California Amends Provisions Regarding Foreclosure
The State of California amended its provisions relating to foreclosure as well as made changes to its Homeowner Bill of Rights. These provisions are effective on January 1, 2019.
The amendment prohibits an entity that foreclose on more than 175 real properties during the prior reporting year from recording a notice of default or notice of sale or conducting a trustee’s sale after a borrower submits a complete application for a first lien loan modification and that application is pending. The complete application must be submitted at least 5 business days before a scheduled foreclosure sale.
The prohibition on recording a notice of default or a notice of sale would continue until the borrower: (i) is provided a written denial of an application and the 30-day period to appeal the denial expires; (ii) does not accept a written offer to participate in a modification within 14 days; or (iii) defaults under an accepted modification.
The borrower is granted 30 days to appeal if the loan modification is denied and is required to provide evidence that the mortgage servicer’s determination was in error. The amendment prohibits the servicer from filing a notice of default, or if that notice has already been filed, from recording a notice of sale or conducting a trustee’s sale until the later of specified events during the appeal period.
The mortgage servicer is required under the amendment to send a written notice to the borrower that identifies the reasons for denial and that includes certain information in connection with the denial.
The amendment also requires that a notice of default include a specified declaration regarding contact with the borrower, and provides that a mortgage servicer satisfies specified telephone contact requirements in this regard if the borrower makes a written request to cease communications. The amendment makes technical changes to provisions requiring a mortgage servicer to establish a single point of contact for a borrower requesting a foreclosure prevention alternative.
Section 12 of amendment provides that, except as specified, a mortgage servicer that offers a foreclosure prevention alternative must send a written communication containing specified information regarding the alternative to a borrower within 5 days after recording a notice of default.
The amendment under section 13 also requires a mortgage servicer to provide a borrower who submits a complete first lien loan modification application, or any document connected to that modification, written acknowledgment of receipt within 5 business days of receipt along with other information regarding the loan modification process. A borrower’s first lien loan modification application is deemed “complete” when a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer.
Section 16 prohibits recording a notice of default if a foreclosure prevention alternative is approved in writing before the notice is recorded and other specified conditions are met. If a foreclosure prevention alternative is approved after recording the notice, then a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent is prohibited from recording a notice of sale or conducting a trustee sale if specified conditions are met.
Furthermore, the amendment requires that a notice of default be rescinded or a pending trustee sale be canceled when a borrower executes a permanent foreclosure alternative. The amendment prohibits a mortgage servicer from charging fees for a first lien loan modification or other foreclosure prevention alternative and requires modifications and prevention alternatives previously approved to be honored following transfer or sale to another servicer.
The amendment provides that violations of the above provisions may result in liability to borrowers and permits a court to award the greater of treble actual damages or specified statutory damages in cases of intention or reckless violations. Additionally, violations of certain provisions by CFL, CRMLA, and REL licensees may be deemed violations of those respective licensing laws.
The amendment also provides that a mortgage servicer that engages in multiple and repeated filing of unsubstantiated documents related to foreclosure is liable for a civil penalty of up to $7,500 per mortgage or deed of trust and further administrative enforcement.
The law also generally subjects entities that foreclosed on fewer than 175 properties during the prior reporting year to similar, but in some cases less stringent, requirements and restrictions.
Rhona Kyeyune, LLM, is a regulatory compliance consultant with CLA. She is a graduate of Makerere University and earned her master of laws at Boston University School of Law.
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