MLO Mentor: California Owners Bill of Rights
MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article provides an overview of the state of California Homeowners Bill of Rights (HBOR).
California Owners Charter of Rights was enacted in 2012 at the end of the Great Recession and the foreclosure crisis that has forced many residents from their homes, some unfairly and illegally. Its goal was to give qualified homeowners facing foreclosure a meaningful opportunity to obtain a mortgage modification and keep their home. [Calif. Civil Code §2923.4]
This Owners Bill of Rights was automatically revoked on January 1, 2018. Senate Bill (SB) 818reinstated many of the provisions of the original bills.
Updated Owners Bill of Rights
The most significant changes made by the Owners Bill of Rights were to prevent:
- two-way inputwhen a homeowner goes through the mortgage modification process and the foreclosure process simultaneously;
- robotic signature foreclosure documents, increasing the risk of wrongful foreclosure; and
- more than one point-of-contact for owners in difficulty during the foreclosure process.
These protections are again in place to first mortgages secured by residential property. The main differences between the original Homeowner Bill of Rights and the SB 818 version are new exceptions:
- allowing repairers to be exempted from the provisions of SB 818 when a mortgage modification request is received less than five days before a scheduled foreclosure sale; [CC §2924.18(a)] and
- exempting repairers from the telephone contact requirements of SB 818 when the owner has notified the repairer in writing to cease and desist all communications. [CC §2923.5(e)(2)(C)(ii)]
When an owner requests a foreclosure prevention like a mortgage modification, the servicer must quickly establish a single point of contact for the homeowner. This will avoid confusion and help keep the homeowner from getting lost in the mix of other homeowners considering foreclosure prevention options. [CC §2923.7(a)]
Mortgage managers may not register a notice of defect (NOD) until:
- at least 30 days have passed after initially contacting the owner; Where
- if the service agent is unable to contact the owner, they have completed due diligence requirements to reach the owner, including mailing notice and calling at various times of the day. [CC §2923.5(a)(1)(A)]
Additionally, repairers may not register a NOD when an owner submits a complete request for a loan modification at least five business days before a scheduled foreclosure sale. Once the servicer provides the homeowner with a written decision on the loan modification, the servicer can proceed with the foreclosure process if necessary. [CC §2923.5(a)(1)(B)]
When the owner is rejected for a loan modification, the service agent must wait at least 31 days after notification of the owner before registering a NOD or – if a NOD has already been registered – registering a notice of sale by the trustee (NOTS). [CC §2923.6(e)]
When the homeowner is approved for a loan modification, the servicer cannot proceed with the foreclosure process until the homeowner complies with the terms of the modification. [CC §2924.18(a)(2)(A)]
Repairers cannot charge homeowners a fee to request or obtain a mortgage modification or other foreclosure prevention alternative. [CC §2924.11(e)]
The bill gives California the right to sue lenders and banks for up to $50,000 for breaking the laws. [CC §2924.19(b)]
A frequently asked question from the Owners Bill of Rights involves verbal agreements. Is a verbal deferral agreement effective against foreclosure?
Consider Granadino v. Wells Fargo Bank, NA, a relevant case study on this topic from 2015.
Here, a borrower defaulted on his mortgage and received a NOD on May 24, 2010. Within the time limit, the lender filed a NOTS. The borrower has hired a lawyer to help negotiate a loan modification with the lender.
Through the prosecutor, the borrower obtained a postponement of the sale from the trustee from September 24, 2011 to October 17, 2011 while mortgage modification negotiations were underway.
On October 17, 2011, the attorney’s office called the lender and was advised that the trustee sale was under active mortgage modification review, so the trustee sale date was no longer scheduled.
One month after the lender’s representative gave verbal assurance of the indefinite postponement of the trustee’s sale, the borrower received a written notice of refusal of the mortgage modification.
A date of sale by trustee has been set for December 16, 2011.
After the borrower received the written notice, the lawyer called the lender and informed the lender’s representative that the borrower’s tax returns in accordance with the mortgage modification were being sent. The lender’s representative acknowledged receipt of the tax returns.
On December 16, 2011, the property was sold in a trustee sale.
The borrower sought to remain in the residence while pursuing losses of money, claiming that the lender unduly foreclosed since he verbally agreed to postpone the trustee’s sale and accepted the tax returns after receiving the written notice of refusal to modify, thus preventing the borrower from reinstating his mortgage.
The lender asserted that the borrower was not entitled to monetary losses since the borrower had been notified in writing their mortgage was removed from modification review and the foreclosure process would resume.
Ultimately, a California Court of Appeals ruled that the borrower was not entitled to loss of money or continued occupancy of the residence since the mortgage holder had duly provided all necessary notices satisfying foreclosure requirements. [Granadino v. Wells Fargo Bank, N. A. (2015) CA 2nd B256511]
The California Homeowner Bill of Rights is still being tested in court today. Click on these related articles for more up-to-date rulings and interpretations on this legislation.
Has a mortgage holder violated HBOR by seizing when the homeowner rejects an offer for a trial loan modification plan?
Does a lender discussing foreclosure options with a defaulting homeowner need to initiate the discussion to comply with HBOR?