California Homeowner Bill of Rights takes effect Jan. 1by Marcie Geffner
It’s no secret that California has been hard hit by the housing crisis. More than 1 million homes in the state were lost to foreclosure between 2008 and 2011, and some 700,000 more are currently in the foreclosure pipeline, according to state officials.
Since so many foreclosures were unfairly handled, Calif. Gov. Jerry Brown and Attorney General Kamala Harris have responded with the California Homeowner Bill of Rights, a new set of reforms for how the state will handle foreclosures moving forward.
While the bill was signed into law back in July, it takes effect on Jan. 1, 2013.
The California Homeowner Bill of Rights marks the third step in the governor and attorney general’s three-step approach to bring more fairness, accountability and transparency to the foreclosure process. The previous two steps included:
- Establishing a mortgage fraud task force to investigate and prosecute mortgage “misconduct.”
- Utilizing $18 billion from the national mortgage settlement with the five major banks to provide relief in the form of settlement payments to those wrongfully foreclosed, principal reductions, refinances, short-sale and relocation assistance.
Here are the major reforms included in the California Homeowner Bill of Rights:
- Dual-track foreclosure ban. Mortgage servicers will be required to approve or decline a homeowner’s application for a loan modification before they advance the foreclosure process by filing a notice of default or notice of sale or conducting a trustee’s sale. This dual-track ban will essentially pause the foreclosure process for the duration of the lender’s review of a completed loan-modification application. The intent is to protect homeowners from foreclosure if they could have obtained a modification.
- Single point of contact. Mortgage servicers will be required to designate a single point of contact for borrowers who are potentially eligible to apply for a federal or proprietary loan modification. The single point of contact can be an individual or team of people. The contact point must have knowledge of the borrower’s status and foreclosure-prevention alternatives, access to decision-makers and the responsibility to coordinate the flow of documents between the borrower and servicer. The intent is to minimize hassles and delays in the homeowner’s efforts to communicate with the servicer.
- Document verification. Mortgage servicers that record and file multiple unverified documents will be subject to civil penalties of up to $7,500 per loan in an action brought by a civil prosecutor.
- Enforceability. Borrowers will be able to seek redress of material violations of certain homeowner protections. Redress may include injunctive relief before a foreclosure sale and recovery of damages after a sale.
How these protections will work in practice remains to be seen and many questions are still unanswered.
Open issues include how servicers will implement the requirements and the extent to which they’ll try to defeat the intended protections, implications for local home sales, and whether the federal government or other states will follow California’s lead.