California Foreclosure Protection: The Homeowner Bill of Rights

April 10, 2020

Foreclosure Suspensions Due to COVID-19 Outbreak


In California, Governor Gavin Newsom authorized local governments to stop any foreclosures through May 31, 2020. Also, on March 25, 2020, Governor Newsom announced an agreement with multiple banks and credit unions allowing Californians who have been economically impacted by the COVID-19 pandemic to receive a 90-day forbearance on making mortgage payments. The banks agreed not to initiate foreclosure sales or evictions for at least 60 days, as well. (For general information on foreclosure suspensions and court closures in your area or for your loan type, check online and read Coronavirus: Foreclosure Relief. To get specific information about what’s happening in your foreclosure and whether it is subject to a moratorium, call the trustee or attorney that’s handling the case. You can also call the servicer.)


In addition, the California Judicial Council has approved new rules for the state’s courtrooms that include postponing judicial foreclosure proceedings and evictions until 90 days after the state of emergency related to the COVID-19 pandemic is lifted or until the Judicial Council revokes them.


Between 2008 and 2011, more than one million homes in California were foreclosed. In many cases, lenders and loan servicers did not provide homeowners with a significant opportunity to obtain loss mitigation options to avoid foreclosure, and also engaged in extensive mortgage servicing misconduct. To address this issue, Governor Jerry Brown signed the California Homeowner Bill of Rights into law on July 11, 2012.


On January 1, 2013, California's Homeowner Bill of Rights, went into effect. The law reformed some aspects of the California foreclosure process to provide protections homeowners. On January 1, 2018, many provisions of the Homeowner Bill of Rights were replaced with new ones—a change that was widely considered to benefit lenders and servicers, not homeowners. Then, on September 14, 2018, Governor Brown signed Senate Bill No. 818, which permanently reinstated the expired provisions of the Homeowner Bill of Rights and better protects the interests of homeowners.


Background Information


The Homeowner Bill of Rights was part of California's former Attorney General Kamala D. Harris’ response to the state’s foreclosure crisis and largely came about as a result of the national mortgage settlement between 49 states and certain banks. (Learn more about the the national mortgage settlement.)


However, whereas the national mortgage settlement was only applicable to the five settling banks and their customers, the Homeowner Bill of Rights extends the reforms addressed in the national mortgage settlement to almost all mortgage lenders and servicers that conduct foreclosures in California.


Key Reforms in the California Homeowner Bill of Rights


The Homeowner Bill of Rights contains several key provisions, including:


No Dual-Tracking


In the past, a lender or servicer could foreclose even while a loss mitigation (foreclosure alternative) application was pending, which is a process called “dual-tracking.” The Homeowner Bill of Rights restricts the dual-tracking of foreclosures in California. (Federal law also restricts dual tracking.)


Under the Homeowner Bill of Rights, if a borrower submits a complete application for a first lien loan modification at least five business days before a scheduled foreclosure sale, a lender or servicer can't record a notice of default or notice of sale, or conduct a trustee’s sale, while the application is pending. The lender or servicer can't proceed until a written determination is made that:

  • the borrower isn't eligible, and the appeal period has expired, or

  • the borrower doesn't accept an offer within 14 days, or

  • the borrower accept an offer but defaults or breaches the agreement.

But the prohibition on continuing with the foreclosure doesn't apply if you already exhausted the loan modification application process, unless you've had a material change in your financial circumstances since you last applied.


Servicers Must Provide Homeowners With a Single Point of Contact


During the foreclosure crisis, homeowners who called their servicer to get help with mortgage problems typically had to explain their circumstances repeatedly, often to several different representatives. Under the Homeowner Bill of Rights, a servicer has to promptly establish a single point of contact upon a request from a borrower who asks for a foreclosure prevention alternative. The servicer also has to give the homeowner one or more direct means of communication with the single point of contact.

The point of contact must be an individual person or a team of personnel who can:

  • communicate the process by which a borrower can apply for a foreclosure prevention alternative and the deadline for any required submissions to be considered for these options

  • coordinate receipt of all documents associated with available foreclosure prevention alternatives and notify the borrower of any missing documents necessary to complete the application

  • access current information and personnel sufficient to timely, accurately, and adequately inform the borrower of the current status of the foreclosure prevention alternative

  • ensure that a borrower is considered for all foreclosure prevention alternatives offered by, or through, the mortgage servicer, if any, and

  • access individuals with the ability and authority to stop foreclosure proceedings when necessary.

The single point of contact will remain assigned to the account until all loss mitigation options are exhausted or until the account is brought current.


Preforeclosure Help for Borrowers

The Homeowner Bill of Rights requires the lender or servicer to contact, or attempt to contact, the borrower to discuss foreclosure alternatives before starting a foreclosure. Specifically, a servicer has hold off for 30 days after contacting the borrower—or meeting the contact attempt requirements—regarding foreclosure alternatives before recording a notice of default, which is the first official step in a California foreclosure.


While this requirement appears straightforward, some borrowers in California have sought to prevent or delay foreclosures by filing lawsuits alleging that their lenders or servicers failed to comply with this requirement because contact was initiated by the borrowers, instead of the lenders or servicers. The borrowers' argument was, under the Homeowner Bill of Rights, lenders or servicers—not borrowers—are required to initiate contact. But various federal courts disagreed and found that the contact requirement is satisfied regardless of who initiates the contact, so long as contact is made and the parties discuss foreclosure alternatives. Also, on November 7, 2018, the California Court of Appeal formally agreed with the federal courts' interpretation of the statute, and held that borrower-initiated contact satisfies the legal requirements. (Schmidt v. Citibank, N.A., 28 Cal.App.5th 1109 (Cal. Ct. App. 2018)).


Homeowners Have the Right to Sue for Violations


Homeowners may sue the lender or servicer for material violations of certain sections of the California Homeowner Bill of Rights. Potential relief includes:

  • injunctive relief (prior to the recording of a trustee’s deed upon sale), or

  • actual economic damages if the trustee’s deed upon sale has already been recorded.

In addition, if the court finds that the violation was intentional, reckless, or resulted from willful misconduct by a loan servicer or lender, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000.


Applicability of the California Homeowner Bill of Rights


The protections afforded to homeowners by the Homeowner Bill of Rights generally apply to first lien mortgage loans for properties that are:

  • owner-occupied

  • residential, and

  • no more than four units.

Smaller servicers (entities that conduct fewer than 175 foreclosure sales per year or annual reporting period) are exempt from some of the procedural requirements.


Getting Help


To get additional general information about the Homeowner Bill of Rights, go to the State of California Department of Justice’s website and search for “Homeowner Bill of Rights”. To get specific information about how California's Homeowner Bill of Rights applies in your situation and whether you have any defenses to a foreclosure, talk to a foreclosure lawyer. To get more information about foreclosure alternatives, like a loan modification, consider making an appointment to talk to a HUD-approved housing counselor.


via Nolo

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