Saturday, August 4, 2012

Real Estate Bill of Rights

One of the unique characteristics of real estate is that the really good ideas seem always to come from the west coast (of the United States) and make their way to the east coast.  Generally the really good (or really bad) ideas need the approval of each state's legislature, and students of these things can trace the adoption of the regulations from west to east.  And so it is I am looking closely at the new California Homeowner Bill of Rights.  This document was just signed into law by Governor Jerry Brown.
This is national groundbreaking legislation that limits a lender’s ability to file and proceed with a foreclosure action against a homeowner so long as certain conditions have been met.

The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law. I would hope Lawmakers throughout the country would read this bill carefully and consider adopting it with few modifications.  I have recently seen local mortgage lenders run all over Florida borrowers who have found themselves in financial straits.
The California  law will go into effect January 1, 2013.  In a nutshell it regulates first trust deeds secured by owner-occupied properties with one-to-four residential units (that's most borrower's situation).  To qualify a borrower must be a natural person (not a corporation, trust or other legal entity) and must potentially be eligible for a foreclosure prevention assistance program offered by the lender.  It does not protect people who have filed bankruptcy, did a deed-in-lieu, or working with an outside foreclosure defense company or attorney.


What this means is a lender who has agreed to to allow a borrower to enter into a short sale and all parties to the transaction have also agreed to it (second mortgage holders, mortgage insurer, etc), and a buyer has been found who has provided proof of funds to complete the short sale transaction, then the lender can not simultaneously proceed with a foreclosure action while the short sale is pending.  This prevents lenders from dragging out the short sale process in order to get their foreclosure actions ready to implement the second the short sale falls through.  A lender must also cancel or rescind any pending trustee’s sale during this time.


Any borrower who has been in default and tried to work out an arrangement with their lender will tell you one of the biggest problem’s is being shuffled around from person to person and department to department depending on what day of the week you happen to call your lender.  You almost can never talk to the same person two times in a row.  The new law states the mortgage servicer must--upon a borrower requesting a foreclosure prevention alternative--promptly establish and provide a direct means of communication with a single point of contact. The single point of contact must remain assigned to the borrower’s account until all loss mitigation options offered by the mortgage servicer are exhausted or the borrower’s account becomes current.


A mortgage servicer generally cannot record a notice of default, notice of sale, or conduct a trustee’s sale for a nonjudicial foreclosure if the borrower’s complete application for a first lien loan modification is pending as specified, or if a borrower is in compliance with the terms of a written trial or permanent loan modification, forbearance, or repayment plan. (The so-called dual-tracking modification).


A mortgage servicer cannot collect any late fees while a complete first lien loan modification application is under consideration, a denial is being appealed, the borrower is making timely modification payments, or a foreclosure prevention alternative is being evaluated or exercised.


A mortgage servicer must provide written acknowledgment of receipt within five business days of a borrower’s submission of a complete first lien modification application or any document in connection with a first lien modification application.


No entity can record a notice of default or otherwise initiate the foreclosure process, except for the holder of the beneficial interest under the deed of trust, an authorized designated agent of the holder of the beneficial interest, or the original or substituted trustee under the deed of trust. Furthermore, a mortgage servicer must ensure that certain foreclosure documents are accurate and complete, and supported by competent and reliable evidence. (This is in direct response to the robo-signing litigation that shook the foreclosure industry).


A mortgage servicer cannot record a notice of default for a nonjudicial foreclosure until the mortgage servicer informs the borrower of the borrower’s right to: (1) request copies of the promissory note, deed of trust, payment history, and assignment of loan if any to demonstrate the mortgage servicer’s right to foreclose.
Whenever a trustee’s sale is postponed for at least 10 business days, the lender or authorized agent must provide written notice of the new sale date and time to the borrower within five business days after the postponement.
Borrowers can access the  courts to enforce their rights under this legislation.

The California Homeowner Bill of Rights also contains a variety of bills outside of the conference committee process. These will enhance law enforcement responses to mortgage and foreclosure-related crime, in part by empowering the Attorney General to call a grand jury in response to financial crimes spanning multiple jurisdictions. Additional elements will help communities fight blight related to foreclosure, and provide enhanced protections for tenants in foreclosed homes.

Dane Hahn is a real estate professional working in both New Hampshire and Florida.  He can be reached at or by phone at 941-681-0312.  See him on the web at

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