On July 2, 2012, the California Assembly passed the “Foreclosure Reduction Act” which substantially overhauls the non-judicial foreclosure process. Non-judicial foreclosures constitute the vast majority of foreclosures in California. While the legislation has not been signed by Governor Brown yet, most analysts expect that he will sign it.
The legislation follows many of the provisions in the national mortgage settlement and attempts to provide more protections for borrowers. This article will not detail all of the changes, as the legislation is quite comprehensive at 40 pages and amends or adds 16 sections. Below are a few of the notable changes from the legislation.
By far the most important aspect of this legislation is that it provides for sanctions and a remedy if a lender fails to abide by the new requirements. In previous legislation enacted since the foreclosure crisis, namely the Foreclosure Prevention Act which added section 2923.5 of the Civil Code, no remedies were provided in the statute. This led the courts to find that the statutes essentially offered no protection after the foreclosure had occurred and only minimal extensions of time otherwise. The new legislation specifically provides that a homeowner can stop the foreclosure sale, recover attorney fees and costs, or receive damages of up $50,000.
Clarification of the Status of Loan Modifications
One of the biggest complaints many borrowers had with exploring alternatives to foreclosure was how confusing the process was. This legislation attempts to rectify the situation by requiring lenders and servicers to have a single point of contact. In addition lenders will be required to provide specific reasons for a denial of a loan modification and cannot proceed with foreclosure without making a decision on the application. By enacting these provisions the legislature has attempted to end, or at least curb, dual tracking, the process under which lenders proceeded with a loan modification and foreclosure at the same time. Dual tracking is problematic because borrowers who have entered into the modification process, or who believe they are entitled to make reduced payments under a temporary modification, disregard foreclosure sale notices delivered to them and consequently lose their house to foreclosure.
Clarifying the Foreclosure Process
In addition to the other provisions, if an alternative to foreclosure is not reached, the lender will be required to provide documentation that it is the right party with standing to initiate the foreclosure. Also, the lender will now be required to give notice of the new foreclosure sale dates when postponed. Previously, if the lender postponed the foreclosure sale date, the lender was only required to have the crier announce the new date at the sale. Now, the lender must give written notification of the new foreclosure date to the borrower.
While the legislation attempts to do many things and help homeowners with their loans, the legislation does not apply to all loans nor to all loan holders. If you are concerned with complying with the new legislation, please contact us to set up an appointment so we can assist you with the foreclosure process. You can reach us on the web at www.BrewerFirm.com or give us a call at (650) 327 – 2900.