Legal Update


  • July 30th, 2012
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In July 2012, the California legislature passed into law, the Homeowner Bill of Rights (SB 900) to help struggling homeowners by providing safeguards in the loan modification, short sale and foreclosure processes.

Effective Date:  The new law goes into effect on January 1, 2013.

Applicability:  This law applies to first deeds of trust secured by owner occupied, one to four residential units.  A borrower under this law must generally be a natural person and eligible for a foreclosure alternative prevention program (i.e. loan modification or short sale) offered by the mortgage servicer.

Exclusions:  This law does not apply to junior liens, only to first deeds of trust.  It does not apply to someone who has filed bankruptcy, surrendered the secured property, or contracted with an organization primarily engaged in the business of extending the foreclosure process.  Smaller banks are excluded from many of the provisions.

Single Point of Contact:  Upon request of a borrower, the mortgage servicer must promptly provide a direct means of communication with a single point of contact (i.e. an individual or team) for a foreclosure prevention alternative.

Protection During Short Sale 

A mortgage servicer or lender cannot record a notice of default or notice of sale, or conduct a trustee sale, and must cancel any pending trustee sale, if a foreclosure prevention alternative, i.e. short sale,  has been approved in writing by all parties and proof of funds or financing has been provided.

Protection During Foreclosure

A mortgage servicer cannot record a notice of default for a nonjudicial foreclosure until the mortgage servicer informs the borrower of the borrower’s right to loan documentation including a copy of the promissory note, deed of trust, payment history and any assignment of loan which would demonstrate mortgage servicer’s right to foreclose.

Within 5 business days after recording a notice of default, a mortgage servicer must generally send a written notice to the borrower on how to apply for the mortgage servicer’s foreclosure prevention alternatives, if any.

Whenever a trustee sale is postponed for at least 10 business days, the lender or authorized agent must provide written notice of the new sale date and time to the borrower within 5 business days after the postponement.   Failure to comply will not invalidate trustee sale.

Protection During Loan Modification.  

 A mortgage servicer or lender cannot collect late fees or record a notice of default or notice of sale, or conduct a trustee’s sale, if the borrower’s complete application for a first lien loan modification is pending, or if the borrower is in compliance with the terms of a written trial or permanent loan modification, forbearance, or repayment plan.

A mortgage servicer must provide written acknowledgment of receipt within five business days of a borrower’s submission of a first lien modification application.

If a loan modification is denied, a mortgage servicer must send a written notice to the borrower with reasons for the denial.  Borrower has 30 days to appeal the denial during which the lender may not commence foreclosure.

Any written approval for a foreclosure prevention alternative shall be honored by a subsequent mortgage servicer in the event the borrower’s loan is transferred or sold.

Enforcement:  A borrower may bring a private right of action to enjoin or stop a trustee’s sale until the mortgage servicer has corrected certain material violations of this law. After a sale the borrower may recover actual damages plus treble damages. Prevailing borrower may also recover attorney fees.

Full text of the law: