California’s Homeowner “Bill of Rights,” signed into law by Governor Brown, is an attempt to stabilize the State’s housing market and prevent foreclosure, where possible. But what does it really cover, how will it help, and can it open the door for frivolous lawsuits or slow down fixing our housing problem, as some believe? This article will address those questions.
The law applies to first trust deeds on “Owner-Occupied” residential properties (i.e. the borrower’s principal residence). The owner must be eligible for a foreclosure prevention program (e.g. a Short Sale), but cannot have filed bankruptcy, abandoned the property, or be using an organization that helps extend the foreclosure process to avoid contractual obligations. This last requirement is important.
The biggest benefit of the new law is that it prohibits lenders from using “dual tracking.” Simply put, a lender can no longer proceed with a foreclosure, once a Short Sale or Loan Modification has been approved in writing. This is a great relief to those of us involved in helping distressed property owners. Before, lenders continued with the foreclosure process even though a Short Sale was in progress. Instead, a lender must now cancel any pending trustee sale if a Short Sale has been approved. And if requested (and I do!), the lender must provide a single knowledgeable point of contact until the Short Sale or Loan Modification is completed.
For Loan Modifications, a lender can’t collect any late fees while the request is being evaluated or appealed. In addition, the lender is to provide a written receipt within five business days of a borrower’s application for a Loan Modification. The lender is also not allowed to charge for any application, or other fees related to a Short Sale or Loan Modification request, and any approval of such a request must be honored by any lender to whom the loan is transferred or sold.
Another benefit of the law is that homeowners can sue lenders, under limited conditions, for up to $50,000 if the lender, “willfully, intentionally, or recklessly violates the law.” This provision caused many Realtors® and Real Estate Boards great concern that frivolous law suits might slow up or even halt the resolution of our distressed property dilemma. I don’t believe this will happen: People file frivolous lawsuits all the time, and there’s no way to completely prevent that from happening. Another problem that concerned Realtors® was that the law would have forced anyone recording a Notice of Default to certify the chain of ownership of the mortgage, which is impossible because mortgages are frequently bundled together and sold on the secondary market. This requirement, known as the “Nevada Approach,” has been deleted. The result is a law that will be a great benefit to everyone involved.