-occupied" means that the residence is the
principal residence of the borrower as indicated to the
lender in loan documents."
b. Language creating and referring to the Office of
Homeowner Protection would also benefit from
clarification and amendment.
SB 1470 (Leno et al.), Page 24
i. Some have questioned whether the
Office will have regulatory or enforcement
authority. Although the bill is silent on both of
these topics, it is staff's understanding that
neither regulatory nor enforcement authority were
contemplated by the authors or sponsor. Instead,
the Office was envisioned as an ombudsman's office
and an information clearinghouse.
If the authors and sponsor wish to clarify these
points, staff suggests adding a new subdivision (b)
on page 19, between lines 36 and 37, as follows:
"(b) The Office shall not have the authority to
promulgate regulations or bring enforcement
actions."
ii. In several places, the bill contains
language that requires mortgagees, trustees,
beneficiaries, and authorized agents to provide "the
toll-free telephone number made available by the
Office of Homeowner Protection." This language is
intended to require the provision of a phone number,
which can be used by borrowers to reach the Office
of Homeowner Protection. The following amendments
are necessary to clarify this point, and to require
the Office of Homeowner Protection to establish a
toll-free number at which it can be reached.
On Page 7, lines 21 and 22; page 9, lines 1 and 2;
Page 13, lines 31 and 32; Page 16, lines 6 and 7;
page 16, lines 37 and 38; and in any other place the
language appears, strike "The toll-free number made
available by the Office of Homeowner Protection" and
insert "A toll-free phone number that can be used to
reach the Office of Homeowner Protection."
Page 8, lines 18 and 19, strike "the office of
Homeowner Protection and" and insert the following
on page 8, line 20, after the first comma: "a
toll-free phone number that can be used to reach the
Office of Homeowner Protection,"
Page 19, between lines 30 and 31, insert a new
paragraph (3): "Establishing a toll-free telephone
number for use by borrowers to contact the Office."
SB 1470 (Leno et al.), Page 25
iii. As drafted, the section describing the
responsibilities of the Office requires it to
respond to inquiries and complaints regarding, and
attempt to seek compliance with "this article."
"This article" is titled "Mortgages in General," and
includes rules governing nonjudicial foreclosures on
all types of properties. It is staff's
understanding that the sponsor and authors want the
Office of Homeowner Protection to act as an
ombudsman only related to the provisions of this
bill, SB 1471 (DeSaulnier and Pavley), and SB 1137.
If they wish to narrow the responsibilities of the
Office in that manner, staff suggests the following:
Page 19, line 27 and page 19, line 30, strike
"article" and insert: "act" and add a conforming
amendment to SB 1471, which gives the Office of
Homeowner Protection authority to enforce provisions
of that act, as well. These conforming amendments
can be handled at the same time the double-jointing
amendments recommended later in this analysis are
made.
iv. To reflect formal approval of the
settlement by the United States District Court of
Appeal on April 5, 2012:
Page 20, line 2, strike the blank and insert: April
5, 2012.
v. A technical amendment is required on
page 19, line 29. Strike "or" and insert: and
c. This bill contains three different provisions that
appear to address the same topic, but do so in different
ways, and are confusing as drafted. Clarifying their
meaning will be critical, if California wishes to ensure
that implementation of these provisions will be able to
occur, without significant court involvement.
i. As proposed to be amended Section
2923.5(b)(3) (page 4, lines 27 through 34) prohibits
a notice of default from being recorded, without the
inclusion of a declaration in which the mortgagee,
SB 1470 (Leno et al.), Page 26
beneficiary, or authorized agent must declare that
it "has possession of the note and mortgage or deed
of trust and evidence of its right to foreclose,
including documentation of any assignments and
endorsements of the mortgage note or deed of trust."
The bill further requires that this evidence either
be attached to or described in the declaration.
It is unclear whether the word "any" in this
requirement is intended to mean "all."
Representatives of the sponsor have indicated that
if any assignments exist, their intent is that all
assignments be documented (and either attached to
declaration accompanying the notice of default or
described in that declaration). At a minimum, the
wording of this section should be clarified so that
the sponsor's intent is clear. However, staff notes
that a related provision proposed by this bill's
sponsor in SB 1471, which required every assignment
of a mortgage or deed of trust to be recorded, was
deleted by the April 10th, 2012 amendments to SB
1471, because it was deemed to be problematic on a
number of different levels. If a virtually
identical requirement was deleted from SB 1471
because of its problematic nature, the authors and
sponsor may wish to delete it from SB 1470, as well
(page 4, lines 27 through 34).
ii. Regardless of whether this language is
deleted or merely clarified, an amendment will be
required on page 4, line 35. That line refers to
"proof," while the lines above relate to "evidence."
