Landmark Homeowner Protection Bill Passes the Legislature

foreclosure

In April, the Attorney General of California announced that a federal judge had signed off on a foreclosure settlement among banks, federal agencies and attorney generals from 49 states.

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

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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5 Comments

  1. E Roberts Musser

    I have very strong opinions about this settlement, which in my opinion is about as good as the states were going to get from the banks, but is almost toothless. I listened to a webinar on the subject given by two of the states Attorney Generals that were part of the settlement. They too saw the settlement’s limitations, altho not as many as I have objections to.

    [quote]“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.”[/quote]

    Very few homeowners are going to be helped by this legislation. Essentially homeowners cannot refinance their home unless there is enough equity in the home to ensure the bank loses no money if it has to foreclose. It won’t really help those homes that are underwater is my understanding. Those homeowners that have wrongly been foreclosed on bc of some defect/malfeasance in the way the bank handled things will receive about $2000 from this settlement, which will only pay for a retainer for a lawyer fresh out of law school starting his/her own practice.

    [quote]“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.”[/quote]

    This legislation does absolutely nothing to address the deceptive banking practices that caused the mortgage meltdown in the first place, such as option pay ARMs, redlining, lying on applications with respect to homeowners’ income, etc. All it does is clean up a few unholy practices that were going on in the foreclosure process, e.g. robosigning, which is fine. But this new legislation is only as good as enforcement, and frankly enforcement of existing laws has been abysmal, so why should the public think that enforcement of new laws is going to be any better than enforcement of existing laws?

  2. E Roberts Musser

    [quote]“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.”[/quote]

    This is just spin for political advantage (this is an indictment of both sides by the way). Californians will not have a fighting chance to save their homes unless they have enough equity in the home to make it worth the banks while. If this settlement ends up serving some homeowners, the bank will pass those costs along in the form of bank fees. So one way or the other the public is going to pay for this settlement and not the banks.

    [quote]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 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.[/quote]

    This is the heart of this legislation – it is essentially protections against malfeasance once the foreclosure had already begun. Again, I will repeat, these protections are only as good as the enforcement…

  3. Frankly

    Related to the heart of the legislation that is beneficial….

    Special assets officers are typically incentivized to reduce the size of their problem loan portfolio. These non-performing assets sit on a bank’s books and GAAP rules require them to write down the value at some point. So there is some urgency to make the liquidation transaction “real” before the accounting rules kick in.

    However, banks can also make a case for keeping an asset in liquidation work-out status if the borrower’s prospects and proposal looks reasonable.

    The problem is not so much the bank’s action dealing with these troubled assets… it is the lack of honesty and lack of business sophistication of these homeowners combined with their financial situation that is the main problem. A good borrower with real financial difficulty but with some continued means to pay something has a lot of negotiating leverage.

    Say there are two earners and one loses a job and the home value is upside down. Assuming a good payment history, these people should have a strong ability to negotiate a loan deferment and possibly a loan modification.

    However, there are so many borrowers these days feeling entitled to a loan modification just because the value of their property dropped, and ready and willing to work the system to get their way. There are other borrowers in way over their head with no means to make any reasonable level of payments, but also feeling entitled that the bank should practically give them the house. Because of so many of these people, bank employees are understandably wary and create a higher bar for good people to jump over to get support and relief.

    What these borrowers need is an advocate middleman to help them negotiate a work-out.

    If I had my way, I would locate every investment banker, mortgage specialist and realtor involved with past subprime securities gambling, predatory lending and lair loans, and force them to work community service hours as advocates helping struggling borrowers get the best deal to work-out their existing mortgage problems with the bank. At the same time, these higher food-chain crooks could identify their fellow shysters and liars on the borrowing side to determine how much space will be required in Hell once they all arrive.

  4. E Roberts Musser

    [quote]The problem is not so much the bank’s action dealing with these troubled assets… it is the lack of honesty and lack of business sophistication of these homeowners [/quote]

    [quote]At the same time, these higher food-chain crooks could identify their fellow shysters and liars on the borrowing side to determine how much space will be required in Hell once they all arrive.[/quote]

    These two statements seem to be at huge odds w each other. What I can tell you, based on the few cases that I had in this area of the law, is that the mortgage brokers involved were as crooked as a dog’s hind leg. “Common folk” generally trust their bank to give them good advice; they don’t expect to get swindled by their own bank, that they feel is supposed to be looking out for their best interests. A good bank will look out for the best interests of its customers, bc that is in the bank’s best interests. But banks have become high risk “gamblers” in the stock market; are guilty of defrauding the public; take shortcuts in the foreclosure process to save themselves money even if it screws over the public; and has now made as much borrowing “variable rate” as they can get away with. And the federal gov’t has shamelessly allowed banks to get away with all of this, even bailed them out, despite the fact that a lot of what the banks have done was against existing law.

  5. E Roberts Musser

    Also see: [url]http://xfinity.comcast.net/articles/news-general/20120705/US.Countrywide.VIP.Loans/print/[/url]

    [quote]The former Countrywide Financial Corp., whose subprime loans helped start the nation’s foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report.[/quote]

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