The attorney general identified deceptive practices regarding loan modifications, foreclosures occurring due to the servicer’s failure to properly process paperwork, and the use of incomplete paperwork to process foreclosures in both judicial and non-judicial foreclosure cases.
These allegations focused on: Unfair, deceptive and unlawful servicing process; Unfair, deceptive, and unlawful loan modification and loss mitigation processes; Wrongful conduct related to foreclosures; Unfair and deceptive origination practices; and Violations of the Servicemembers Civil Relief Act.
On Monday, the legislature passed critical legislation that will “provide first of their kind protections for homeowners and reforms to the mortgage and foreclosure process,” and will now be sent to the desk of Governor Jerry Brown for consideration. The bills were approved 53 to 25 in the Assembly and 25 to 13 in the Senate.
“This was a tremendous accomplishment for every Californian who’s still facing the prospects of foreclosure,” Speaker John Perez said at a press conference Monday afternoon. “Under a package approved by the legislature today, California’s homeowners will have the ability to work with lenders to seek modifications to their loans that will allow them to stay in their home and avoid foreclosure.”
“We go further by eliminating some of the worst abuses of the financial industry that have helped to cause the worst economic crisis in generations,” he added.
“Passing these key elements of Homeowner Bill of Rights represents a significant step forward for struggling homeowners,” said Attorney General Harris. “These common-sense reforms will require banks to treat California homeowners more fairly and bring more transparency and accountability to their practices in our state. Responsible homeowners will have a better shot to keep their homes.”
“We gave those families some promise that they can be in a system that allows them a fair opportunity to be the responsible homeowners that they want to be, so that they can keep that home and the shelter where they raised their children, that place where they expect to retire and to live with dignity,” said Attorney General Harris.
“Californians will finally have a fighting chance to keep their homes, as this measure brings fairness to the loan modification and foreclosure process,” said Senate President pro Tem Darrell Steinberg. “At the same time, the protection gained by homeowners will help stabilize the housing sector of our economy. I applaud my colleagues for their hard work to protect consumers through this reasoned compromise.”
“The package approved by the Legislature today is a major victory for California’s consumers,” said Speaker Pérez. “We impose tough new regulations on banks and lenders to stop the abusive practices we’ve seen since the collapse of the housing market, and this package will bring relief to hundreds of thousands of California homeowners.”
“I think that this legislation is going to be a catalyst for a change across the country,” said Assemblymember Mike Feuer added.
Assemblymember Feuer was a member of the committee that drafted the bill. He continued, “Because now every resident of every state is going to demand of their elected officials the same protections that we’re delivering for Californians today.”
While Democrats celebrated work that they believe will go a long way toward easing the burden on homeowners and stemming the tide of foreclosures, Republicans were more circumspect.
“This will be a field day for the trial attorneys,” said Senator Doug LaMalfa. “That doesn’t serve homeowners. That doesn’t serve regenerating the housing market. It doesn’t help.”
“There are worse things in the world than losing your home,” Assemblymember Tim Donnelly said. “I know that sounds tough. But it isn’t government’s responsibility to guarantee that everyone has a home. That is not the American dream.”
Meanwhile, the legislation awaits the signature of Governor Brown. The governor issued a statement but did not commit to the legislation.
He said, “The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages. This legislation establishes important consumer protections that are long overdue and I commend Attorney General Kamala Harris for her determined pursuit of these changes.”
The California Homeowner Bill of Rights consists of a series of related bills, including two that were passed on June 26 by a two-house conference committee.
The two identical bills passed by the conference committee contain key elements of the legislative package and provide protections for borrowers and struggling homeowners, including a restriction on dual-track foreclosures, where a lender forecloses on a borrower despite being in discussions over a loan modification to save the home.
The bills also guarantee struggling homeowners a single point of contact at their lender, a contact with knowledge of their loan and direct access to decision makers.
According to a press release, “For the first time, the Homeowner Bill of Rights imposes civil penalties, of up to $7,500, on the repeated filing of foreclosure documents without verifying their accuracy, a practice commonly known as ‘robo-signing.’ “
In addition, homeowners may require loan servicers to document their right to foreclose.
Homeowners will also have a clearly-defined right to access the courts to protect themselves from violations of these protections.
The Homeowner Bill of Rights also consists of four bills outside the conference committee process.
These will enhance law enforcement responses to mortgage and foreclosure-related crime, in part by empowering the Attorney General to call a grand jury in response to financial crimes spanning multiple jurisdictions.
Additional elements will help communities fight blight related to foreclosure, and the crime that results, and provide enhanced protections for tenants in foreclosed homes.
There are four critical elements to the legislation.
The legislation would ban a dual track foreclosure by requiring “a mortgage servicer 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.”
Second, it would provide a single point of contact for borrowers who are potentially eligible for a federal or proprietary loan modification application. According to an information sheet, “The single point of contact is an individual or team which must have 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.”
Third, it would be enforceable by including “authority for borrowers to seek redress of ‘material’ violations of the legislation. Injunctive relief would be available prior to a foreclosure sale and recovery of damages would be available following a sale.”
Finally, “The legislation would subject the recording and filing of multiple unverified documents to a civil penalty of up to $7,500 per loan in an action brought by a civil prosecutor. It would also allow enforcement under a violator’s licensing statute by the Department of Corporations, Department of Real Estate or Department of Financial Institutions.”
Other legislation would help to combat the blight and crime associated with foreclosed properties.
As Senate analysis argues, “Foreclosures blight neighborhoods, put financial pressure on families and drive down local real estate values, and consumers, made more cautious by a crippled housing market, spend less freely, curbing the economy’s growth.”
They add, “Distressed borrowers are certainly among the hardest hit. But as communities across the country know all too well, families that lose their homes are not the only victims of foreclosures. Even homeowners who have never missed a payment on their loans have suffered as ‘spillover’ costs extend throughout the neighborhood and the larger community.”
—David M. Greenwald reporting