Page 4, line 35: strike "proof" and insert:
evidence.
iii. A few lines later, the bill provides
direction to mortgagees, beneficiaries, or
authorized agents who are unable to comply with the
provisions on page 4, lines 27 through 34. In lieu
of recording a declaration in which one of these
entities states that it "has possession of the note
and mortgage or deed of trust and evidence of its
right to foreclose, including documentation of any
assignments and endorsements of the mortgage note or
deed of trust," the entity may include a separate
declaration that includes "facts sufficient to show
SB 1470 (Leno et al.), Page 27
that the mortgagee, trustee, beneficiary, or
authorized agent has the right to enforce the note."
(page 5, lines 3 and 4). It is unclear what
documents or information would represent "facts
sufficient to show that a party has the right to
enforce the note," if that party lacks documentation
of all assignments and endorsements. Failure to
clarify this language in statute is likely to lead
to significant litigation over its meaning.
iv. Once this language is clarified, a
nearby, related section may be unnecessary. If an
entity is able to provide facts sufficient to show
that it has the right to enforce the note, why would
that entity also have to record a lengthy
description of the terms of that note (Section
2923.5(b)(3)(C); page 5, lines 8 through 18)? Is
the language on page 5, lines 8 through 18
necessary?
d. Language in this bill intended to prevent borrowers
from submitting multiple loan modification applications
for the purpose of delay differs significantly from the
settlement language on this topic. As previously
discussed, the settlement expressly states that its
provisions in this area are intended to minimize the risk
of borrowers submitting multiple loss mitigation requests
for the purpose of delay. This bill lacks such language.
More significantly, the settlement contains language
intended to ensure that if a borrower was evaluated for a
loss mitigation option by a signatory prior to the date
of the settlement agreement, that borrower need not be
re-evaluated by the signatory pursuant to the settlement
agreement, absent a material change in the borrower's
financial circumstances. This bill is drafted in such a
way that borrowers, who were evaluated for loss
mitigation options prior to the effective date of the
bill, are entitled to be reevaluated for loss mitigation
options pursuant to the provisions of the bill, as if
they had not previously applied for loss mitigation
relief. This bill's limitation on submitting multiple
applications only applies, after a borrower has applied
for a loan modification or other foreclosure avoidance
alternative pursuant to the terms of the bill.
SB 1470 (Leno et al.), Page 28
If the authors and sponsor wish to more closely conform the
bill to the provisions of the settlement which limit the
submission of multiple requests for the purpose of delay,
they may wish to consider the following amendments:
Page 10, between lines 36 and 37, insert the following: To
minimize the risk of borrowers submitting multiple loss
mitigation requests for the purpose of delay,
subdivisions (c), (d), and (e) of this section shall not
apply, if the mortgagee, beneficiary, or authorized agent
has previously determined that the borrower is not
eligible for a modification of that loan, unless the
borrower's application reflects a material change in the
borrower's financial circumstances since the date of the
borrower's previous application."
Page 14, line 29 and page 15, line 16, insert the following
additional language at the start of the line: "To
minimize the risk of borrowers submitting multiple loss
mitigation requests for the purpose of delay,"
Page 14, lines 31 and 32, strike "pursuant to Section
2923.6"
Page 15, lines 18 and 19, strike "pursuant to Section
2923.6 or Section 2924.10"
e. The dual track language of this bill differs from
the dual track language in the settlement, in that the
latter refers to what must happen after a borrower
submits a complete loan modification application to a
servicer, while the bill speaks to what must happen after
any type of loan modification application is submitted,
complete or not.
If the authors and sponsor would like to more closely
conform these provisions of the bill to the settlement
language, the following amendments are suggested:
Page 10, line 1, strike "an" and insert: a complete
Page 13, line 34, strike "an" and insert: a complete
Page 14, line 36, strike "an" and insert: a complete
SB 1470 (Leno et al.), Page 29
f. The dual track language of this bill that addresses
the process which must be used to evaluate borrowers who
submit loan modification applications very late in the
process (less than 15 days before a notice of sale may be
recorded; Section 2924.11 of the bill, beginning on page
14, line 35) would benefit from clarification to achieve
the authors' and sponsor's intent. As drafted, it states
that a mortgagee, trustee, beneficiary, or authorized
agent may not record a notice of sale, until either: i)
it makes a determination that the borrower is ineligible
for a loan modification, or ii) it notifies the borrower
whether it can conduct an expedited review of the loan
modification application, or, if not, the reasons it
cannot complete the review of the loan modification
application.
