Changes in California Lending and Foreclosure Laws
by Emily Ross, Esq.
The California legislature recently passed multiple bills that either extend or strengthen already existing consumer protection statutes. These include extending a law to limit loan modification compensation, solidifying and extending the definition of who needs to be licensed to be a loan originator, adding additional language requirements to Notices of Default and Sale, and putting protections in place for consumers that are renting a property that is in the midst of a foreclosure.
Loan Originator Licensing
With Assembly Bill 1950, Ch. 569 the Legislature adopted the language used for the licensing of real estate agents and brokers and applied this language to loan originators. Applying broad language the law states that anyone “engaging in the business of, acting in the capacity of, advertising as, or assuming to act as” a loan originator must be licensed to do so.
This legislation also extends the statute of limitations on prosecuting an individual for various related offenses including practicing law without a license, loan originating without a license or selling real estate without a license. Under current law, a prosecution for violation of these offenses must be filed within one year. The new law extends that time to three years. In addition to operating without a license, the legislature also extended the statute of limitations for prosecuting violations of other related statutes concerning loan modifications. These include a requirement that all individuals completing loan modifications provide a disclosure to their clients regarding third party loan modifications and the new limitations on compensation for those assisting with loan modifications discussed below. CA Assembly Bill No. 1950, Ch. 569.
Compensation for Loan Modifications
The legislature also extended a law already in effect that limits the compensation for individuals arranging loan modifications and forbearances. The law states that any person completing either of these services, for a fee, cannot:
- ask for or take any kind of compensation for the modification or forbearance until every aspect of the promised service has been completed;
- accept a lien of any kind or wage assignment to ensure compensation;
- or take a power of attorney from a borrower.
This statue was set to expire on January 1, 2013. This legislation extends its effectiveness until January 1, 2017. CA Senate Bill No. 980, Ch. 563.
New Language Requirements
Lenders are currently required to provide to the owner of property both a Notice of Default and a Notice of Sale when a property is in default and in danger of being foreclosed upon. New legislation was passed to protect homeowners in this situation that do not speak English as their first language. This law requires that the Notice of Default as well as the Notice of Sale be provided to the Mortgagor in English as well as five additional common languages determined by the state. Additionally, the lender is required to attach to the Notice a summary of what the Notice says and what the rights of the borrower are in this circumstance. This summary must be provided in English as well five additional languages. Failure to provide a summary will be treated as an incomplete Notice for compliance purposes. The Department of Corporations will provide translations of these Notices on their website and anyone who uses these standard translations and forms will be determined to be in compliance with the statute. This new provision becomes effective on April 1, 2013 or 90 days following the issuance of the translations by the Departments of Corporations. CA Assembly Bill 1599, Ch. 556.
Changes to Laws for Foreclosures on Rental Properties
Protections were recently extended for individuals renting an apartment or home in a building that is in default or is being foreclosed upon. The legislature not only extended current laws that protect tenants they also expanded these laws to include future tenants.
Current law requires that a tenant be notified if a Notice of Sale has been posted for the property in which they live. This law was set to expire in January of 2013 prompting the legislature to pass new legislation extending its effective date until January of 2019. Under the new provision a tenant must be provided with Notice of Sale that includes specific language stipulating what their rights are in regard to the sale. This language, provided by statute, notifies tenants renting without a lease that the new owner can either provide them with a new lease or give them a 90 day notice to vacate. If a tenant has a lease then the new owner must abide by the present lease unless the new owner intends to reside in the home as their primary residence or if other specified actions take place. These new changes to the Notice will become effective on March 1, 2013 or 60 days following the posting of an updated Notice, translated into five standard languages, on the Department of Consumer Affairs website. CA Assembly Bill No. 2610, Ch. 562.
The legislature has further extended this protection for renters with a new law requiring notice to prospective tenants. This new law requires an owner of a rental property to notify any prospective tenants if there has been a Notice of Default on the property. They are required to do so prior to the signing of a lease and must include information about what a foreclosure would mean to the tenant.
Failing to provide this Notice gives the tenant the option of voiding the lease but does not automatically do so. The tenant will also be entitled to recover damages from the landlord for failure to provide this notice. Damages can be as much as one month’s rent or twice any actual damages. This provision will be in effect until January 1, 2018 at which time it will automatically lapse. CA Senate Bill No. 1191, Ch. 566.
About the Author
Emily Ross, Esq. is Associate Counsel at Bankers Advisory, Inc. She is a graduate of Auburn University and earned her Juris Doctor at Case Western Reserve School of Law. She is admitted to the Bar in Massachusetts and Vermont.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
With the amount of homeowners finding themselves stuck financially the only thing that can really help them through things is a mortgage loan modification.
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