Finance

Homeowner Bill of Rights

PREMIER Legislation  On July 11, 2012, California Governor Jerry Brown signed the “Homeowner Bill of Rights”, another bill in a series (3) enacted to protect California homeowners during the mortgage modification and foreclosure process.

THIS BILL GOES INTO EFFECT ON JANUARY 1, 2013. The landmark law builds upon and extends reforms negotiated in the recent national mortgage settlement between 49 states and the nation’s 5 largest loan servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo.

Though similar measures to help homeowners have repeatedly failed in California over the past four years, the question is, will this one be the relief we need?

The California Homeowner Bill of Rights marks the third step in Attorney General Harris response to the crisis. The first step was to create the Mortgage Fraud Strike Force, which has been investigating and prosecuting misconduct at all stages of the mortgage process. The second step was to extract a commitment from the nation’s five largest banks of an estimated $18 billion for California borrowers. The settlement contained thoughtful reforms but are only applicable for three years, and only to loans serviced by the settling banks.

Over one million California homeowners have lost their homes to foreclosure between 2008 and 2011, and with more than 700,000 currently in the foreclosure process, one might ask why this took so long?

Seven of the Countries 10 hardest-hit cities in were in California in 2011. With question being raised why this does not take effect until 2013, when hundreds of thousands of troubled homeowners won’t benefit from these protections and servicers aren’t obligated to consider applications for loan modifications or appeals before January 1, 2013?

According to Barry Paperno of www.credit.com, Rodney K. Brown, president and CEO of the California Bankers Association, stated in a response to a recent Sacramento Bee editorial: “Our industry cannot support legislation that promotes meritless litigation, particularly in an environment where our court system is already overburdened, that will ultimately have no impact on the underlying financial condition of the borrower who cannot afford to stay in their home.” However, Brown agreed with some of the bill’s provisions, such as borrowers being entitled to an answer regarding their loan modification before being foreclosed upon and eligible loan modification applicants having a consistent point-of-contact.

Will other states follow California’s lead by enacting similar homeowner protection legislation? While perhaps a little too early to tell but the odds are looking better and better that some relief is on the horizon.

According to the State of California Department of Justice’s website (www.oag.ca.gov/hbor) the California Homeowner Bill of Rights imposes the following requirements on lenders and loan servicers:

Dual track foreclosure ban: Mortgage servicers will be required to render a decision on a loan modification application before advancing the foreclosure process by filing a notice of default or notice of sale, or by conducting a trustee’s sale. The foreclosure process is essentially paused upon the completion of a loan modification application for the duration of the lender’s review of that application.

Single point of contact: Mortgage servicers will be required to designate a “single point of contact” for borrowers who are potentially eligible for a federal or proprietary loan modification application. The single point of contact is an individual or team with knowledge of the borrower’s status and foreclosure prevention alternatives, access to decision makers, and the responsibility to coordinate the flow of documentation between borrower and mortgage servicer.

Enforceability: Borrowers will have authority to seek redress of “material” violations of the California Homeowner Bill of Rights. Injunctive relief will be available prior to a foreclosure sale and recovery of damages will be available following a sale.

Verification of documents: The recording and filing of multiple unverified documents will be subject to a civil penalty of up to $7,500 per loan in an action brought by a civil prosecutor. Enforcement will also be allowed under a violator’s licensing statute by the Department of Corporations, Department of Real Estate or Department of Financial Institution.

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