As the bill is drafted, a beneficiary could record a notice
of sale, as long as it tells a borrower that it can
conduct an expedited review of the borrower's
application. This possible outcome is not desired by the
authors or sponsor.
As noted earlier, the settlement language on this topic
(page A-20) states that if a servicer receives a complete
loan modification application less than 15 days before a
scheduled foreclosure sale, the servicer must notify the
borrower before the sale date regarding its determination
(if its review was completed) or its inability to
complete its review.
To further the authors' and sponsor's intent, and to
conform the language of Section 2924.11 of the bill more
closely to the settlement language, staff suggests the
following clarifying amendment:
Page 15, strike lines 7 through 10 and insert: (2) The
mortgagee, beneficiary, or authorized agent notifies the
borrower regarding its determination, if its review was
completed, or, if not, the reason or reasons it could not
complete its review of the borrower's application.
g. The provision of this bill which requires borrowers
to be informed in writing about trustee sale
postponements that are longer than nine days in length
requires technical and conforming amendments to achieve
the authors' and sponsor's intent. As drafted, the bill
SB 1470 (Leno et al.), Page 30
will change the long-standing rule, which ensures that
official announcements of trustee sale postponements
occur at the place, date, and time last set for the sale.
It is important to ensure that official postponements
continue to be announced at the place, date, and time
last set for the sale, to ensure that persons who may
wish to bid on the property are informed about the
postponements. The following technical amendments are
suggested, to achieve the authors' and sponsor's intent.
Notwithstanding the suggestions below, it remains an open
question before this Committee whether the trustee sale
postponement provisions of this bill are necessary, given
the changes enacted last year, pursuant to SB 4. As
described earlier, that bill added language to the notice
of sale, effective April 1, 2012, which gives homeowners
an easy way to obtain information about the details of
trustee sale postponements, at no cost to them.
i. Page 12, strike lines 12 through 20,
and insert: "Whenever a sale date is postponed for
a period of at least 10 calendar days pursuant to
Section 2924g, a mortgagee, trustee, beneficiary, or
authorized agent shall provide written notice to a
borrower regarding the new sale date and time, and
if applicable, the new location, within five
calendar days following the postponement.
Information provided pursuant to this paragraph does
not constitute the public declaration required by
subdivision (d) of Section 2924g. Failure to comply
with this paragraph shall not invalidate any sale
that would otherwise be valid under Section 2924f."
ii. Page 21, line 2, after the period,
insert: "A change in the location of the sale
proceedings, if any, whether due to the requirement
of a public entity, emergency, or other
circumstances that preclude the use of the published
location, shall be announced at the time of
postponement."
iii. Page 21, line 18: Strike "for any
postponement that does not", strike line 19, and
strike "(a) of Section 2924" on line 20.
iv. Page 21, line 22: Strike "shall be
the same place as originally fixed by the trustee"
SB 1470 (Leno et al.), Page 31
and strike "for the sale" on line 23, and insert:
may be other than the place originally fixed by the
trustee or subsequently relocated by the trustee for
the sale.
v. Add the following as the third
sentence of the "NOTICE TO PROPERTY OWNER required
in every notice of sale pursuant to Section 2924f,
as follows: "Postponements of ten days or more must
be communicated to you in writing." (This change
will require that Section 2924f be added to this
bill, and amended in the manner described in this
paragraph).
h. The word "trustee" appears in multiple places in
this bill, where it is inappropriate. In California,
trustees perform ministerial tasks related to nonjudicial
foreclosures, at the direction of mortgagees and/or
beneficiaries; they do not evaluate borrowers for
foreclosure prevention alternatives. The word "trustee"
should be deleted from all of the following locations:
Page 8, lines 22 and 26; page 10, line 8; page 14, line
3; page 15, lines 4, 7, 27, and 31; page 16, lines 16,
27, and 31; page 17, lines 15, 19, 25, 30, and 33; page
18, line 1.
