Californians Get New Protections against Foreclosure Abuses on January 1
California Law Could Serve As Model for Other States
California homeowners struggling to avoid foreclosure will enjoy new state protections against lender abuses starting on January 1. That’s when the Homeowners Bill of Rights passed by state lawmakers earlier this year will go into effect.
“Too many Californians have lost their homes despite doing all they can to avoid foreclosure,” said Norma Garcia, senior attorney and manager of the financial services program of Consumers Union, the policy and advocacy arm of Consumer Reports. “California’s new law will help more homeowners avoid foreclosure and keep their homes. Ultimately, that will help stabilize the California’s housing market and benefit California families, communities, and our economy.”
For tips for California homeowners, see Consumers Union’s “What Borrowers Need to Know” factsheet.
California has been particularly hard hit by the foreclosure crisis. Over 900,000 foreclosures occurred in California between 2007 and 2011. Last year, 38 of the top 100 ZIP codes hit hardest by foreclosures were in California. California’s foreclosure crisis has hurt property values throughout the state and resulted in less revenue for schools, public safety, and other vital public services.
The Homeowners Bill of Rights includes a number of important protections for Californians, including:
Curbs Dual Tracking: Many homeowners lose their homes to foreclosure while they are trying to negotiate a loan modification. The law extends a provision of the National Mortgage Settlement to ensure that borrowers who submit a complete loan modification application will get an answer from the lender with an explanation for the decision before the foreclosure process can commence or be continued. Lenders must notify borrowers who do not submit an application before a Notice of Default is issued that they still have the right to apply for a loan modification. For those already in foreclosure, loan servicers must also provide additional notifications, with some exceptions. The servicer is prohibited from recording a Notice of Sale on the property until the borrower is provided with a decision on the loan modification application when one is filed by the borrower.
Requires Lenders to Provide Proper Documentation: Under the new law, a loan servicer must review reliable evidence to prove that the borrower has defaulted on the mortgage and that it has the right to foreclose on the property. This provision of the law is designed to prevent lenders from robo-signing foreclosure notices without proper documentation.
Provides Borrowers with a Single Point of Contact: Borrowers who may qualify for a loan modification must be provided with a single point of contact at the lender. The contact person must provide clear and accurate information to the borrower and help coordinate the loan modification process.
Holds Lenders Accountable: Borrowers may bring legal action against loan servicers for material violations of the law after a notice of default has been recorded. Servicers will be given the opportunity to address any violations of the law prior to a foreclosure sale. Judges may provide injunctive relief that requires the servicer to stop the foreclosure sale and correct any violations of the law and may award damages and attorneys fees for legal actions brought after a foreclosure sale.
The Homeowner Bill of Rights codifies many of the key protections negotiated by the U.S. Attorney General and 49 state Attorneys General earlier this year as part of the National Mortgage Settlement. This is significant because the National Mortgage Settlement is due to expire in 2015.
The California law also applies to all homeowners, not just those covered by the National Mortgage Settlement. And the state law applies to all lenders, not just the five major banks who agreed to the national settlement.
“California’s new law should serve as a model for the rest of the country,” said Garcia. “Homeowners in all 50 states deserve these same strong protections and more.”