i. The following are relatively technical wording
changes, which were discussed with the sponsor prior to
the hearing, and to which staff understands the sponsor
has agreed. They are intended to further the authors'
and sponsor's intent, remove unnecessary language, and
clarify unclear terminology:
i. Page 5, strike lines 31 through 36,
and insert: (B) The means and process by which a
borrower may apply for a loan modification or
other foreclosure prevention alternative, and the
deadlines for any required submission to be
timely processed.
ii. Page 6, strike lines 23 through 30,
and insert: (2) Notification that the borrower
may receive, upon written request to the
mortgagee, beneficiary, or authorized agent, a
copy of the borrower's payment history since the
borrower was last less than 60 days past due, a
SB 1470 (Leno et al.), Page 32
copy of the borrower's promissory note, copies of
any assignments of the mortgage or deed of trust
that would evidence a right to foreclose on the
borrower's property, and, if applicable, the name
of the investor or investment trust that holds
the borrower's loan.
iii. Page 18, line 3, after
"modification" insert: application
j. During interested party discussions with the authors
and sponsor leading up to this committee hearing, several
interested parties requested clarification regarding the
extent to which this bill creates a right to a loan
modification. Representatives of the sponsor indicated
the bill was not intended to create such a right, and
expressed a willingness to clarify the bill in that
manner.
If the authors and sponsor are amenable to including such
language, staff suggests that the remedies section of the
bill would be a likely place to add it (page 18,
beginning at line 9).
aa. The private rights of action authorized by this
bill would benefit from clarification (page 18, lines 9
through 34 and 38 through 40, and page 19, lines 1 and
2). As drafted, they allow a borrower to seek an order
to enjoin a trustee sale, or an order seeking damages, if
the borrower has a reasonable belief that a mortgagee,
trustee, beneficiary, or authorized agent failed to
comply with specified provisions of the bill. The bill
implies, but does not expressly direct the court to find
that a violation has occurred, before issuing an
injunction or awarding damages. The bill also contains
language intended to protect servicers from lawsuits over
violations of the bill that were technical or de minimis
in nature, and which did not impact a borrower's ability
to pursue an alternative to foreclosure, but this
language appears in a separate subdivision as the private
rights, and is unclear regarding what constitutes an
"ability to pursue an alternative to foreclosure."
The following language is suggested, in lieu of the
existing language of 2924.14(a) (page 18, lines 9 through
20), to ensure that: i) an injunction or awarding of
SB 1470 (Leno et al.), Page 33
damages only occurs after a court finds that a violation
has occurred, and ii) a borrower is only entitled to
relief, if that violation resulted in that borrower being
denied approval for a foreclosure avoidance alternative
for which he or she applied:
"A court of competent jurisdiction may enjoin a pending
trustee's sale, if a notice of sale has been recorded,
and a borrower presents evidence satisfactory to the
court, regarding the existence of a violation of Section
2923.5, 2923.6, 2924, 2924.9, 2024.10, 2924.11, 2924.12,
2924.13, or 2924g by a mortgagee, trustee, beneficiary,
or authorized agent, which resulted in the borrower being
denied approval for a foreclosure avoidance alternative
for which that borrower applied. Any injunction shall
remain in place until the mortgagee, trustee,
beneficiary, or authorized agent has complied with the
requirements of the section or sections that were
violated. A borrower who obtains an injunction shall be
entitled to reasonable attorneys' fees and costs."
The following is suggested in lieu of the existing language
of 2924.14(b) (page 18, lines 21 through 34): "A court
of competent jurisdiction may award a borrower the
greater of actual damages or ten thousand dollars
($10,000), plus reasonable attorney's fees and costs, if
a trustee's sale has been concluded, and a borrower
presents evidence satisfactory to the court regarding the
existence of a violation of Section 2923.5, 2923.6, 2924,
2924.9, 2024.10, 2924.11, 2924.12, 2924.13, or 2924g by a
mortgagee, trustee, beneficiary, or authorized agent,
which resulted in the borrower being denied approval for
a foreclosure avoidance alternative for which that
borrower applied."
If these amendments are accepted, the text on page 18,
lines 38 through 40, and page 19, lines 1 and 2 should be
deleted.
bb. This bill is silent on whether it intends to
authorize class action lawsuits to enforce its
provisions. Staff understands that neither the sponsor
nor this bill's authors intend class actions. The
following language is suggested as an addition to Section
10 of the bill (Civil Code Section 2924.14) to clarify
this intent:
SB 1470 (Leno et al.), Page 34
Page 19, between lines 34 and 35, insert: (c) The
provisions of this act shall not be enforceable through a
class action lawsuit. No court shall have authority to
certify a class of plaintiffs in a class action lawsuit
brought to enforce the provisions of this bill.
cc. The provision which provides signatories to the
settlement with an affirmative defense to liability for
violations of the bill under certain circumstances is
unclear as to its intent and its effect (page 19, lines 3
through 10). It also incorrectly refers to the
settlement agreement (it only references the agreement
reached with Bank of America, and not the agreements
reached with the other four signatories). Substitute
language is not suggested at this time, because
discussions between the signatories and the authors and
sponsor on this topic are still preliminary.
Staff observes, however, that while a compromise on this
language is currently unclear, the existing disagreement
on this issue is quite clear. The signatories favor
language that would exempt them from the provisions of
the bill that are based on the settlement, during the
pendency of the settlement. Their argument is based on
the fact that the settlement already contains enforcement
mechanisms. The settlement does not authorize
individuals to bring suit against the signatories for
violations of the settlement, and they do not believe it
is appropriate for California law to authorize such
suits.
Those who would like to see the signatories subject to
private rights of action for violations of this bill
believe that signatories and non-signatories alike should
be answerable for their compliance (or noncompliance)
with this bill. They are concerned that individuals do
not have redress against servicers who violate the
settlement, and view this bill as a way to provide such
redress.
dd. Should this bill have a delayed operative date?
A delayed operative date for all of the bill's provisions
other than the establishment of the Office of Homeowner
Protection would allow servicers time in which to adopt
policies and procedures for use in complying with the
SB 1470 (Leno et al.), Page 35
provisions of the bill. This time would also be valuable
to allow the Office of Homeowner Protection to be
established and staffed, and for its staff to be trained,
before the Office begins receiving calls from homeowners.
Staff suggests a July 1, 2013 operative date for all of
the sections of the bill other than Section 12 (which
creates the Office of Homeowner Protection), and a
January 1, 2013 operative date for the provision of the
bill creating the Office.
ee. Should this bill have a sunset date? Virtually
all of the problems it is trying to address occurred as a
result of the foreclosure crisis, a lengthy period of
economic stagnation which will eventually end. Will the
requirements of this bill still be appropriate, after
California's housing market has returned to the position
of strength it has traditionally held within California's
economy, and once foreclosures occur most frequently on
properties that hold more value than is owed to the
foreclosing beneficiary?
ff. Both this bill and SB 1471 amend Section 2924 of
the Civil Code, but do so in different ways. The sponsor
of both this bill and SB 1471 also envision having the
Office of Homeowner Protection handle borrower questions
and complaints regarding the provisions of both bills.
Double-jointing amendments will be necessary, and
contingent enactment may be advisable, once the bills are
closer to their final forms.
7. Related Legislation:
a. AB 1602 (Eng and Feuer), 2011-12 Legislative
Session: Identical to this bill. Pending a hearing in
the Assembly Banking and Finance Committee.
b. SB 1471 (DeSaulnier and Pavley) and AB 2425
(Mitchell): Both identical to each other, these bills
would prohibit the recordation of robosigned mortgage
documents, as defined, require certain borrowers to be
assigned a single point of contact by their servicers for
loss mitigation-related communication, and would make
related changes. SB 1471 is pending a hearing in this
Committee. AB 2425 is pending a hearing in the Assembly
Banking and Finance Committee.
SB 1470 (Leno et al.), Page 36
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Attorney General Kamala Harris (sponsor)
AFSCME
California Church Impact
California Labor Federation
California Nurses Association
California Professional Firefighters
California Public Interest Research Group
Cambridge Credit Counseling Corporation
Center for Responsible Lending
ClearPoint Financial Solutions, Inc.
Consumers Union
East Los Angeles Community Corporation
Green Path
Greenlining Institute
HomeStrong USA
International Federatio of Professional & Technical Engineers
Local 21
Lutheran Office of Public Policy -- California
National Asian American Coalition
National Council of La Raza - California
Nova Debt
PICO-California
SEIU
SEIU Local 1000
State Building and Construction Trades
Opposition
California Association of Realtors
California Bankers Association
California Chamber of Commerce
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
SB 1470 (Leno et al.), Page 37
Consultant: Eileen Newhall (916) 651-4102